Indices
S&P 500 1,144.11 -.69%
Dow 10,619.03 -.70%
NASDAQ 2,037.93 -1.72%
Russell 2000 579.89 -2.17%
Wilshire 5000 11,143.58 -.85%
Volatility(VIX) 16.04 +4.77%
AAII Bullish % 56.45 +.62%
US Dollar 87.24 +2.37%
CRB 264.25 -.28%
Futures Spot Prices
Gold 398.00 -3.84%
Crude Oil 34.26 +2.58%
Natural Gas 5.19 -4.8%
Base Metals 112.02 +2.25%
10-year US Treasury Yield 4.09% +1.24%
Average 30-year Mortgage Rate 5.58% -1.41%
Leading Sectors
Fashion +2.53%
Papers +1.89%
HMO's +1.51%
Lagging Sectors
Telecom -2.74%
Disk Drives -3.23%
Networking -3.8%
*% Gain or loss for the week
Saturday, February 21, 2004
Friday, February 20, 2004
Friday Close
S&P 500 1,144.11-.26%
NASDAQ 2,037.93-.39%
Leading Sectors
Food+.17%
Tobacco+.11%
Oil Service+.05%
Lagging Sectors
Homebuilders-1.66%
Iron/Steel-2.00%
Networking-2.01%
Other
Crude Oil 34.26-1.10%
Natural Gas 5.19-.80%
Gold 398.00-3.00%
Base Metals 112.02-.8%
U.S. Dollar 87.15+1.5%
10-Yr. Long-Bond Yield 4.09%+1.53%
VIX 16.04+1.52%
Put/Call .86+28.4%
NYSE Arms 1.49+53.6%
After-hours Movers
None of Note
After-hours News
The U.S. markets ended down modestly after a late-day surge on positive comments from members of the Federal Reserve. This surge came on the heels of an intense mid-day sell-off on inflation fears. Later in the afternoon, Alan Greenspan said outsourcing hasn't hurt the U.S. economy and he sees employment rising "more quickly" before long. He also said protectionism won't save jobs and that demand is declining for low-skilled labor. The Fed's Bernanke said high energy costs will eventually hurt GDP growth if they persist and that hiring will strengthen this year on substantial U.S. growth and low inflation. Texas became the 4th state to report a case of bird flu this month. CNBC says the current unemployment rate of 5.6% is lower than the avg. unemployment rate for any 10-yr. period during the last three decades. CNBC also said that the NASDAQ is up 95% in the last 15 months, the 4th best cyclical move on record. Rumors are flying that Ralph Nadar will make an announcement soon that he plans to run for President.
BOTTOM LINE: I covered a few profitable shorts during the late afternoon rally, taking the Portfolio's market exposure back to market neutral. The volatility caused by option expiration likely masked underlying weakness that will resurface sometime next week. My short-term indicators continue to give a sell signal for the NASDAQ and are close to giving a sell for the S&P 500, as well. Thus, I will keep the Portfolio's market exposure close to market neutral, as I expect a continuation of the recent weakness in the short-term.
NASDAQ 2,037.93-.39%
Leading Sectors
Food+.17%
Tobacco+.11%
Oil Service+.05%
Lagging Sectors
Homebuilders-1.66%
Iron/Steel-2.00%
Networking-2.01%
Other
Crude Oil 34.26-1.10%
Natural Gas 5.19-.80%
Gold 398.00-3.00%
Base Metals 112.02-.8%
U.S. Dollar 87.15+1.5%
10-Yr. Long-Bond Yield 4.09%+1.53%
VIX 16.04+1.52%
Put/Call .86+28.4%
NYSE Arms 1.49+53.6%
After-hours Movers
None of Note
After-hours News
The U.S. markets ended down modestly after a late-day surge on positive comments from members of the Federal Reserve. This surge came on the heels of an intense mid-day sell-off on inflation fears. Later in the afternoon, Alan Greenspan said outsourcing hasn't hurt the U.S. economy and he sees employment rising "more quickly" before long. He also said protectionism won't save jobs and that demand is declining for low-skilled labor. The Fed's Bernanke said high energy costs will eventually hurt GDP growth if they persist and that hiring will strengthen this year on substantial U.S. growth and low inflation. Texas became the 4th state to report a case of bird flu this month. CNBC says the current unemployment rate of 5.6% is lower than the avg. unemployment rate for any 10-yr. period during the last three decades. CNBC also said that the NASDAQ is up 95% in the last 15 months, the 4th best cyclical move on record. Rumors are flying that Ralph Nadar will make an announcement soon that he plans to run for President.
