Earnings Announcements
Company/Estimates
HOV/1.74
MVSN/.23
Splits
MGAM 2-for-1
Economic Data
Personal Income for January estimated up .5% vs. a .2% rise prior month.
Personal Spending for January estimated up .3% vs. a .4% rise in Dec.
Construction Spending for January expected up .3% vs. a .4% rise in Dec.
ISM Manufacturing for February estimated at 62.0 vs. 63.6 last month.
ISM Prices Paid for February expected to fall to 72.0 from 75.5 last month.
Weekend Recommendations
Ken Fisher, of Fisher Investments, told Forbes.com that he expects the market to rise 20% this year. He also expects the U.S. dollar to rally by year-end. Fisher believes we may see a reduction in the risk of terrorism and state/federal budget deficits coming in better than current expectations. Finally, he recommends ABB, ENT, ACL and LUX. Citi Smith Barney says a Bush win this fall would be positive for pharmaceuticals, energy and utilities. WR Hambrecht will buy SBUX on any dips, saying it is having its strongest comps since 1995. Goldman Sachs expects WEN and MCD to post strong same-store-sales numbers this week and PNRA to come in soft. TheStreet.com has a positive article on TRK, saying it would be fairly valued at $40. Thomas Kurlak says, in a Street.com editorial, that the fundamentals in semis are looking better and better. He says buying for inventory, combined with higher end demand, can result in chip orders growing 40%-60% at many companies. Kurlak thinks overall semi sales can grow 30% this year, significantly above current estimates. He is also positive on the telecom equipment market due to voice-over-internet protocol spending. Finally, he thinks Intel will earn $1.50 next year and that it is cheap, trading at a 15 P/E on his estimate. Barrons said the Comcast bid for Disney is positive for brokers. SNDK may have assuaged fears by some investors about margin declines, Barrons reported. Barrons also said rumors are flying that SEBL will acquire HYSL or COGN. Barrons also had positive commentary on HOV, PHM, SPF, OIH, MER, SGTL, AUO and UTSI. Finally, GIS was favorably mentioned. Wall Street Week guests were positive on FNM and AMGN if Kerry wins this fall and negative on all healthcare-related companies with a Kerry victory. Wall St. Week guests were also positive on XRX, TYC, DG, BMY and Brokerage stocks. Forbes on Fox had guests that were positive on NOK, EQR, PTR, SEPR, MSFT and negative on SNDK and DIS.
Weekend News
The United Nations will send an intl. peacekeeping force to prevent Haiti from descending into chaos after Pres. Aristide resigned. The U.S. deployed a contingent of Marines in the Caribbean nation. Iraq's 25-member Governing Council reached an agreement on an interim constitution, clearing the way for the transfer of power from the U.S. coalition in June, Agence France-Presse said. Saddam Hussein's government skimmed billions of dollars in kickbacks from the United Nations oil-for-food program over the years, the NY Times reported. South Korean exports rose in February at their fastest pace in more than 15 years as demand picked up in China, the U.S. and Japan. Japan's Nikkei Index rose to a 21-month high. Rumors of Bin Laden's capture continued throughout the weekend. Home Depot is spending $1B to spruce up stores in hopes to lure more women. China's leaders have decided against any revaluation of the yuan this year. Taiwan plans to resume talks with China and enlist U.S. mediation should President Chen Shui-bian win a second term. The U.S. Homeland Security Department has devised a plan to station American inspectors at foreign airports to detect possible terrorists before they board aircraft heading for the U.S., the Wall Street Journal reported. Oracle Corp. is interested in more acquisitions, WSJ reported. In the past ORCL has been interested in BEAS. Continental and Northwest are hiking air-fares due to increasing fuel costs.
Late-Night Trading
Asian indices are mostly higher with major indices in Japan, S. Korea and Taiwan up more than 2.0%.
S&P 500 indicated +.41%.
NASDAQ indicated +.58%.
