Investors will have a number of economic data points to study in the coming week, as well as a few important earnings reports. Empire Manufacturing, Industrial Production, Capacity Utilization, Housing Starts, CPI, Philly Fed and Leading Indicators are all scheduled for release next week. Industrial Production, CPI and Housing Sales are the most important releases. Industrial Production is estimated +.4% in February versus a .8% increase in January. The CPI is expected to have risen .3% in February versus a .5% rise in January. Finally, Housing starts in February are estimated at 1940K versus 1903K in January.
Cintas(CTAS), Imclone(IMCL), Tenet Healthcare(THC), Lennar(LEN), FedEx(FDX), Adobe(ADBE), Biogen(BGEN), Barnes & Noble(BKS), Morgan Stanley(MWD), Paychex(PAYX), Nike(NKE), OfficeMax(OMX), Solectron(SLR), Williams-Sonoma(WSM) and Carnival(CCL) are some of the more important companies that release quarterly earnings this week. The FOMC policy meeting, semiconductor book-to-bill, Hewlett-Packard's annual meeting and Friday's "triple witching" option expiration also have market-moving potential.
BOTTOM LINE: The Homebuilding, I-banking and Retail sectors should outperform this week as falling interest rates, tax-cut stimulus and better weather provided the back-drop for better-than-expected earnings reports. The Fed will leave rates unchanged at its policy meeting, however the market will focus intensely on any statements it makes regarding inflation or job creation. Notwithstanding al-Qaeda's apparent involvement in the Madrid bombings, I expect the market to follow-through on Friday's rally early this week. I would like to see better volume on the up-side. The Portfolio is 75% net long and I will look to add recently beaten-up stocks in the morning, with the intention of selling them as the rally runs out of steam later in the week. I am not ruling out the possibility that the major indices formed an intermediate-term bottom last week as fundamentals have improved with falling stock prices, leaving many sectors at very attractive valuation levels. The S&P 500 2004 P/E is 18.1(where it is was in the late 80's and down over 60% from its high set in 02), the economy is growing the fastest since the mid-80's, interest rates are still near 46-year lows, corporate profitability is at all-time highs, American's net-worth is at all-time highs, corporate spending is improving, consumer spending remains strong, the Fed remains on hold as inflation hovers near all-time lows, energy prices will likely fall into the spring, the unemployment rate is falling with improvement in job creation around the corner and the U.S. dollar has stabilized. These are all very important reasons that I believe the recent weakness is just a healthy correction in a good bull market that began a year ago.
Sunday, March 14, 2004
Market Week in Review
S&P 500 1,120.57 -3.14%
The S&P 500 had its biggest weekly drop in more than five months on continued profit-taking and anxiety about terrorism following the bombings in Spain that killed almost 200 and injured over 1,400. All 10 S&P 500 industry groups declined for the week, the first time this has happened since November. The Volatility Index(VIX), a measure of investor fear, rose 26.4% for the week to 18.30, its largest weekly gain in more than a year. The AAII Bullish % dropped 13.7% to 41.29 in another sign that investor anxiety is increasing.
The week began with weakness in semiconductors on continued fears of a slowdown after Intel's mid-quarter update. The weakness quickly spread to the entire technology sector, resulting in a break through some key intermediate-term support levels on the NASDAQ. Healthcare-related companies took a beating mid-week as Tenet Healthcare, the second-largest U.S. hospital company, had its credit rating cut by S&P. As well, pharmaceutical companies fell on news of investigations and lawsuits by the U.S. government and the AARP's demands for voluntary price controls and support for drug importation. Supermarket stocks fell substantially as WalMart continues to take market share. Finally, airlines were crushed after investors concluded that the terrorist attacks in Spain, coupled with high oil prices, will lead to significant financial distress for the major carriers.
The week ended on a positive note, as the market experienced a broad-based oversold rally on Friday. Falling energy prices, falling mortgage rates and the markets technically oversold state all led to Friday's positive action.
