S&P 500 1,155.97 +.96%
NASDAQ 2,057.80 +1.38%
Leading Sectors
Homebuilders +3.92%
Iron/Steel +3.79%
Gaming +3.38%
Lagging Sectors
Insurance +.27%
Transports -.29%
Hospitals -1.58%
Other
Crude Oil 36.80 -.16%
Natural Gas 5.56 +.36%
Gold 400.00 +.10%
Base Metals 115.37 +2.05%
U.S. Dollar 87.51 +.23%
10-Yr. Long-Bond Yield 3.98% +.34%
VIX 14.44 -.76%
Put/Call .74 +2.78%
NYSE Arms .69 -48.12%
After-hours Movers
MAMA +25.7% after reporting strong 4Q on 127% sales gain.
MVSN -5.87% after meeting 4Q estimates, but lowering 1Q outlook.
Recommendations
Goldman Sachs is reiterating their Outperform rating for KO and CCE. Goldman expects hospitals to remain under pressure from UHS news. GS also says that certain parts of tech have attractive entry points now. They highlighted the systems software, storage and semi sub-sectors and INTC, EMC and MSFT stocks. TheStreet.com is recommending a short on Inco(N). Cramer says that the analyst from JP Morgan that downgraded INTC and AMD has a very bad track record. He also says he isn't buying the dip in hospitals, as their trouble will continue throughout the year. TheSteet.com is also positive on NUTR.
After-hours News
U.S. stocks rose broadly, as a gauge of manufacturing employment surged to its highest reading in more than 16 years, leading to speculation that Friday's employment report would meet expectations. As well, the ISM Manufacturing Index held steady near a 2-decade high. All 20 manufacturing industries reported growth. Homebuilders again led the way, with help from the Gaming and Commodity sectors. Tech lagged early in the day, only to strengthen significantly by the close. Hospitals were the only negative standout as earnings concerns weighed on the group. Crude Oil futures rose to the highest price in almost a year on concerns gasoline supplies won't increase fast enough to meet peak demand during the summer driving season. The intl. force sent to Haiti should reach 5,000 troops soon.
BOTTOM LINE: The Portfolio had a very good day today. I took profits in a few of my consumer cyclical positions and added some beaten-up tech on the close, leaving the Portfolio 110% net long. One of the new additions to the Portfolio is SEAC, a leader in Video-on-demand servers and software. I am using a $17.50 stop. The most positive aspect to today's trading was the fact that we had such a strong manufacturing number, with good evidence of an improving jobs market, yet interest rates barely moved. Interest rates are the key to whether this is just a good year or a VERY good year for the U.S. equity markets.
Monday, March 01, 2004
Mid-day Update
S&P 500 1,151.96 +.61%
NASDAQ 2,040.39 +.52%
Leading Sectors
Homebuilders +3.47%
Gaming +3.37%
Iron/Steel +3.06%
Lagging Sectors
Computer Services -.08%
Transports -.68%
Hospitals -2.51%
Other
Crude Oil 36.36 +.53%
Natural Gas 5.50 +1.64%
Gold 399.80 +.76%
Base Metals 115.37 +2.05%
U.S. Dollar 87.52 +.25%
10-Yr. Long-Bond Yield 3.98% +.34%
VIX 14.63 +.55%
Put/Call 1.09 +51.39%
NYSE Arms .66 -50.38%
Market Movers
SEPR +45.2% as the company neared U.S. regulatory approval of its Estorra sleeping pill.
MEDI -6.7% on statement that FluMist won't lift revenue before 2007.
SNDK +5.0% on positive comments in Barrons.
AAII -36.0% as the company appointed a committee of its board to look into reported sales of Brethine and Darvocet. It believes their findings will materially affect their 1Q and full-year forecasts.
IDSA +23.4% due to small-cap with increasing sales to China.
MGAM +14% as U.S. Supreme Court avoids Indian gambling dispute over machines. MGAM says significant legal uncertainties have ended.