BOTTOM LINE: The AAII Bullish% fell 26.34% last week to 41.58% bulls. This contrary indicator bodes well for the major U.S. indices this week. Most of the news over the weekend was positive for the markets. The Portfolio is 75% net long currently, with a focus on beaten-up Chinese cyclicals, restaurants, retailers and homebuilders. Due to reasons outlined in previous posts, I will look to increase the Portfolio's market exposure on the open to around 100% net long. I am looking for a mildly positive week.
Monday, March 01, 2004
Sunday, February 29, 2004
Chart of the Week
Bloomberg Home Builders Index 1 Year Candlestick Chart
BOTTOM LINE: The Directional Movement Indicator, which has been the most accurate predictor of short-term trading moves in this index, turned sharply higher last week. A clean break above 256, where the index now resides, combined with a continuation of the recent fall in interest rates should allow this sector to regain its market leadership role.
BOTTOM LINE: The Directional Movement Indicator, which has been the most accurate predictor of short-term trading moves in this index, turned sharply higher last week. A clean break above 256, where the index now resides, combined with a continuation of the recent fall in interest rates should allow this sector to regain its market leadership role.
Weekly Market Outlook
The major U.S. indices should rise modestly this week on a spate of economic reports and more earnings announcements from key consumer-related stocks. Personal Spending/Income, ISM Manufacturing/Prices Paid, ISM non-manufacturing, Productivity, Factory Orders and Employment are the major reports scheduled for release. Hovnanian(HOV), Cablevision(CVC), B.J.'s Wholesale Club(BJ), Chico's FAS(CHS), Costco(COST), Saks Fifth Avenue(SKS) and Staples(SPLS) are some of the key stocks that report earnings this week.
The reports with the greatest probability of moving the markets this week are the ISM, Productivity and Employment releases. Economists are projecting that the economy added 125K jobs in February, more than in any month since 2000. As well, the ISM factory index for February is projected to register a very strong 62 on the heels of a 63.6 reading in January, the highest level since 1983. Finally, the revised Productivity reading for the 4th quarter is expected to have risen 2.7%.
BOTTOM LINE: Lower-than-expected readings from the ISM and Employment reports could pressure the market modestly. However, this would also result in a breakdown in interest rates to a new lower trading range. I expect both readings to come in about as expected. I believe we will see a break-out employment report in the near future, but likely not this month. The final reading on 4th quarter Productivity will likely come in as expected, since this is a revised number. At this stage in the recovery, it is good to see productivity falling. It increases the likelihood for future employment growth. Overall, I expect next week's numbers to confirm the recent positive comments from Greenspan, strong consumer spending reports and strength in corporate spending, within the context of a low-interest rate environment. However, if I am wrong about the timing of the employment break-out coming later in the year and Friday's report were to show much greater-than-expected labor growth, a significant sell-off in the bond market would likely occur which could potentially pressure stocks in the short-run.
The reports with the greatest probability of moving the markets this week are the ISM, Productivity and Employment releases. Economists are projecting that the economy added 125K jobs in February, more than in any month since 2000. As well, the ISM factory index for February is projected to register a very strong 62 on the heels of a 63.6 reading in January, the highest level since 1983. Finally, the revised Productivity reading for the 4th quarter is expected to have risen 2.7%.
BOTTOM LINE: Lower-than-expected readings from the ISM and Employment reports could pressure the market modestly. However, this would also result in a breakdown in interest rates to a new lower trading range. I expect both readings to come in about as expected. I believe we will see a break-out employment report in the near future, but likely not this month. The final reading on 4th quarter Productivity will likely come in as expected, since this is a revised number. At this stage in the recovery, it is good to see productivity falling. It increases the likelihood for future employment growth. Overall, I expect next week's numbers to confirm the recent positive comments from Greenspan, strong consumer spending reports and strength in corporate spending, within the context of a low-interest rate environment. However, if I am wrong about the timing of the employment break-out coming later in the year and Friday's report were to show much greater-than-expected labor growth, a significant sell-off in the bond market would likely occur which could potentially pressure stocks in the short-run.
