DJIA Makes Another All-Time High on More Economic Optimism, Lower Inflation, Positive Fed Comments

Indices
S&P 500 1,438.24 +.66%
DJIA 12,621.69 +.79%
NASDAQ 2,463.93 +.62%
Russell 2000 800.34 +.30%
Wilshire 5000 14,471.77 +.64%
Russell 1000 Growth 567.64 +.80%
Russell 1000 Value 826.90 +.57%
Morgan Stanley Consumer 708.95 +.49%
Morgan Stanley Cyclical 932.40 +1.17%
Morgan Stanley Technology 565.93 +.23%
Transports 4,916.82 +2.69%
Utilities 454.54 +.21%
Put/Call .79 -14.13%
NYSE Arms .82 -13.11%
Volatility(VIX) 10.42 -4.93%
ISE Sentiment 122.0 -26.06%
US Dollar 84.60 -.46%
CRB 301.22 +.98%

Futures Spot Prices
Crude Oil 57.90 +1.63%
Reformulated Gasoline 150.09 -1.34%
Natural Gas 7.67 -.90%
Heating Oil 167.35 +1.68%
Gold 658.20 +1.23%
Base Metals 225.99 -.34%
Copper 259.25 +1.21%
10-year US Treasury Yield 4.81% -1.30%

Leading Sectors
Homebuilders +2.87%
I-Banks +1.58%
Retail +1.38%

Lagging Sectors
Alternative Energy -.21%
Insurance -.33%
Networking -1.86%

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Afternoon Recommendations
Oppenheimer:
- Rated (PFCB) Buy, target $53.

Afternoon/Evening Headlines
Bloomberg:
- The DJIA, Russell 2000 and S&P 400 all made new all-time highs today.
- Bank of America(BAC) CEO Ken Lewis squelched speculation his company might buy Countrywide Financial Corp.(CFC), signaling that he wants to build the bank’s mortgage business without a takeover or joint venture.
- Dell Inc.(DELL) Chairman and founder Michael Dell replaced Kevin Rollins as CEO and said fourth-quarter results will miss analysts’ estimates. The stock is rising 4.5% in after-hours.
- Starbucks Corp.(SBUX) said first-quarter profit rose 18%, meeting analysts’ estimates, as consumers spent more for holiday drinks such as peppermint mocha. The stock is rising 2% after-hours.
- Treasuries rose the most in about a month after the Federal Reserve kept borrowing costs steady, saying price increases have moderated.
- Google(GOOG) said fourth-quarter profit more than doubled as the company expanded its lead over Yahoo!(YHOO) and sold more advertising outside the US. The stock is trading down 2.4% after-hours.
- Corn and soybean prices fell, reversing earlier gains, on speculation southern US farmers will plant less cotton and more corn and soybeans under a farm bill proposal.
- The US is in “better shape” for the summer driving season this year and for the demands of supplying and distributing gasoline additives, such as ethanol, Energy Secretary Samuel Bodman said.
- Gilead Sciences(GILD), the world’s second-biggest maker of HIV drugs, had a fourth-quarter loss on acquisition costs that outweighed record sales of its medicines. The stock is surging 5% in after-hours.
- Five suspicious devices found in various locations around Boston today weren’t dangerous, WCVB-TV Channel 5 Boston said, citing Mayor Thomas Menino.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Biotech longs, Telecom longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector rose and volume was above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was bullish as the major averages and breadth are finished near session highs. The 10-year yield finished at session lows, reversing 8 basis points lower from session highs. The US dollar finished near session lows on the more-dovish-than-expected FOMC policy statement. This helped boost oil $1.17. Homebuilders outperformed substantially, rising another 3.04%. The (HGX) has now rocketed 30.5% from last year's lows. I continue to believe the many bears will do another argument switcheroo, in hopes of keeping the public excessively bearish over the coming months, from the “housing collapse” to a “return of inflation.”

Stocks Soaring to Records into Final Hour on Positive Economic Data and Constructive Fed Comments

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Internet longs, Biotech longs and Medical longs. I covered my (IWM) and (QQQQ) hedges into this morning’s weakness, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is above average. Overall, the Fed’s statements were more dovish than the market expected. The major averages are rallying sharply with bonds. Google (GOOG) is trading 2.0% higher today, near session highs. Maybe Google will really report a disappointing quarter, but I suspect that the company will post excellent results. I also expect the many bears to attack the company vigorously as Google was recently ranked the No. 1 most recognized brand in the world. It is a high-profile U.S. growth company, much like Apple (AAPL), that has the potential to help turn the bearish public bullish on U.S. stocks. I have said numerous times, it is very important for the bears to keep the general public excessively pessimistic on U.S. stocks. It is all that stands between them and the "mother of all short-covering rallies," in my opinion. I remain long Google and Apple. I expect US stocks to trade mixed-to-higher into the close from current levels on more economic optimism, bargain-hunting, short-covering and lower long-term rates.

