Earnings Announcements
Company/Estimates
JOSB/.83
SCS/-.04
Splits
HOV 2-for-1
MVL 3-for-2
Economic Data
None of note.
Weekend Recommendations
Forbes on Fox had guests that were positive on XOM and PG. Bulls and Bears had guests that were positive on PWI, JNJ, LMT, WMS, SGMS, PLMO and mixed on DLM, CTL, MSFT and CMCSK. Cashin' In had guests that were mixed on BBBY. Wall Street Week had guests that were positive on GE, XOM, AIG, BRK/A, C, IBM, DELL, MDT and negative on FNM, HPQ, GM, VZ, HD, CH, MCK and MO. Goldman Sachs reiterated Outperform on DOW, LIZ, EBAY, AMGN, KO, CCE and PEP. Barron's has positive articles on HPQ, RBK, the oil market and HDI.
Weekend News
Bloomberg has an article saying that companies are spending again on capital equipment and hiring will be next. A Pakistani military offensive against al-Qaeda in a tribal region bordering Afghanistan is almost complete after the terrorists' refuge was destroyed, Agence France-Presse reported. Israeli prosecutors will recommend that Prime Minister Ariel Sharon be indicted for allegedly accepting a bribe from a property developer, Maariv said. Barrick Gold(ABX) may receive a takeover offer from larger rival Newmont Mining(NEM), the Sunday Telegraph reported. Celgene's(CELG) Revlimid drug may triple the company's revenue within two years, the Star-Ledger of Newark reported. Japan's policy of selling yen "has officially come to an end" because the country's economy is gathering strength and no longer needs a weaker currency to bolster exports, the Times of London reported. Dell is ahead of its goal to make $60B in sales for the year ended Jan. 31, 2007, Michael Dell said. Taiwan's stocks are rising significantly amid optimism that the island's political leaders are moving toward resolution of an election crisis that brought a record 500,000 people onto the streets in protest Saturday, Bloomberg reported. Global sales of liquid crystal displays geared for televisions and monitors will increase 56% this year, driven by torrid growth in demand for flat-panel TVs, industry researcher IDC said.
Late-Night Trading
Asian indices are -.25% to +1.25% on average, with Taiwan's TWSE Index the exception, rising 5.06%.
S&P 500 indicated +.30%.
NASDAQ indicated +.42%.
BOTTOM LINE: Political stabilization in Taiwan, more positive news regarding Japan's economy and further declines in crude oil may lead to strength in U.S. shares tomorrow morning. I expect short-covering, quarter-end positioning, strong earnings reports and falling energy prices to mostly boost stock prices through Wednesday. The Portfolio is 125% net long.
Sunday, March 28, 2004
Chart of the Week
S&P 500 current earnings(Blue), 200 week exponential moving average(Red) and 30 week rate-of-change(Bottom Green)
BOTTOM LINE: Earnings are improving at the fastest rate in over 40 years as illustrated by the bottom-half of the graph. This may explain the constant talk of bubbles and overvaluation. Analysts and pundits are behind the curve. The S&P's 04 P/E is 17.81(down 64.6% from its recent high) and falling almost daily. With interest rates near 46-year lows, corporate profitability at all-time highs, economic growth the fastest in 20 years, American household net worth at all-time highs, corporate spending improving and consumer spending remaining strong I would argue that the market deserves a premium valuation relative to past history.
BOTTOM LINE: Earnings are improving at the fastest rate in over 40 years as illustrated by the bottom-half of the graph. This may explain the constant talk of bubbles and overvaluation. Analysts and pundits are behind the curve. The S&P's 04 P/E is 17.81(down 64.6% from its recent high) and falling almost daily. With interest rates near 46-year lows, corporate profitability at all-time highs, economic growth the fastest in 20 years, American household net worth at all-time highs, corporate spending improving and consumer spending remaining strong I would argue that the market deserves a premium valuation relative to past history.