BOTTOM LINE: The major indices sustained some pretty bad technical damage over the course of the week. My analysis leads me to conclude that the major indices may rally a bit further before a test of the recent lows. The volume on Friday's rally was light and most of my short-term trading indicators are giving sell signals from oversold positions. Company fundamentals continue to improve as stock prices drop, leading to very reasonable valuations in most sectors. Thus, while I feel the correction has a bit further to go, I do not expect significant declines from here. I will look to scale into long positions in my favorite stocks as I think this correction presents a tremendous opportunity for significant profits later in the year.
The S&P 500 had its biggest weekly drop in more than five months on continued profit-taking and anxiety about terrorism following the bombings in Spain that killed almost 200 and injured over 1,400. All 10 S&P 500 industry groups declined for the week, the first time this has happened since November. The Volatility Index(VIX), a measure of investor fear, rose 26.4% for the week to 18.30, its largest weekly gain in more than a year. The AAII Bullish % dropped 13.7% to 41.29 in another sign that investor anxiety is increasing.
The week began with weakness in semiconductors on continued fears of a slowdown after Intel's mid-quarter update. The weakness quickly spread to the entire technology sector, resulting in a break through some key intermediate-term support levels on the NASDAQ. Healthcare-related companies took a beating mid-week as Tenet Healthcare, the second-largest U.S. hospital company, had its credit rating cut by S&P. As well, pharmaceutical companies fell on news of investigations and lawsuits by the U.S. government and the AARP's demands for voluntary price controls and support for drug importation. Supermarket stocks fell substantially as WalMart continues to take market share. Finally, airlines were crushed after investors concluded that the terrorist attacks in Spain, coupled with high oil prices, will lead to significant financial distress for the major carriers.
The week ended on a positive note, as the market experienced a broad-based oversold rally on Friday. Falling energy prices, falling mortgage rates and the markets technically oversold state all led to Friday's positive action.
BOTTOM LINE: The major indices sustained some pretty bad technical damage over the course of the week. My analysis leads me to conclude that the major indices may rally a bit further before a test of the recent lows. The volume on Friday's rally was light and most of my short-term trading indicators are giving sell signals from oversold positions. Company fundamentals continue to improve as stock prices drop, leading to very reasonable valuations in most sectors. Thus, while I feel the correction has a bit further to go, I do not expect significant declines from here. I will look to scale into long positions in my favorite stocks as I think this correction presents a tremendous opportunity for significant profits later in the year.
Saturday, March 13, 2004
Economic Week in Review
ECRI Weekly Leading Index 134.20 +.45%
Sales at U.S. retailers rose .6% in February, meeting expectations, as consumers took advantage of higher tax refunds and better weather to buy automobiles and shop at department stores. The average tax refund Americans have received so far his year is $2,182, up 4.4% from this time last year. Consumer spending is now projected to increase 3.6% this quarter and 3.9% in the 2nd quarter. "January and February were probably our best months that we've had in, I think, forever, but definitely in years," said Sandy Beall, the CEO of Ruby Tuesday said.
The number of Americans filing initial unemployment claims fell last week to 341,000, approaching a 3-year low. Applications decreased from 347,000 the week before. First-time applications reached 339,000 in the week ended Jan. 23, matching the last week of December as the fewest since January 2001. The U.S. economy is showing "increasing signals of recovery that should boost job growth soon," Federal Reserve Chairman Alan Greenspan said. He also said, "We have reason to be confident that new jobs will replace old ones as they always have." He warned against protectionist measures that would result in "stagnated growth and harm our standard of living." Greenspan reiterated his view that low-skilled labor needs to be retrained.
Inventories at U.S. businesses rose a less-than-expected .1% in January as companies struggled to keep up with rising sales. The inventory-to-sales ratio held at a record low of 1.33 months. Factories will have to step up production in the coming months to replenish stockpiles, giving a boost to GDP, economists said.
