Stocks Finish Higher, Led by Financials

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Jobless Claims Below Estimates

- Initial Jobless Claims for last week rose to 319K versus estimates of 325K and a downwardly revised 315K the prior week.

- Continuing Claims fell to 2585K versus estimates of 2580K and a downwardly revised 2591K prior.

BOTTOM LINE: First-time jobless claims in the US rose less than forecast last week, signaling firings aren’t accelerating, Bloomberg reported. The four-week moving-average of claims fell to 324,000 versus 325,000 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a relatively low 2%. I continue to believe the labor market, while loosening modestly in the near-term, will remain healthy over the intermediate-term as companies gain confidence in the sustainability of the current expansion.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- General Motors(GM) rose in extended trading after Citi Investment Research said the stock may almost double should the biggest US automaker win concessions from the United Auto Workers union.
- PetroChina Co., the nation’s largest oil producer, fell in Hong Kong trading after Warren Buffett’s Berkshire Hathaway(BRK/A) reduced its stake.
- China’s industrial-output growth slowed for a second month after cuts to export incentives.

Wall Street Journal:
- Ron Gettelfinger, president of the United Auto Workers, may agree to a union-managed health-care fund to let US-based automakers shed costs. General Motors(GM), Ford(F) and Chrysler LLC could potentially save $95 billion in costs if such a deal were arranged.
- Bill Gross’s PIMCO plans to start a $2 billion distressed debt fund. The PIMCO Distressed Mortgage Fund will invest in mortgage-backed securities, asset-backed securities and collateralized-debt obligations.

MarketWatch.com:
- Cisco Systems Inc.(CSCO) CEO Chambers offered his services as a pitchman for virtualization Wednesday, touting the red-hot technology as a means to foster a second Internet boom to echo the heady days of the 1990s.

NY Times:
- European Carmakers Bet That the US Is Ready for Diesel.

CNNMoney.com:
- Lamborghini unveils $1.4 million supercar.
- Refi rescue. And potentially some tax help, too. Here are breaks that borrowers in a pickle may receive in the next few months.
- Here are 47 smart ways to get on track to a rich life.

Financial Times:
- China, India and Russia top the list of the world’s most polluted places, a study of global pollution found on Wednesday.

China Daily:
- China’s birth-defect rate is triple that of developed nations, citing Li Zhu, director of the National Center for Maternity and Infant Health.

Late Buy/Sell Recommendations
Citigroup:
- We believe that Back-to-School sales are off to a strong start, driven primarily by growth in consumer electronics and solid apparel sales. The NRF expects Back-to-School spending to increase 6.9% this year to $563.49 for the average household with school-age children(K-12). For families with college-bound students, the NRF predicts average household spending will increase 8.7% to $956.93 per household. Consumer electronics should demonstrate the largest sales increase this year, with households spending 13% more on electronics than last year, according to the NRF. Electronics, such as cell phones and MP3 players, have become fashion accessories that are just as important as the rest of the ensemble.
- Reiterated Buy on (MCD), target $56.
- Reiterated Buy on (EBAY), target $41.
- Reiterated Buy on (NKE), target $65.

Pacific Growth:
- Rated (EMC) Buy.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 futures -.19%.
NASDAQ 100 futures -.09%.

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Earnings of Note
Company/EPS Estimate
- (DBD)/.33
- (PLL)/.40
- (RVI)/-.14

Upcoming Splits
- (LABL) 3-for-2

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated at 325K versus 318K the prior week.
- Continuing Claims are estimated at 2580K versus 2598K prior.