BOTTOM LINE: I covered a few profitable shorts during the late afternoon rally, taking the Portfolio's market exposure back to market neutral. The volatility caused by option expiration likely masked underlying weakness that will resurface sometime next week. My short-term indicators continue to give a sell signal for the NASDAQ and are close to giving a sell for the S&P 500, as well. Thus, I will keep the Portfolio's market exposure close to market neutral, as I expect a continuation of the recent weakness in the short-term.
Mid-day Update
S&P 500 1,142.25-.44%
NASDAQ 2,028.62-.85%
Leading Sectors
Tobacco+.14%
Food+.01%
Energy-.09%
Lagging Sectors
Disk Drives-1.92%
Iron/Steel-2.7%
Networking-2.85%
Other
Crude Oil 35.47-1.47%
Natural Gas 5.18-1.05%
Gold 399.50-2.63%
Base Metals 111.94-.87%
U.S. Dollar 87.11+1.47%
10-Yr. Long-Bond Yield 4.09%+1.38%
VIX 16.31+3.23%
Put/Call 1.0+49.2%
NYSE Arms 1.72+77.3%
Market Movers
BEAS+4.5% on better-than-expected 4Q and multiple upgrades.
TASR+6.9% on positive reception from investor conference.
BCSI+16.5% on very strong 3Q report, significantly above expectations.
CEGE+12.1% on optimism over lung cancer vaccine.
VAPH+25% on 3-for-1 split announcement.
KVHI-10.8% on 4Q report below expectations.
UVN-4.8% on weak 1Q guidance.
Recommendations
Morgan Stanley says demand for semis in Asia is stronger than seasonal in 1Q, capital spending plans are conservative. MS also says JWN had best 4Q margin performance in 10 years. MS raising price target on UTX to $110 from $100. 9 of 14 insurance companies that MS follows beat 4Q expectations by a significant margin. Goldman Sachs believes the U.S. Treasury yield curve will flatten in 04, benefiting ALL, AIG, C, MWD and STT. This would hurt FTN, NCC, JP, NFB and FNM. GS would buy HPQ at current levels. GS positive on newspaper stocks in 04. GS also like JWN, saying it is in the early stages of a dramatic systems-enhanced turnaround. Finally, GS raised WMT to "Outperform" from "In-line." Smith Barney says to switch from Copper to Aluminum stocks. Likes AA and AL. SB also likes CCI on significantly better-than-expected earnings. SB also positive on WMT, saying it will benefit from improved apparel offerings and tax cut spending. TheStreet.com is negative on RMBS, saying INTC will use a new standard for memory that relies on a technology different than that offered by RMBS. MU was cut to "Neutral" at CSFB. BEAS raised to "Buy 2" at UBS.
Economic Data
Consumer Price Index rose .5% vs. .2% last month.
CPI Ex Food and Energy rose .2% vs. .1% last month.