The preliminary reading of the Univ. of Mich. Consumer Confidence Index for March was 94.1, slightly below expectations of 94.5. High gas prices, political negativity, the mainstream media's obsession with all that is negative and "slower-than-expected" job growth all contributed to the slight decline is confidence. "If you look at what consumers are doing as opposed to what they are telling pollsters, it's actually a pretty good story," said Henry Willmore, chief U.S. economist for Barclays Capital Inc. in New York.
BOTTOM LINE: Economic data points continue to show a rapidly growing economy. I am seeing signs that companies are missing out on sales due to their record low inventories. I expect that this will result in an accelerated rate of production shortly. I am not troubled by the decline in consumer confidence as long as retail spending remains strong. I also agree with Alan Greenspan's statements that good job creation will come shortly.
Sales at U.S. retailers rose .6% in February, meeting expectations, as consumers took advantage of higher tax refunds and better weather to buy automobiles and shop at department stores. The average tax refund Americans have received so far his year is $2,182, up 4.4% from this time last year. Consumer spending is now projected to increase 3.6% this quarter and 3.9% in the 2nd quarter. "January and February were probably our best months that we've had in, I think, forever, but definitely in years," said Sandy Beall, the CEO of Ruby Tuesday said.
The number of Americans filing initial unemployment claims fell last week to 341,000, approaching a 3-year low. Applications decreased from 347,000 the week before. First-time applications reached 339,000 in the week ended Jan. 23, matching the last week of December as the fewest since January 2001. The U.S. economy is showing "increasing signals of recovery that should boost job growth soon," Federal Reserve Chairman Alan Greenspan said. He also said, "We have reason to be confident that new jobs will replace old ones as they always have." He warned against protectionist measures that would result in "stagnated growth and harm our standard of living." Greenspan reiterated his view that low-skilled labor needs to be retrained.
Inventories at U.S. businesses rose a less-than-expected .1% in January as companies struggled to keep up with rising sales. The inventory-to-sales ratio held at a record low of 1.33 months. Factories will have to step up production in the coming months to replenish stockpiles, giving a boost to GDP, economists said.
The preliminary reading of the Univ. of Mich. Consumer Confidence Index for March was 94.1, slightly below expectations of 94.5. High gas prices, political negativity, the mainstream media's obsession with all that is negative and "slower-than-expected" job growth all contributed to the slight decline is confidence. "If you look at what consumers are doing as opposed to what they are telling pollsters, it's actually a pretty good story," said Henry Willmore, chief U.S. economist for Barclays Capital Inc. in New York.
BOTTOM LINE: Economic data points continue to show a rapidly growing economy. I am seeing signs that companies are missing out on sales due to their record low inventories. I expect that this will result in an accelerated rate of production shortly. I am not troubled by the decline in consumer confidence as long as retail spending remains strong. I also agree with Alan Greenspan's statements that good job creation will come shortly.