Weekly Outlook
Some relatively important economic reports and a few earnings reports are due for release this week. The economic reports are the Conference Board's Consumer Confidence reading, Chicago Purchasing Manager report, Factory Orders, Initial Jobless Claims, ISM Manufacturing/Prices Paid Indices, Unemployment Rate, Change in Non-farm Payrolls and Average Weekly Hours. The Chicago Purchasing Manager, ISM Manufacturing/Prices Paid, Unemployment Rate and Change in Non-farm Payrolls are the most important releases. The Chicago Purchasing Manager report for March is estimated at 61.0 versus 63.6 in February. The ISM Manufacturing Index for March is estimated at 59.5 versus 61.4 in February. The ISM Prices Paid Index for March is estimated at 81.0 versus 81.5 in February. The Unemployment Rate for March is estimated at 5.6% versus 5.6% in February. Finally, the Change in Non-farm Payrolls for March is estimated at 120K versus 21K in February.
Monsanto(MON), Best Buy(BBY), Circuit City(CC), Pier 1(PIR), Bed Bath & Beyond(BBBY), Fisher Scientific(FSH), CarMax(KMX) and Steelcase(SCS) are some of the more important companies that release quarterly earnings this week.
BOTTOM LINE: The Portfolio is 125% net long heading into the week. The late-day sell-off Friday may lead to more weakness Monday morning. However, I expect another decent rally before quarter-end on Wednesday. I will cut market exposure on any significant rallies before the employment report on Friday. Several forecasters raised their change in Non-farm Payroll estimates on Friday as a result of the ending of the California grocer strike. UBS went from estimates of 125K to 160K, Bank 1 raised its estimates from 75K to 150K and Briefing.com went from 90K to 120K. This was one of the main reasons interest rates rose Friday. I believe the report will be slightly lower to right at expectations of 120K. The market should respond favorably to this. However, if the number comes in significantly below expectations or significantly above expectations the market will fall, thus I do not want to have a lot of market exposure heading into the report on Friday.
Monsanto(MON), Best Buy(BBY), Circuit City(CC), Pier 1(PIR), Bed Bath & Beyond(BBBY), Fisher Scientific(FSH), CarMax(KMX) and Steelcase(SCS) are some of the more important companies that release quarterly earnings this week.
BOTTOM LINE: The Portfolio is 125% net long heading into the week. The late-day sell-off Friday may lead to more weakness Monday morning. However, I expect another decent rally before quarter-end on Wednesday. I will cut market exposure on any significant rallies before the employment report on Friday. Several forecasters raised their change in Non-farm Payroll estimates on Friday as a result of the ending of the California grocer strike. UBS went from estimates of 125K to 160K, Bank 1 raised its estimates from 75K to 150K and Briefing.com went from 90K to 120K. This was one of the main reasons interest rates rose Friday. I believe the report will be slightly lower to right at expectations of 120K. The market should respond favorably to this. However, if the number comes in significantly below expectations or significantly above expectations the market will fall, thus I do not want to have a lot of market exposure heading into the report on Friday.
Market Week in Review
S&P 500 1,108.06 -.15%
U.S. equity markets drifted lower early in the week on more geopolitical concerns. Israel's assassination of the spiritual head of the Palestinian militant group Hamas and Taiwan's increasing turmoil over its recent presidential election both weighed on equities Monday morning. These concerns, multiple terror threats in France and inflation jitters sent Gold up 2.3% for the week. The Volatility Index(VIX), a gauge of investor anxiety, reached 22.67 on Monday, 63.91% above its recent lows set in the first week of the month. The NYSE Arms Index reached 4.52, its highest reading since the market bottomed last March. Finally, the AAII Bullish Sentiment Index fell to 31.48, down 54.71% from its recent high set in late January.
Goldman Sachs(GS) annihilated 1st quarter earnings and revenue estimates after the close on Tuesday, yet the markets shrugged. Seemingly overnight, investors' attitudes towards stocks turned more positive. On Wednesday after the close, Micron Technology(MU) missed sales targets for its second quarter report. However, the semiconductor index, which began to rally on Wednesday in anticipation of a strong report, continued rising on Thursday. The 6.0% rally in the SOX led to gains in the entire tech sector and eventually the broad market. Moreover, the price of crude oil fell over 5% from its recent high, leading some pundits to call a bottom for the recent correction. The unexpected rise in consumer sentiment helped propel equities further early Friday. However, stocks fell late in the afternoon on profit-taking, weekend terror fears and interest rate worries, leaving major indices mixed on the week.