Market Week in Review
S&P 500 1,144.94 +.07%
The major U.S. indices continued their consolidation last week, as strength in homebuilders, restaurants, retailers and commodity-related companies was offset by weakness in technology and defense stocks. Significantly better-than-expected earnings reports from Ingram Micro(IM), Marvell(MRVL), Novellus(NVLS) and Autodesk(ADSK) could not stem the wave of profit-taking that has engulfed tech shares recently. As well, defense stocks remained week as the discontinuation of the Comanche helicopter program by the U.S. Army led to speculation of future cancellations.
Homebuilders reemergence as a leadership group came on the heels of a great earnings report from bell-weather Toll Brothers(TOL), strong retail spending reports, falling interest rates and short-covering. Retailers and Restaurants rose on positive words from Alan Greenspan about the financial health of the U.S. consumer, positive reports from Wal-Mart and Target, the anticipation by investors of imminent tax-cut stimulus and very strong retail spending reports. Commodity-related shares continued their rolls as market leaders. Better than expected U.S. and Japanese economic reports, along with increasing demand from China will continue to push commodity prices higher in the intermediate-term.
BOTTOM LINE: Overall, last week was a pretty good week for the bulls. I view the recent rotation out of the "overvalued" tech shares and into many other sectors as very positive for the long-term health of this bull market. Many stocks outside of the tech sector had an excellent showing for the week. Moreover, with all of the strong economic reports released and commodity prices continuing their relentless rise, it is remarkable that interest rates actually fell and seem to be on the verge of a technical breakdown. The bears will say that we had these positive reports and the market couldn't move, but that is an incorrect evaluation of the current situation, in my opinion. The major indices have risen so far, so fast, it is healthy for the market to pause and consolidate before continuing higher.
The major U.S. indices continued their consolidation last week, as strength in homebuilders, restaurants, retailers and commodity-related companies was offset by weakness in technology and defense stocks. Significantly better-than-expected earnings reports from Ingram Micro(IM), Marvell(MRVL), Novellus(NVLS) and Autodesk(ADSK) could not stem the wave of profit-taking that has engulfed tech shares recently. As well, defense stocks remained week as the discontinuation of the Comanche helicopter program by the U.S. Army led to speculation of future cancellations.
Homebuilders reemergence as a leadership group came on the heels of a great earnings report from bell-weather Toll Brothers(TOL), strong retail spending reports, falling interest rates and short-covering. Retailers and Restaurants rose on positive words from Alan Greenspan about the financial health of the U.S. consumer, positive reports from Wal-Mart and Target, the anticipation by investors of imminent tax-cut stimulus and very strong retail spending reports. Commodity-related shares continued their rolls as market leaders. Better than expected U.S. and Japanese economic reports, along with increasing demand from China will continue to push commodity prices higher in the intermediate-term.
BOTTOM LINE: Overall, last week was a pretty good week for the bulls. I view the recent rotation out of the "overvalued" tech shares and into many other sectors as very positive for the long-term health of this bull market. Many stocks outside of the tech sector had an excellent showing for the week. Moreover, with all of the strong economic reports released and commodity prices continuing their relentless rise, it is remarkable that interest rates actually fell and seem to be on the verge of a technical breakdown. The bears will say that we had these positive reports and the market couldn't move, but that is an incorrect evaluation of the current situation, in my opinion. The major indices have risen so far, so fast, it is healthy for the market to pause and consolidate before continuing higher.
Saturday, February 28, 2004
Economic Week in Review
ECRI Weekly Leading Index 133.70 +.60%
The Conference Board's Consumer Confidence Index came in at 87.3 vs. expectations of 92.5 and a reading of 96.8 the prior month. This was the largest monthly drop since before the Iraq war began. At the same time, spending at U.S. retail stores in the week ended last Sat. rose 5.6% from a year earlier, according to the Instinet Research Redbook weekly sales report.