Friday, March 12, 2004
Weekly Scoreboard*
Indices
S&P 500 1,120.57 -3.14%
Dow 10,240.08 -3.35%
NASDAQ 1,984.73 -3.07%
Russell 2000 582.84 -2.78%
Wilshire 5000 10,968.18 -3.06%
Volatility(VIX) 18.30 +26.38%
AAII Bullish % 41.29 -13.67%
US Dollar 89.12 +1.10%
CRB 271.50 -.73%
Futures Spot Prices
Gold 395.60 -1.57%
Crude Oil 36.19 -2.98%
Natural Gas 5.60 +3.24%
Base Metals 108.59 -1.17%
10-year US Treasury Yield 3.76% -2.36%
Average 30-year Mortgage Rate 5.41% -3.22%
Leading Sectors
Broadcasting -1.21%
Transports -1.25%
HMO's -1.66%
Lagging Sectors
I-Banking -4.96%
Iron/Steel -5.78%
Airlines -6.71%
*% Gain or loss for the week
S&P 500 1,120.57 -3.14%
Dow 10,240.08 -3.35%
NASDAQ 1,984.73 -3.07%
Russell 2000 582.84 -2.78%
Wilshire 5000 10,968.18 -3.06%
Volatility(VIX) 18.30 +26.38%
AAII Bullish % 41.29 -13.67%
US Dollar 89.12 +1.10%
CRB 271.50 -.73%
Futures Spot Prices
Gold 395.60 -1.57%
Crude Oil 36.19 -2.98%
Natural Gas 5.60 +3.24%
Base Metals 108.59 -1.17%
10-year US Treasury Yield 3.76% -2.36%
Average 30-year Mortgage Rate 5.41% -3.22%
Leading Sectors
Broadcasting -1.21%
Transports -1.25%
HMO's -1.66%
Lagging Sectors
I-Banking -4.96%
Iron/Steel -5.78%
Airlines -6.71%
*% Gain or loss for the week
Friday Close
S&P 500 1,120.57 +1.25%
NASDAQ 1,984.73 +2.10%
Leading Sectors
Networking +3.50%
Airlines +3.50%
Disk Drives +3.11%
Lagging Sectors
Foods +.41%
Fashion -.24%
Tobacco -.49%
Other
Crude Oil 36.19 -1.60%
Natural Gas 5.59 -.83%
Gold 395.60 -1.35%
Base Metals 108.59 -.94%
U.S. Dollar 89.12 +.69%
10-Yr. Long-Bond Yield 3.76% +1.77%
VIX 18.30 -11.47%
Put/Call 1.03 -6.36%
NYSE Arms .40 -81.57%
After-hours Movers
None of note.
Recommendations
None of note.
After-hours News
U.S. stocks finished broadly higher on Friday, sparked by analyst upgrades in the technology sector and falling oil prices. After the close, Telefonos de Mexico delivered a bid for the controlling stake in Embratel, owned by WorldCom, reported Reuters. A BellSouth contract in Nicaragua is being canceled after the country's comptroller's office said it was improperly granted, the AP said. U.S. securities regulators are considering a plan for requiring brokers to settle stock trades the same day they are executed by using an automated system that would replace the current three-day process. Restaurants and food makers should give consumers better information on the nutritional value of their products to fight obesity, U.S. regulators said. Perini Corp. and Washington Group each received $500M contracts for reconstruction work in Iraq, the U.S. Defense Dept. said.
BOTTOM LINE: The Portfolio ended up having a good day, as one of my shorts dropped significantly and my technology longs rose substantially. I added a few more longs during the course of the day, bringing net market exposure for the Portfolio to 75%. Barring any more terrorist attacks over the weekend, I would expect some follow-through to this rally early in the week.
NASDAQ 1,984.73 +2.10%
Leading Sectors
Networking +3.50%
Airlines +3.50%
Disk Drives +3.11%
Lagging Sectors
Foods +.41%
Fashion -.24%
Tobacco -.49%
Other
Crude Oil 36.19 -1.60%
Natural Gas 5.59 -.83%
Gold 395.60 -1.35%
Base Metals 108.59 -.94%
U.S. Dollar 89.12 +.69%
10-Yr. Long-Bond Yield 3.76% +1.77%
VIX 18.30 -11.47%
Put/Call 1.03 -6.36%
NYSE Arms .40 -81.57%
After-hours Movers
None of note.
Recommendations
None of note.
After-hours News
U.S. stocks finished broadly higher on Friday, sparked by analyst upgrades in the technology sector and falling oil prices. After the close, Telefonos de Mexico delivered a bid for the controlling stake in Embratel, owned by WorldCom, reported Reuters. A BellSouth contract in Nicaragua is being canceled after the country's comptroller's office said it was improperly granted, the AP said. U.S. securities regulators are considering a plan for requiring brokers to settle stock trades the same day they are executed by using an automated system that would replace the current three-day process. Restaurants and food makers should give consumers better information on the nutritional value of their products to fight obesity, U.S. regulators said. Perini Corp. and Washington Group each received $500M contracts for reconstruction work in Iraq, the U.S. Defense Dept. said.