2:00 pm EST
- The Monthly Budget Deficit for August is estimated to widen to -$85.0 billion versus -$64.7 billion in July.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Slightly Lower on Rising Apprehension Ahead of Fed

Indices
S&P 500 1,471.56 unch.
DJIA 13,291.65 -.13%
NASDAQ 2,592.07 -.21%
Russell 2000 777.90 -.56%
Wilshire 5000 14,765.77 -.04%
Russell 1000 Growth 594.09 -.09%
Russell 1000 Value 822.07 +.10%
Morgan Stanley Consumer 713.42 +.09%
Morgan Stanley Cyclical 996.76 -.50%
Morgan Stanley Technology 642.46 -.14%
Transports 4,737.86 -.76%
Utilities 493.24 +.23%
MSCI Emerging Markets 135.03 +.24%

Sentiment/Internals
Total Put/Call .85 -16.67%
NYSE Arms .82 +68.29%
Volatility(VIX) 24.96 -1.23%
ISE Sentiment 133.0 +23.15%

Futures Spot Prices
Crude Oil 79.71 +1.89%
Reformulated Gasoline 201.25 +1.58%
Natural Gas 6.43 +8.32%
Heating Oil 221.48 +1.47%
Gold 720.80 -.04%
Base Metals 230.14 +.25%
Copper 336.0 -.81%

Economy
10-year US Treasury Yield 4.40% +4 basis points
US Dollar 79.37 -.42%
CRB Index 321.19 +1.33%

Leading Sectors
Gaming +1.57%
HMOs +1.32%
Engineering & Construction +1.11%

Lagging Sectors
Alternative Energy -1.41%
Semis -2.32%
Airlines -2.75%

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Afternoon Recommendations
Bank of America:
- Rated (ATHR) and (BRCM) Buy.

Citigroup:
- Rated (LEA) Buy, target $39.
- Rated (GM) Buy, target $41.
- Rated (TEN) Sell, target $27.

Afternoon/Evening Headlines
Bloomberg:
- The US and European asset-backed commercial paper market is showing signs of improving following a month-long slide, according to traders and issuers who met today.
- Total assets of US money market mutual funds rose to another all-time high of $2.78 trillion this week.
- Steven Freiberg, head of Citigroup’s(C) North America consumer business, said the company’s sub-prime loan loss rate declined in the second quarter because it underwrites and collects its own loans.
- AmeriCredit Corp.(ACF), which lends to car buyers with poor credit histories, rose almost 10% on the NYSE after it priced $1 billion in asset-backed securities, including sub-prime car loans.
- Overnight yields on US asset-backed commercial paper market fell by the most in almost three years today as Moody’s Investors Service said bank issuers will be able to “ride out” the disruption in credit markets.
- Sugar fell after Brazil said output will rise more than expected this year, widening a global surplus, and as investors speculated demand for cane-based ethanol is declining.
- Copper fell after workers called off a strike in Peru, easing concern that labor unrest would cut mine production.
- Crude oil rose to a record $80.18 a barrel in NY after supplies fell from multi-year highs and refiners unexpectedly cut production.
- McDonald’s, the world’s largest restaurant company, boosted its annual dividend by 50% after coming under pressure from activist investor William Ackman to increase returns for shareholders.

CNNMoney.com:
- Google sites topped the July comScore Video Metrix rankings, with 27% online video market share.

CNBC:
- Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co. said he eventually sees the federal funds rate “somewhere in the 3% categoary.”

Daily Mail:
- Cadbury Trebor Basset and Mars Inc. said they will remove artificial additives from sweets, including Skittles and M&Ms, after research found harmful effects in children.

Nikkei English News:
- Japan’s government will cut is view of the general economy for the first time in 10 months, while maintaining its assessment that a broader recovery is expected to continue.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Retail 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 slightly negative today as the advance/decline line finished mildly lower, sector performance was mostly positive and volume was below average. Measures of investor anxiety were slightly above-average into the close. Today's overall market action was slightly bearish. There was some late-day selling in semis that appeared to help pressure the broad market. The 10-year yield bounced 3 basis points, however, the U.S. dollar finished another 0.42% lower, and cyclicals and small-caps underperformed, which are signs that investors are still worrying about growth slowing too much, notwithstanding Fed rate cuts. Oil is near $80 per barrel, however, it is interesting to note that the much-loved oil service sector barely rose today. I suspect another low-volume consolidation day is likely again tomorrow ahead of Friday’s economic data, next week’s earnings reports and the Fed meeting.