Durable Goods Orders fell 1.8% in January vs. expectations of a 1.4% gain and 1.6% growth the prior month. Excluding Transportation, which fell because of a significant decline in aircraft orders, the index rose 2.0% vs. expectations of a 1.8% rise and 1.7% growth last month. Orders for communications equipment rose 73.3%, the most since Jan. 1997. A measure for the demand for business equipment rose for the eighth time in nine months, the best performance since 1994. The inventory-to-sales ratio held at a record low of 1.4 months. "Replenishing inventories will make for a sizeable contribution to growth in the first quarter," said Bill Sharp, an economist at JP Morgan. Deutshe Bank's chief fixed-income economist said, "A meaningful pick-up in hiring cannot be far away with capital spending growing at an annualized 15-20 percent rate this quarter."
The U.S. economy expanded at a 4.1% annual rate in the 4th quarter, faster than the initial estimate, because businesses increased spending to rebuild inventories and buy equipment and software, the Commerce Department said. Therefore, last year's second half GDP growth rate of 6.1% was the strongest six months since the first half of 1984. The personal consumption expenditures price index, a measure of inflation tied to spending, which is watched closely by Greenspan, gained at a very low .7% annual pace.
The Chicago Purchasing Manager's Index declined to 63.6 in Feb. vs. expectations of 63.5 and a reading of 65.9 last month. The index has now held above 60 for 4 straight months, a stretch not seen since 1994-95. The employment component of the index rose to 54.8 this month, its highest reading since 1998. The Univ. of Michigan Consumer Confidence Index fell to 94.4 in Feb. vs. expectations of 94.0 and a reading of 103.8 last month.
During the course of the week, several comments came from Fed officials. Fed Governor Bies said that recent data suggest job growth may "pick up, perhaps substantially, over the course of this year." Greenspan said consumer debt burdens aren't a threat to the U.S. economic expansion because interest costs have fallen and financial obligations as a ratio to income aren't rising. Greenspan did say renters may be having more credit problems because they can't take advantage of rising property values to increase their wealth and sometimes have large student loans. Greenspan also said that "the U.S. economy appears to have made the transition from a period of sub-par growth to one of more vigorous expansion." He urged Congress to cut spending in order to retain tax cuts that stimulate the economy. Finally, Greenspan said "any tax increase large enough to reduce the deficit would pose significant risks to economic growth."
BOTTOM LINE: The very strong retail spending reports released last week lead me to believe that the consumer is quite confident about their financial situation. It is likely that politics and the mainstream media's focus on the current job situation led to the lower consumer confidence readings. The economy is doing very well right now and is poised to post the best year of growth in over 2 decades. Very strong consumer spending and the recent pick-up in corporate spending, with little inflation, strenthen this view. Employment is always a lagging economic indicator and to focus on this one data point is like looking in the rear-view mirror of an automobile while driving. I would be very worried if 4-6 months from now significant job creation hadn't materialized. All signs point to the contrary as of now.
The Conference Board's Consumer Confidence Index came in at 87.3 vs. expectations of 92.5 and a reading of 96.8 the prior month. This was the largest monthly drop since before the Iraq war began. At the same time, spending at U.S. retail stores in the week ended last Sat. rose 5.6% from a year earlier, according to the Instinet Research Redbook weekly sales report.
Durable Goods Orders fell 1.8% in January vs. expectations of a 1.4% gain and 1.6% growth the prior month. Excluding Transportation, which fell because of a significant decline in aircraft orders, the index rose 2.0% vs. expectations of a 1.8% rise and 1.7% growth last month. Orders for communications equipment rose 73.3%, the most since Jan. 1997. A measure for the demand for business equipment rose for the eighth time in nine months, the best performance since 1994. The inventory-to-sales ratio held at a record low of 1.4 months. "Replenishing inventories will make for a sizeable contribution to growth in the first quarter," said Bill Sharp, an economist at JP Morgan. Deutshe Bank's chief fixed-income economist said, "A meaningful pick-up in hiring cannot be far away with capital spending growing at an annualized 15-20 percent rate this quarter."