Today's Headlines

Bloomberg:
- The DJIA, Russell 2000 and S&P 400 are all hitting all-time highs today on strong a strong GDP report, decelerating inflation and constructive Federal Reserve comments.
- The Federal Reserve kept the benchmark US interest rate at 5.25% and acknowledge the economy is picking up after a slowdown last year.
- Carl Icahn, the billionaire shareholder activist seeking a seat on the board of Motorola Inc.(MOT), plans to pressure the mobile-phone maker to return more cash to investors by buying back stock.
- Boeing(BA) said fourth-quarter profit doubled on increased deliveries and Airbus SAS’s failure to produce new models.
- The International Monetary Fund should sell some gold to cover losses, said an advisory panel that includes former Fed Chairman Greenspan and European Central Bank President Jean-Claude Trichet.
- Logitech Intl(LOGI), the biggest maker of computer mice, is the company most likely to join the Nasdaq-100 Index after Comverse Technology is delisted, Lehman Brothers said.
- Exxon Mobil(XOM), Royal Dutch Shell and BP Plc may report fourth-quarter earnings fell, the first time the world’s three largest oil companies all reported a decline since mid-2002.
- The US Treasury said it may scrap its three-year note before the end of the year as the improving budget deficit reduces borrowing needs.
- R. Hunter Biden, a Washington lobbyist and son of US democratic presidential hopeful Senator Joe Biden, fraudulently excluded a partner form the purchase of a hedge-fund investment firm, the partner claims in a lawsuit.

Wall Street Journal:
- Microsoft Corp.(MSFT) dislodged Johnson & Johnson(JNJ) from the top spot in this year’s Harris Interactive/Wall Street Journal ranking of 60 big companies in terms of their reputations.

NY Times:
- Yahoo! Inc.(YHOO) is planning to create individual Web sites for about 100 online entertainment destinations for individual movies, television shows, bands, celebrities and other types of entertainment.

USA Today:
- US states that are reporting their largest budget surpluses and highest reserve-fund levels since 2000 may use that extra money to cut business taxes to lure companies.

Financial Times:
- China’s stock market shows signs of a “bubble”, quoting Cheng Siwei, vice chairman of the National People’s Congress. “Every investor thinks they can win. But many will end up losing,” Cheng said.

Al-Alam Al-Yom:
- Egypt may set up oil exploration companies and sell their shares to smaller investors, citing the country’s petroleum minister.

US Economic Growth Surges Back to Above-Average Rates, Inflation Decelerates Further, Consumption Healthy, Chicago PMI Contracts, Construction Muted

- Advance 4Q GDP rose 3.5% versus estimates of a 3.0% gain and a 2.0% rise in 3Q.
- Advance 4Q Personal Consumption rose 4.4% versus estimates of a 4.4% gain and a 2.8% rise in 3Q.
- Advance 4Q GDP Price Index rose 1.5% versus estimates of a 1.5% increase and a 1.9% gain in 3Q.
- The 4Q Employment Cost Index rose .8% versus estimates of a 1.0% gain and a 1.0% increase in 3Q.
- The Chicago Purchasing Manager for January fell to 48.8 versus estimates of 52.0 and a downwardly revised reading of 51.6 in December.
- Construction spending for December fell .4% versus estimates of unch. and an upwardly revised .1% gain in November.

BOTTOM LINE: The US economy grew at a faster-than-forecast annual pace of 3.5% last quarter, propelled by a rebound in consumer spending as gasoline prices fell and wages grew, Bloomberg said. The US economy grew an above-average 3.4% for all of 2006. The GDP Price Index rose at an annual rate of 1.5%, the smallest gain in more than 3 years, suggesting inflation is well contained, notwithstanding above-average growth. Consumer spending, which accounts for 70% of US economic growth, rose 4.4% last quarter versus a 2.8% increase the prior quarter. A smaller trade deficit also boosted growth as it added 1.6 percentage points to GDP, the most in 10 years. Inventory de-stocking subtracted .7 percentage points from growth. I believe U.S. GDP growth averages 3.0% this year as housing and auto-related weakness subsides and the deflator subtracts less from nominal growth as inflation continues to decelerate.

The Chicago Purchasing Manager Index unexpectedly contracted for the first time since April 2003 as new orders fell, Bloomberg reported. A gauge of order backlogs rose to 46.4 versus 44.5 in December. As well, the production index rose to 53.2 from 49.7 the prior month. The employment component of the index fell to 42.8 from 48.2 prior. The prices paid component fell to 54.9 from 56.9 prior. I continue to believe manufacturing will trend higher throughout the year as the effects of auto production and housing subside.

Construction spending in the US fell in December, Bloomberg reported. Private residential building fell 1.6%, the ninth straight decrease. Private non-residential construction rose .9% in December and surged 14.5% from year-ago levels. Homebuilding construction will remain muted throughout the year. This will result is a dramatic decline in housing inventories as demand is still relatively healthy.

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