Mid-day News
U.S. stocks fell as comments from Hewlett Packard about computer-industry growth, higher-than-expected inflation readings, options expiration and plain profit-taking weighed on shares. AMG Data reporting Equity funds had net cash inflows of $3.6B for the week ended February 18. TXN announced 21M share buyback. Morgan Stanley says that 87.5% of the S&P 500 either met or beat earnings expectations in 4Q, only 12.5% disappointed. Earnings growth was 27.8% on avg. 78% of information tech companies surprised on the up-side with 54.3% average earnings growth. Japan raised its terror alert to the highest level. The Fed's Poole said slowing rates of productivity growth combined with strong economic growth should lead to "substantial gains" in payroll employment growth in 04. President Bush named FDA commissioner Mark McClellan to lead Medicare, as it rolls out expanded prescription drug coverage for seniors.
BOTTOM LINE: The market was looking for a reason to decline today and the CPI report was the catalyst. This report resulted in an increase in the U.S. dollar, interest rates and worries that the Fed was getting behind the curve on inflation. With base metal and energy prices soaring on US/Chinese demand, the Fed may have to raise rates sooner rather than later. I added a few more shorts on the open and the Portfolio is now 20% net short. The put/call and trin readings are at levels that suggest we are getting close to a short-term bottom. I may take some profits in a few of my better shorts on the close. If the U.S. dollar continues to rally next week, we may get the first 5%+ correction in the S&P in over a year, as a rising dollar hurts U.S. multi-nationals.
NASDAQ 2,028.62-.85%
Leading Sectors
Tobacco+.14%
Food+.01%
Energy-.09%
Lagging Sectors
Disk Drives-1.92%
Iron/Steel-2.7%
Networking-2.85%
Other
Crude Oil 35.47-1.47%
Natural Gas 5.18-1.05%
Gold 399.50-2.63%
Base Metals 111.94-.87%
U.S. Dollar 87.11+1.47%
10-Yr. Long-Bond Yield 4.09%+1.38%
VIX 16.31+3.23%
Put/Call 1.0+49.2%
NYSE Arms 1.72+77.3%
Market Movers
BEAS+4.5% on better-than-expected 4Q and multiple upgrades.
TASR+6.9% on positive reception from investor conference.
BCSI+16.5% on very strong 3Q report, significantly above expectations.
CEGE+12.1% on optimism over lung cancer vaccine.
VAPH+25% on 3-for-1 split announcement.
KVHI-10.8% on 4Q report below expectations.
UVN-4.8% on weak 1Q guidance.
Recommendations
Morgan Stanley says demand for semis in Asia is stronger than seasonal in 1Q, capital spending plans are conservative. MS also says JWN had best 4Q margin performance in 10 years. MS raising price target on UTX to $110 from $100. 9 of 14 insurance companies that MS follows beat 4Q expectations by a significant margin. Goldman Sachs believes the U.S. Treasury yield curve will flatten in 04, benefiting ALL, AIG, C, MWD and STT. This would hurt FTN, NCC, JP, NFB and FNM. GS would buy HPQ at current levels. GS positive on newspaper stocks in 04. GS also like JWN, saying it is in the early stages of a dramatic systems-enhanced turnaround. Finally, GS raised WMT to "Outperform" from "In-line." Smith Barney says to switch from Copper to Aluminum stocks. Likes AA and AL. SB also likes CCI on significantly better-than-expected earnings. SB also positive on WMT, saying it will benefit from improved apparel offerings and tax cut spending. TheStreet.com is negative on RMBS, saying INTC will use a new standard for memory that relies on a technology different than that offered by RMBS. MU was cut to "Neutral" at CSFB. BEAS raised to "Buy 2" at UBS.
Economic Data
Consumer Price Index rose .5% vs. .2% last month.
CPI Ex Food and Energy rose .2% vs. .1% last month.