CYTC +14.6% on acquisition of privately held Novacept for $311M to add to its women's health products.
UHS -16.2% on comments that its 1Q earnings would drop 25%, as unpaid bills hurt results.
HCA -5.5% on UHS news.
Homebuilders up across the board on a technical break-out and continued rotation out of tech.
Economic Data
Personal Income rose .2% vs. expectations of a .5% rise.
Personal Spending rose .4% vs. expectations of a .3% rise.
Construction Spending fell .3% vs. expectations of a .3% rise.
ISM Manufacturing for Feb. came in at 61.4 vs. expectations of 62.0.
ISM Prices Paid for Feb. came in at 81.5 vs. expectations of 71.7.
Recommendations
FON raised to Buy at UBS. UBS also raised price target on FS. SEPR raised to Buy at Deutshe Bank. Deutshe also raised price targets on MWD and GS. PHS raised to Overweight at Lehman. AAII cut to Neutral at Bank of America. JP Morgan cut ratings on INTC and AMD to Neutral. JPM also raised IGT to Overweight. Goldman Sachs is reiterating that the cruise industry is a multi-year investment opportunity. GS lowering estimates on STX ahead of quarterly update. Easy comps, tax-cut stimulus and good weather should deliver robust February results for retailers, says Goldman. GS favorite retailers are WMT, TGT and TIF. GS says drugstores should have good February, likes WAG best. Goldman says 04 should be very strong year for computer resellers CDWC and NSIT, as average selling prices are stabilizing and replacement cycle is accelerating. GS also still likes PMMAY and raised estimates and target. GS doesn't expect INTC to raise guidance at mid-quarter update Thur. Finally, GS raised FON to Outperform. Citi Smith Barney reiterates Buy on FDC.
Mid-day News
Major U.S. indices are having a very good day, as the employment portion of the ISM Manufacturing Index rose to its highest reading since 1987. The rally is broad-based outside of tech, with homebuilding, gaming and commodity-related stocks taking the lead. For the first time in years, Citi Smith Barney is hearing that telecom equipment biz is so strong that they are beginning to hire sales people, engineers and service/support staff to keep up with customer demand. Citi is also hearing that PC chip demand appears to have rebounded strongly in recent weeks after what appears to be a seasonal bottom on a monthly basis in Jan. The weaker US dollar is helping US competitiveness in Europe, Robert Hormats of Goldman Sachs told CNBC. IBM's CEO told investors at the PartnerWorld conference in Las Vegas that he is more optimistic about 04 than he has been in a long time. The ISM Manufacturing Index remained near a two-decade high, with all 20 manufacturing industries reporting growth. The ISM Prices Paid Index was the highest since 1995, resulting in some inflation worries by traders. Economists are now predicting that corporate spending will be 3 times higher than last year, the Blue Chip Survey reported.
BOTTOM LINE: The Portfolio is having a good day. I added a few longs on the open to bring net long market exposure to 100%. The huge rise in the Put/Call ratio shows that traders are skeptical of this rally, thus making it more likely to continue. This is turning into the most broad-based economic recovery since the mid-80's, with almost every industry participating. The signs are everywhere that the economy is in the midst of a significant expansion that will lead to strong job growth. With interest rates near 46-year lows and a P/E for the S&P 500 of a relatively low 18.7 on 04 estimates, I continue to expect a very good year for U.S. stocks.
NASDAQ 2,040.39 +.52%
Leading Sectors
Homebuilders +3.47%
Gaming +3.37%
Iron/Steel +3.06%
Lagging Sectors
Computer Services -.08%
Transports -.68%
Hospitals -2.51%
Other
Crude Oil 36.36 +.53%
Natural Gas 5.50 +1.64%
Gold 399.80 +.76%
Base Metals 115.37 +2.05%
U.S. Dollar 87.52 +.25%
10-Yr. Long-Bond Yield 3.98% +.34%
VIX 14.63 +.55%
Put/Call 1.09 +51.39%
NYSE Arms .66 -50.38%
Market Movers
SEPR +45.2% as the company neared U.S. regulatory approval of its Estorra sleeping pill.