BOTTOM LINE: The spike in the VIX and Arms, the significant fall in the AAII Bullish Sentiment Index, a breakdown in crude oil futures, an unexpected rise in consumer sentiment and outperformance by the semiconductors are all very positive developments for U.S. equities. The fall in energy stocks and underperformance by defensive sectors during the rally are also positive signs. Finally, the two-day 7.6% rally in airline stocks was mainly a result of falling energy prices, but may also signal investors fixation on terrorism is temporarily subsiding.
U.S. equity markets drifted lower early in the week on more geopolitical concerns. Israel's assassination of the spiritual head of the Palestinian militant group Hamas and Taiwan's increasing turmoil over its recent presidential election both weighed on equities Monday morning. These concerns, multiple terror threats in France and inflation jitters sent Gold up 2.3% for the week. The Volatility Index(VIX), a gauge of investor anxiety, reached 22.67 on Monday, 63.91% above its recent lows set in the first week of the month. The NYSE Arms Index reached 4.52, its highest reading since the market bottomed last March. Finally, the AAII Bullish Sentiment Index fell to 31.48, down 54.71% from its recent high set in late January.
Goldman Sachs(GS) annihilated 1st quarter earnings and revenue estimates after the close on Tuesday, yet the markets shrugged. Seemingly overnight, investors' attitudes towards stocks turned more positive. On Wednesday after the close, Micron Technology(MU) missed sales targets for its second quarter report. However, the semiconductor index, which began to rally on Wednesday in anticipation of a strong report, continued rising on Thursday. The 6.0% rally in the SOX led to gains in the entire tech sector and eventually the broad market. Moreover, the price of crude oil fell over 5% from its recent high, leading some pundits to call a bottom for the recent correction. The unexpected rise in consumer sentiment helped propel equities further early Friday. However, stocks fell late in the afternoon on profit-taking, weekend terror fears and interest rate worries, leaving major indices mixed on the week.
BOTTOM LINE: The spike in the VIX and Arms, the significant fall in the AAII Bullish Sentiment Index, a breakdown in crude oil futures, an unexpected rise in consumer sentiment and outperformance by the semiconductors are all very positive developments for U.S. equities. The fall in energy stocks and underperformance by defensive sectors during the rally are also positive signs. Finally, the two-day 7.6% rally in airline stocks was mainly a result of falling energy prices, but may also signal investors fixation on terrorism is temporarily subsiding.
Saturday, March 27, 2004
Economic Week in Review
ECRI Weekly Leading Index 134.10 -.07%
Concerns that inflation will soon accelerate are "premature," meaning the U.S. central bank can afford to wait before boosting interest rates, said Michael Moskow, president of the Federal Reserve Bank of Chicago. However, he also reiterated that the Fed can't maintain its rate stance "indefinitely." Moskow also said that the increase in raw materials costs was being offset by deflationary forces. Finally, he said that he isn't seeing signs that high energy prices are impacting consumers, business output or business production.
U.S. Durable Goods Orders rose 2.5% in February vs. expectations of +1.5% and -2.7% in January. Orders for computers, motor vehicles and aircraft led the way. Unfilled orders for business equipment, which gauges the ability of manufacturing to keep pace with demand, increased .7% in February, the biggest rise since October. Excluding transportation equipment, Durable Goods Orders declined .3% vs. expectations of a 1.5% rise and a .6% gain in January.
New Home Sales were 1163K in February vs. expectations of 1100K and 1099K in January. Purchases rose 12% in the Northeast, the fastest since January 1997. "The very high level of activity really ensures that consumer spending remains golden through the first half of this year," said Ken Mayland, chief economist of Clear View Economics.
The final GDP reading for the 4th quarter was 4.1%. This increase followed a gain of 8.2% in the 3rd quarter, resulting in the fastest six-month growth in almost 20 years. Corporate profits rose for a third consecutive quarter and were up 31% from the same quarter in 02, resulting in rapidly falling valuations for U.S. equities. Economists are now projecting the economy to growth 4.6% for all of 2004, the fastest economic growth since 1984.
The final Univ. of Mich. Consumer Confidence reading for March came in at 95.8 vs. a previous reading of 94.1 and expectations of 93.7. Income-tax rebates are up 5% on average from last year which may be buoying consumers until companies step up the pace of hiring, Bloomberg reported.
Macroeconomic Advisors, a private economic forecaster the Fed pays close attention to, says that for the rest of this year and 2005, the U.S. should see the heady combination of strong economic growth, payroll job gains of 200,000 a month, additional increases in corporate profits, significant gains in stock prices, only moderate rising interest rates and continued very low inflation.