BOTTOM LINE: The Portfolio ended up having a good day, as one of my shorts dropped significantly and my technology longs rose substantially. I added a few more longs during the course of the day, bringing net market exposure for the Portfolio to 75%. Barring any more terrorist attacks over the weekend, I would expect some follow-through to this rally early in the week.
Mid-day Update
S&P 500 1,115.45 +.78%
NASDAQ 1970.57 +1.37%
Leading Sectors
Airlines +2.84%
Networking +2.33%
Computer Boxmakers +2.26%
Lagging Sectors
Foods -.10%
Telecom -.11%
Fashion -.24%
Other
Crude Oil 35.43 -3.67%
Natural Gas 5.54 -1.83%
Gold 396.10 -1.22%
Base Metals 108.97 -.59%
U.S. Dollar 89.32 +.92%
10-Yr. Long-Bond Yield 3.71% +.35%
VIX 18.43 -10.84%
Put/Call 1.31 +19.09%
NYSE Arms .59 -72.81%
Market Movers
DELL +3.3% on multiple upgrades.
IDXX +9.7% after raising 1Q and 04 guidance.
CAMD -11.7% on lowering 04 estimates.
VRTY -14.2% after meeting 3Q estimates and lowering 4Q guidance.
Economic Data
Business Inventories came in +.1% in Jan. vs. estimates of +.3%.
Preliminary Univ. of Mich. Consumer Confidence came in at 94.1 in March vs. a forecast of 94.5.
Recommendations
DELL raised to Overweight at J.P. Morgan. DELL raised to Overweight at Morgan Stanley. HAL upgraded to Outperform at Bear Stearns. AL raised to Buy at Merrill. ESPD raised to Outperform at Thomas Weisel. JBL raised to Buy at Bank of America. BRCM, INTC, FCS, MU raised to Buy at Oppenheimer. Goldman Sachs reiterating Outperform on ACN, saying it will benefit from RFID rollouts. GS reiterates Outperform on PETC. Goldman reiterated Outperform on AET and raised estimates. Citi Smith Barney reiterates Buy on AFCI, says that revenue recognition from Verizon FTTP contract is tracking 1-2 quarters ahead of schedule. Citi reiterates Outperform on HAL and $36 target. Citi reiterates Buy on GE. Citi says recent survey of 125 companies in the electronics supply chain showed that inventories as a percent of sales have declined to the leanest levels in 13-years. Citi says high-end IP telephony equipment market is 3 horse race between CSCO, NT and AV. TheStreet.com says to look at CPHD, PWER and PKG as potential shorts. Cramer, of TheStreet.com, says he thinks U.S. equity markets bottomed yesterday.
Mid-day News
U.S. stocks are rallying mid-day on a host of technology upgrades and falling oil prices. New York Mayor Bloomberg said security in the city's subway system was increased yesterday after the terrorist bombings in Madrid, the NY Times reported. Chinese steelmakers paid on avg. $45 a ton for imported iron ore in Dec., a 74% increase from a year earlier, the Tex Report said. Electronic Arts is developing a video game based on "The Godfather", the NY Post reported. CNBC reported that Venezuelan President Chavez won't cut U.S. oil shipments, despite his threats. China's State Reserves Bureau plans to sell 30,000-40,000 metric tons of copper from its stockpile to ease the country's shortage of the metal, Reuters reported. New York crude-oil futures fell after the U.S. Senate voted to sell oil rather than deposit it in the nation's Strategic Petroleum Reserve, which would make more crude available to refiners.