Mid-day News
U.S. stocks fell as comments from Hewlett Packard about computer-industry growth, higher-than-expected inflation readings, options expiration and plain profit-taking weighed on shares. AMG Data reporting Equity funds had net cash inflows of $3.6B for the week ended February 18. TXN announced 21M share buyback. Morgan Stanley says that 87.5% of the S&P 500 either met or beat earnings expectations in 4Q, only 12.5% disappointed. Earnings growth was 27.8% on avg. 78% of information tech companies surprised on the up-side with 54.3% average earnings growth. Japan raised its terror alert to the highest level. The Fed's Poole said slowing rates of productivity growth combined with strong economic growth should lead to "substantial gains" in payroll employment growth in 04. President Bush named FDA commissioner Mark McClellan to lead Medicare, as it rolls out expanded prescription drug coverage for seniors.
BOTTOM LINE: The market was looking for a reason to decline today and the CPI report was the catalyst. This report resulted in an increase in the U.S. dollar, interest rates and worries that the Fed was getting behind the curve on inflation. With base metal and energy prices soaring on US/Chinese demand, the Fed may have to raise rates sooner rather than later. I added a few more shorts on the open and the Portfolio is now 20% net short. The put/call and trin readings are at levels that suggest we are getting close to a short-term bottom. I may take some profits in a few of my better shorts on the close. If the U.S. dollar continues to rally next week, we may get the first 5%+ correction in the S&P in over a year, as a rising dollar hurts U.S. multi-nationals.
Friday Watch
Earnings Announcements
Company/Estimate
DOX/.24
HSII/.07
LSCC/-.01
STAR/.23
OS/-.25
Splits
None of Note
Economic Data
Consumer Price Index estimated up .3% in Jan. vs. a .2% rise in Dec.
CPI Ex Food and Energy estimated up .1% in Jan. vs. a .1% rise in Dec.
Late-night News
Tivo's(TIVO) shares will climb as it attracts more subscribers, Business Week reported in its "Inside Wall Street" column. The column also said Net2Phone Inc.'s(NTOP) shares may reach $11 in a year. Bird Flu killed a cat for first time, Thailand's Nation reports. The book-to-bill ratio for North American chip-tool makers was 1.18 in January, lower than the 1.23 reported in December. TheStreet.com, reporting from the Enercom Oil Service Conference, said the CEO of Patterson-UTI(PTEN) stated that declining natural gas production rates and increasing demand will translate into "a lot more drilling" this year. As well, the CEO of Unit Corp.(UNT) said for natural gas production just to remain stable, the number of drilling rigs in North Amer. will have to reach 1,100 from 950 currently. TheStreet.com also reported that Nabors(NBR), Precision Drilling(PDS) and Grey Wolf(GW) will also benefit directly. Indirect beneficiaries include GRP, SII, BHI, SLB and HAL.
Late-Night Trading
Asian markets are down, ranging from -.25% to -1.25%.
S&P 500 indicated -.08%.
NASDAQ indicated -.07%.
BOTTOM LINE: Asian markets are weaker across the board with tech leading the way down. With option expiration tomorrow, volatility should remain through early next week. I plan to add a few shorts into any rally tomorrow, taking my net market exposure to 20% net short. The Portfolio is currently market neutral.
Company/Estimate
DOX/.24
HSII/.07
LSCC/-.01
STAR/.23
OS/-.25
Splits
None of Note
Economic Data
Consumer Price Index estimated up .3% in Jan. vs. a .2% rise in Dec.
CPI Ex Food and Energy estimated up .1% in Jan. vs. a .1% rise in Dec.
Late-night News
Tivo's(TIVO) shares will climb as it attracts more subscribers, Business Week reported in its "Inside Wall Street" column. The column also said Net2Phone Inc.'s(NTOP) shares may reach $11 in a year. Bird Flu killed a cat for first time, Thailand's Nation reports. The book-to-bill ratio for North American chip-tool makers was 1.18 in January, lower than the 1.23 reported in December. TheStreet.com, reporting from the Enercom Oil Service Conference, said the CEO of Patterson-UTI(PTEN) stated that declining natural gas production rates and increasing demand will translate into "a lot more drilling" this year. As well, the CEO of Unit Corp.(UNT) said for natural gas production just to remain stable, the number of drilling rigs in North Amer. will have to reach 1,100 from 950 currently. TheStreet.com also reported that Nabors(NBR), Precision Drilling(PDS) and Grey Wolf(GW) will also benefit directly. Indirect beneficiaries include GRP, SII, BHI, SLB and HAL.