The U.S. economy expanded at a 4.1% annual rate in the 4th quarter, faster than the initial estimate, because businesses increased spending to rebuild inventories and buy equipment and software, the Commerce Department said. Therefore, last year's second half GDP growth rate of 6.1% was the strongest six months since the first half of 1984. The personal consumption expenditures price index, a measure of inflation tied to spending, which is watched closely by Greenspan, gained at a very low .7% annual pace.
The Chicago Purchasing Manager's Index declined to 63.6 in Feb. vs. expectations of 63.5 and a reading of 65.9 last month. The index has now held above 60 for 4 straight months, a stretch not seen since 1994-95. The employment component of the index rose to 54.8 this month, its highest reading since 1998. The Univ. of Michigan Consumer Confidence Index fell to 94.4 in Feb. vs. expectations of 94.0 and a reading of 103.8 last month.
During the course of the week, several comments came from Fed officials. Fed Governor Bies said that recent data suggest job growth may "pick up, perhaps substantially, over the course of this year." Greenspan said consumer debt burdens aren't a threat to the U.S. economic expansion because interest costs have fallen and financial obligations as a ratio to income aren't rising. Greenspan did say renters may be having more credit problems because they can't take advantage of rising property values to increase their wealth and sometimes have large student loans. Greenspan also said that "the U.S. economy appears to have made the transition from a period of sub-par growth to one of more vigorous expansion." He urged Congress to cut spending in order to retain tax cuts that stimulate the economy. Finally, Greenspan said "any tax increase large enough to reduce the deficit would pose significant risks to economic growth."
BOTTOM LINE: The very strong retail spending reports released last week lead me to believe that the consumer is quite confident about their financial situation. It is likely that politics and the mainstream media's focus on the current job situation led to the lower consumer confidence readings. The economy is doing very well right now and is poised to post the best year of growth in over 2 decades. Very strong consumer spending and the recent pick-up in corporate spending, with little inflation, strenthen this view. Employment is always a lagging economic indicator and to focus on this one data point is like looking in the rear-view mirror of an automobile while driving. I would be very worried if 4-6 months from now significant job creation hadn't materialized. All signs point to the contrary as of now.
Weekly Scoreboard*
Indices
S&P 500 1,144.94 +.07%
Dow 10,583.92 -.33%
NASDAQ 2,029.82 -.40%
Russell 2000 585.56 +.98%
Wilshire 5000 11,172.88 +.26%
Volatility(VIX) 14.55 -10.35%
AAII Bullish % 41.58 -26.34%
US Dollar 87.31 +.24%
CRB 272.90 +3.57%
Futures Spot Prices
Gold 396.80 -.43%
Crude Oil 36.16 +5.73%
Natural Gas 5.42 +4.45%
Base Metals 113.05 +.92%
10-year US Treasury Yield 3.97% -3.05%
Average 30-year Mortgage Rate 5.58% unch.
Leading Sectors
Homebuilders +7.11%
Restaurants +3.50%
Iron/Steel +3.26%
Lagging Sectors
Semis -1.48%
Software -1.55%
Defense -1.70%
*% Gain or loss for the week
S&P 500 1,144.94 +.07%
Dow 10,583.92 -.33%
NASDAQ 2,029.82 -.40%
Russell 2000 585.56 +.98%
Wilshire 5000 11,172.88 +.26%
Volatility(VIX) 14.55 -10.35%
AAII Bullish % 41.58 -26.34%
US Dollar 87.31 +.24%
CRB 272.90 +3.57%
Futures Spot Prices
Gold 396.80 -.43%
Crude Oil 36.16 +5.73%
Natural Gas 5.42 +4.45%
Base Metals 113.05 +.92%
10-year US Treasury Yield 3.97% -3.05%
Average 30-year Mortgage Rate 5.58% unch.
Leading Sectors
Homebuilders +7.11%
Restaurants +3.50%
Iron/Steel +3.26%
Lagging Sectors
Semis -1.48%
Software -1.55%
Defense -1.70%
*% Gain or loss for the week
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