BOTTOM LINE: The Portfolio is up slightly on the day as my tech positions are solidly higher. I added a few longs in the technology and base metal sectors, bringing the Portfolio's market exposure to 25% net long. If the indices have reached a short-term bottom, stocks should rally into the close as shorts cover before the weekend. A late-afternoon sell-off would likely indicate that we have further downside early next week. Two of my long purchases were AV and AA. I am using stops of $16.00 and $34.50 respectively.
NASDAQ 1970.57 +1.37%
Leading Sectors
Airlines +2.84%
Networking +2.33%
Computer Boxmakers +2.26%
Lagging Sectors
Foods -.10%
Telecom -.11%
Fashion -.24%
Other
Crude Oil 35.43 -3.67%
Natural Gas 5.54 -1.83%
Gold 396.10 -1.22%
Base Metals 108.97 -.59%
U.S. Dollar 89.32 +.92%
10-Yr. Long-Bond Yield 3.71% +.35%
VIX 18.43 -10.84%
Put/Call 1.31 +19.09%
NYSE Arms .59 -72.81%
Market Movers
DELL +3.3% on multiple upgrades.
IDXX +9.7% after raising 1Q and 04 guidance.
CAMD -11.7% on lowering 04 estimates.
VRTY -14.2% after meeting 3Q estimates and lowering 4Q guidance.
Economic Data
Business Inventories came in +.1% in Jan. vs. estimates of +.3%.
Preliminary Univ. of Mich. Consumer Confidence came in at 94.1 in March vs. a forecast of 94.5.
Recommendations
DELL raised to Overweight at J.P. Morgan. DELL raised to Overweight at Morgan Stanley. HAL upgraded to Outperform at Bear Stearns. AL raised to Buy at Merrill. ESPD raised to Outperform at Thomas Weisel. JBL raised to Buy at Bank of America. BRCM, INTC, FCS, MU raised to Buy at Oppenheimer. Goldman Sachs reiterating Outperform on ACN, saying it will benefit from RFID rollouts. GS reiterates Outperform on PETC. Goldman reiterated Outperform on AET and raised estimates. Citi Smith Barney reiterates Buy on AFCI, says that revenue recognition from Verizon FTTP contract is tracking 1-2 quarters ahead of schedule. Citi reiterates Outperform on HAL and $36 target. Citi reiterates Buy on GE. Citi says recent survey of 125 companies in the electronics supply chain showed that inventories as a percent of sales have declined to the leanest levels in 13-years. Citi says high-end IP telephony equipment market is 3 horse race between CSCO, NT and AV. TheStreet.com says to look at CPHD, PWER and PKG as potential shorts. Cramer, of TheStreet.com, says he thinks U.S. equity markets bottomed yesterday.
Mid-day News
U.S. stocks are rallying mid-day on a host of technology upgrades and falling oil prices. New York Mayor Bloomberg said security in the city's subway system was increased yesterday after the terrorist bombings in Madrid, the NY Times reported. Chinese steelmakers paid on avg. $45 a ton for imported iron ore in Dec., a 74% increase from a year earlier, the Tex Report said. Electronic Arts is developing a video game based on "The Godfather", the NY Post reported. CNBC reported that Venezuelan President Chavez won't cut U.S. oil shipments, despite his threats. China's State Reserves Bureau plans to sell 30,000-40,000 metric tons of copper from its stockpile to ease the country's shortage of the metal, Reuters reported. New York crude-oil futures fell after the U.S. Senate voted to sell oil rather than deposit it in the nation's Strategic Petroleum Reserve, which would make more crude available to refiners.
BOTTOM LINE: The Portfolio is up slightly on the day as my tech positions are solidly higher. I added a few longs in the technology and base metal sectors, bringing the Portfolio's market exposure to 25% net long. If the indices have reached a short-term bottom, stocks should rally into the close as shorts cover before the weekend. A late-afternoon sell-off would likely indicate that we have further downside early next week. Two of my long purchases were AV and AA. I am using stops of $16.00 and $34.50 respectively.
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