Late-Night Trading
Asian markets are down, ranging from -.25% to -1.25%.
S&P 500 indicated -.08%.
NASDAQ indicated -.07%.
BOTTOM LINE: Asian markets are weaker across the board with tech leading the way down. With option expiration tomorrow, volatility should remain through early next week. I plan to add a few shorts into any rally tomorrow, taking my net market exposure to 20% net short. The Portfolio is currently market neutral.
Thursday, February 19, 2004
Thursday Close
S&P 500 1,147.06-.41%
NASDAQ 2,045.96-1.47%
Leading Sectors
Fashion+1.3%
Paper+1.27%
Food+.33%
Lagging Sectors
Telecom-1.71%
Software-2.48%
Networking-2.56%
Other
Crude Oil 35.85-.42%.
Natural Gas 5.24+.08%
Base Metals 112.92+.3%
Gold 411.10+.19%
U.S. Dollar Index 85.73-.15%
10-Yr. Long-Bond Yield 4.03% unch.
After-hours Movers
COX+1.79% after announcing Disney's ESPN renewed its distribution agreements with Cox and Charter(CHTR). Cox said the agreement was for 9 years and rates will increase 7% annually vs. 20% increases under the old contract.
WFII-9.8% after meeting 4Q estimates, lowering 1Q guidance and filing for a shelf registration for as much as $200M in securities.
BEAS+3.2% after better-than-expected 4Q earnings/sales and raising 1Q sales guidance. Integration sales climbed 40% sequentially which bodes well for later quarters.
BCSI+11.5% after significantly beating 3Q estimates.
After-hours News
Goldman Sachs says Disney parks in Orlando and Anaheim tracking above expectations and may signal a recovery in Theme Parks. Goldman also says communications end markets should provide most upside potential for semis and account for 21% of semiconductor consumption. Their favorite picks are MRVL and AGR/A. Carly Fiorina, Hewlett Packard's CEO, reiterated her conservative guidance for the year, saying "if the economy continues to improve, 4% IT spending growth is possible." The U.S. will mail $37B more in tax refunds to Americans in the next three months than it did at the same time last year because of new tax cuts taking affect, the Treasury Dept. said. Bill Sullivan, senior economist at Morgan Stanley, says this could add 1-2% onto GDP growth during this period. China may let domestic securities companies raise money from bond sales starting next month. Indian stocks attracted a record $7B from foreign investors last year as its main exchange, The Mumbai, soared 72%. KPMG is being investigated by the U.S Attorney's office, reported CNBC.
BOTTOM LINE: Today was a bad day for the Bulls. Strong earning's reports and the good job's data today should have propelled the market higher. Instead, a weak rally through mid-day turned nasty in the final 90 minutes. I took the Portfolio to market neutral(longs-shorts=0), as I sold longs and added shorts in the tech sector. Today's action clearly shows we are still in a consolidation/correction phase. I expect more down-side in the short-term before another test of the recent highs.
NASDAQ 2,045.96-1.47%
Leading Sectors
Fashion+1.3%
Paper+1.27%
Food+.33%
Lagging Sectors
Telecom-1.71%
Software-2.48%
Networking-2.56%
Other
Crude Oil 35.85-.42%.
Natural Gas 5.24+.08%
Base Metals 112.92+.3%
Gold 411.10+.19%
U.S. Dollar Index 85.73-.15%
10-Yr. Long-Bond Yield 4.03% unch.
After-hours Movers
COX+1.79% after announcing Disney's ESPN renewed its distribution agreements with Cox and Charter(CHTR). Cox said the agreement was for 9 years and rates will increase 7% annually vs. 20% increases under the old contract.