MEDI -6.7% on statement that FluMist won't lift revenue before 2007.
SNDK +5.0% on positive comments in Barrons.
AAII -36.0% as the company appointed a committee of its board to look into reported sales of Brethine and Darvocet. It believes their findings will materially affect their 1Q and full-year forecasts.
IDSA +23.4% due to small-cap with increasing sales to China.
MGAM +14% as U.S. Supreme Court avoids Indian gambling dispute over machines. MGAM says significant legal uncertainties have ended.
CYTC +14.6% on acquisition of privately held Novacept for $311M to add to its women's health products.
UHS -16.2% on comments that its 1Q earnings would drop 25%, as unpaid bills hurt results.
HCA -5.5% on UHS news.
Homebuilders up across the board on a technical break-out and continued rotation out of tech.
Economic Data
Personal Income rose .2% vs. expectations of a .5% rise.
Personal Spending rose .4% vs. expectations of a .3% rise.
Construction Spending fell .3% vs. expectations of a .3% rise.
ISM Manufacturing for Feb. came in at 61.4 vs. expectations of 62.0.
ISM Prices Paid for Feb. came in at 81.5 vs. expectations of 71.7.
Recommendations
FON raised to Buy at UBS. UBS also raised price target on FS. SEPR raised to Buy at Deutshe Bank. Deutshe also raised price targets on MWD and GS. PHS raised to Overweight at Lehman. AAII cut to Neutral at Bank of America. JP Morgan cut ratings on INTC and AMD to Neutral. JPM also raised IGT to Overweight. Goldman Sachs is reiterating that the cruise industry is a multi-year investment opportunity. GS lowering estimates on STX ahead of quarterly update. Easy comps, tax-cut stimulus and good weather should deliver robust February results for retailers, says Goldman. GS favorite retailers are WMT, TGT and TIF. GS says drugstores should have good February, likes WAG best. Goldman says 04 should be very strong year for computer resellers CDWC and NSIT, as average selling prices are stabilizing and replacement cycle is accelerating. GS also still likes PMMAY and raised estimates and target. GS doesn't expect INTC to raise guidance at mid-quarter update Thur. Finally, GS raised FON to Outperform. Citi Smith Barney reiterates Buy on FDC.
Mid-day News
Major U.S. indices are having a very good day, as the employment portion of the ISM Manufacturing Index rose to its highest reading since 1987. The rally is broad-based outside of tech, with homebuilding, gaming and commodity-related stocks taking the lead. For the first time in years, Citi Smith Barney is hearing that telecom equipment biz is so strong that they are beginning to hire sales people, engineers and service/support staff to keep up with customer demand. Citi is also hearing that PC chip demand appears to have rebounded strongly in recent weeks after what appears to be a seasonal bottom on a monthly basis in Jan. The weaker US dollar is helping US competitiveness in Europe, Robert Hormats of Goldman Sachs told CNBC. IBM's CEO told investors at the PartnerWorld conference in Las Vegas that he is more optimistic about 04 than he has been in a long time. The ISM Manufacturing Index remained near a two-decade high, with all 20 manufacturing industries reporting growth. The ISM Prices Paid Index was the highest since 1995, resulting in some inflation worries by traders. Economists are now predicting that corporate spending will be 3 times higher than last year, the Blue Chip Survey reported.
BOTTOM LINE: The Portfolio is having a good day. I added a few longs on the open to bring net long market exposure to 100%. The huge rise in the Put/Call ratio shows that traders are skeptical of this rally, thus making it more likely to continue. This is turning into the most broad-based economic recovery since the mid-80's, with almost every industry participating. The signs are everywhere that the economy is in the midst of a significant expansion that will lead to strong job growth. With interest rates near 46-year lows and a P/E for the S&P 500 of a relatively low 18.7 on 04 estimates, I continue to expect a very good year for U.S. stocks.
Monday Watch
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.
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.
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.
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