WFII-9.8% after meeting 4Q estimates, lowering 1Q guidance and filing for a shelf registration for as much as $200M in securities.
BEAS+3.2% after better-than-expected 4Q earnings/sales and raising 1Q sales guidance. Integration sales climbed 40% sequentially which bodes well for later quarters.
BCSI+11.5% after significantly beating 3Q estimates.
After-hours News
Goldman Sachs says Disney parks in Orlando and Anaheim tracking above expectations and may signal a recovery in Theme Parks. Goldman also says communications end markets should provide most upside potential for semis and account for 21% of semiconductor consumption. Their favorite picks are MRVL and AGR/A. Carly Fiorina, Hewlett Packard's CEO, reiterated her conservative guidance for the year, saying "if the economy continues to improve, 4% IT spending growth is possible." The U.S. will mail $37B more in tax refunds to Americans in the next three months than it did at the same time last year because of new tax cuts taking affect, the Treasury Dept. said. Bill Sullivan, senior economist at Morgan Stanley, says this could add 1-2% onto GDP growth during this period. China may let domestic securities companies raise money from bond sales starting next month. Indian stocks attracted a record $7B from foreign investors last year as its main exchange, The Mumbai, soared 72%. KPMG is being investigated by the U.S Attorney's office, reported CNBC.
BOTTOM LINE: Today was a bad day for the Bulls. Strong earning's reports and the good job's data today should have propelled the market higher. Instead, a weak rally through mid-day turned nasty in the final 90 minutes. I took the Portfolio to market neutral(longs-shorts=0), as I sold longs and added shorts in the tech sector. Today's action clearly shows we are still in a consolidation/correction phase. I expect more down-side in the short-term before another test of the recent highs.
Mid-day Update
S&P 500 1,155.99+.61%
NASDAQ 2,079.69+.15%
Leading Sectors
Disk Drives+2.01%
Paper+1.99%
Fashion+1.3%
Lagging Sectors
Software-.63%
Networking-.9%
Telecom-1.19%
Other
Crude Oil 35.80+.99%
Natural Gas 5.21-2.73%
Gold 411.90-.22%
Base Metals 112.92+.3%
U.S. Dollar 85.81-.15%
10-Yr. Long-Bond Yield 4.04%-.24%
Market Movers
ELN+16.4% on continued strength from accelerated ms drug schedule and positive comments from CSFB.
OVTI+20.6% on significantly better-than-expected 3Q report and raised 4Q guidance.
NXTL-2.3% on good 4Q, but mixed guidance.
PIXR+4.4% on talk of distribution contract with MGM.
PNRA-10.4% on 4Q sales below expectations and didn't raise guidance.
INTU-5.9% on beating 2Q expectations, but lowering 3Q guidance.
Recommendations
Morgan Stanley saying steel trade balance is best in 12 years, strengthening domestic steel market with no increase in U.S. consumption. MS also raising BRCM price target to $55. Goldman saying to buy LOW $60 calls ahead of earnings release. DHI cut to "Underperform" at CSFB. CTX raised to "Overweight" at JP Morgan. OVTI raised to "Strong Buy" at Needham. WMT raised to "Buy" at AG Edwards.
Economic Data
Initial jobless claims came in at 344K, better than the 355K estimate.
Continuing claims were 3186K vs. an estimate of 3105K.
Leading indicators met expectations of .5%
Philly Fed of 31.4 was below expectations of 35.
Mid-day News
U.S. stocks rose after companies such as Applied Materials gave forecasts that surpassed analyst estimates, providing reassurance that earnings will increase fast enough to justify further gains in share prices. EMC is saying corporate spending on tech is improving. Sales of homes in the San Francisco bay area reached a 15-year high last month. Former Enron CEO Skilling surrendered to the FBI this morning and will appear in court today. Initial jobless claims are now close to a 3-year low. Freddie Mac say 30-yr. mortgage rate fell to 5.58% this week.
BOTTOM LINE: I am disappointed with the relative weakness in the tech sector today. I am in the process of reducing my exposure in this area. This will take the Portfolio down to about 75% net long. I will then decide later in the day whether or not to add long positions in other sectors or keep my overall market exposure at current levels. AMAT is a prime example of what is going on with the overall market right now. Its P/E on 04 estimates was 35 before its earnings release. It is now around 22 as a result of significantly beating expectations. The current market P/E of 18 on 04 estimates is most likely inaccurate. Analysts have clearly underestimated the leverage in most company's business models. This means the current P/E for 04 estimates is likely below 15, near the market's long-term average. I contend that with interest rates at 46-year lows and corporate profitability near all-time highs the overall market deserves a premium valuation relative to its historical average. This is the main reason why I am very bullish on 04.
NASDAQ 2,079.69+.15%
Leading Sectors
Disk Drives+2.01%
Paper+1.99%
Fashion+1.3%
Lagging Sectors
Software-.63%
Networking-.9%
Telecom-1.19%
Other
Crude Oil 35.80+.99%
Natural Gas 5.21-2.73%
Gold 411.90-.22%
Base Metals 112.92+.3%
U.S. Dollar 85.81-.15%
10-Yr. Long-Bond Yield 4.04%-.24%
Market Movers
ELN+16.4% on continued strength from accelerated ms drug schedule and positive comments from CSFB.
OVTI+20.6% on significantly better-than-expected 3Q report and raised 4Q guidance.
NXTL-2.3% on good 4Q, but mixed guidance.
PIXR+4.4% on talk of distribution contract with MGM.
PNRA-10.4% on 4Q sales below expectations and didn't raise guidance.
INTU-5.9% on beating 2Q expectations, but lowering 3Q guidance.
Recommendations
Morgan Stanley saying steel trade balance is best in 12 years, strengthening domestic steel market with no increase in U.S. consumption. MS also raising BRCM price target to $55. Goldman saying to buy LOW $60 calls ahead of earnings release. DHI cut to "Underperform" at CSFB. CTX raised to "Overweight" at JP Morgan. OVTI raised to "Strong Buy" at Needham. WMT raised to "Buy" at AG Edwards.
Economic Data
Initial jobless claims came in at 344K, better than the 355K estimate.
Continuing claims were 3186K vs. an estimate of 3105K.
Leading indicators met expectations of .5%
Philly Fed of 31.4 was below expectations of 35.
Mid-day News
U.S. stocks rose after companies such as Applied Materials gave forecasts that surpassed analyst estimates, providing reassurance that earnings will increase fast enough to justify further gains in share prices. EMC is saying corporate spending on tech is improving. Sales of homes in the San Francisco bay area reached a 15-year high last month. Former Enron CEO Skilling surrendered to the FBI this morning and will appear in court today. Initial jobless claims are now close to a 3-year low. Freddie Mac say 30-yr. mortgage rate fell to 5.58% this week.
BOTTOM LINE: I am disappointed with the relative weakness in the tech sector today. I am in the process of reducing my exposure in this area. This will take the Portfolio down to about 75% net long. I will then decide later in the day whether or not to add long positions in other sectors or keep my overall market exposure at current levels. AMAT is a prime example of what is going on with the overall market right now. Its P/E on 04 estimates was 35 before its earnings release. It is now around 22 as a result of significantly beating expectations. The current market P/E of 18 on 04 estimates is most likely inaccurate. Analysts have clearly underestimated the leverage in most company's business models. This means the current P/E for 04 estimates is likely below 15, near the market's long-term average. I contend that with interest rates at 46-year lows and corporate profitability near all-time highs the overall market deserves a premium valuation relative to its historical average. This is the main reason why I am very bullish on 04.
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