BOTTOM LINE: The Fed, through multiple statements, made it clear last week that they do not see a significant pick-up in inflation, notwithstanding rising energy and base material prices. However, they also made it clear that they are going to raise rates at the first sign of sustainable job growth. I believe it will take two consecutive "above-expectations" jobs reports to prompt the Fed to raise rates. In my opinion, this will occur within the next 4-6 months at most. Ethan Harris, chief U.S. economist at Lehman Brothers said, "There's a legitimate concern that the general hue of news coverage on the economy has been very negative lately, and there's a risk of self-fulfilling expectations here." I agree with this statement and find it amazing that the Univ. of Mich. Consumer Confidence reading increased in the last two weeks. This is a significant development in my opinion. The U.S. consumer saw multiple terror attacks, the NASDAQ correcting almost 12%, record-high gas prices, very negative political campaigning and "slower-than-expected" job growth, yet consumer's confidence rose. Maybe the U.S. consumer is finally seeing through the mainstream media's intense focus on negativity and is realizing their net worth is at all-time highs, U.S. economic growth is at 20-year highs, the housing market is the best in U.S. history, corporate profits are near all-time highs, job creation is inevitable, there has not been a terror attack on U.S. soil since 9/11, inflation is near all-time lows, interest rates are near 46-year lows, unemployment is relatively low and falling, entrepreneurship is climbing, more parents are able to afford to send their children to college/graduate school and our standard of living is the highest in the world and climbing.
Concerns that inflation will soon accelerate are "premature," meaning the U.S. central bank can afford to wait before boosting interest rates, said Michael Moskow, president of the Federal Reserve Bank of Chicago. However, he also reiterated that the Fed can't maintain its rate stance "indefinitely." Moskow also said that the increase in raw materials costs was being offset by deflationary forces. Finally, he said that he isn't seeing signs that high energy prices are impacting consumers, business output or business production.
U.S. Durable Goods Orders rose 2.5% in February vs. expectations of +1.5% and -2.7% in January. Orders for computers, motor vehicles and aircraft led the way. Unfilled orders for business equipment, which gauges the ability of manufacturing to keep pace with demand, increased .7% in February, the biggest rise since October. Excluding transportation equipment, Durable Goods Orders declined .3% vs. expectations of a 1.5% rise and a .6% gain in January.
New Home Sales were 1163K in February vs. expectations of 1100K and 1099K in January. Purchases rose 12% in the Northeast, the fastest since January 1997. "The very high level of activity really ensures that consumer spending remains golden through the first half of this year," said Ken Mayland, chief economist of Clear View Economics.
The final GDP reading for the 4th quarter was 4.1%. This increase followed a gain of 8.2% in the 3rd quarter, resulting in the fastest six-month growth in almost 20 years. Corporate profits rose for a third consecutive quarter and were up 31% from the same quarter in 02, resulting in rapidly falling valuations for U.S. equities. Economists are now projecting the economy to growth 4.6% for all of 2004, the fastest economic growth since 1984.
The final Univ. of Mich. Consumer Confidence reading for March came in at 95.8 vs. a previous reading of 94.1 and expectations of 93.7. Income-tax rebates are up 5% on average from last year which may be buoying consumers until companies step up the pace of hiring, Bloomberg reported.
Macroeconomic Advisors, a private economic forecaster the Fed pays close attention to, says that for the rest of this year and 2005, the U.S. should see the heady combination of strong economic growth, payroll job gains of 200,000 a month, additional increases in corporate profits, significant gains in stock prices, only moderate rising interest rates and continued very low inflation.
BOTTOM LINE: The Fed, through multiple statements, made it clear last week that they do not see a significant pick-up in inflation, notwithstanding rising energy and base material prices. However, they also made it clear that they are going to raise rates at the first sign of sustainable job growth. I believe it will take two consecutive "above-expectations" jobs reports to prompt the Fed to raise rates. In my opinion, this will occur within the next 4-6 months at most. Ethan Harris, chief U.S. economist at Lehman Brothers said, "There's a legitimate concern that the general hue of news coverage on the economy has been very negative lately, and there's a risk of self-fulfilling expectations here." I agree with this statement and find it amazing that the Univ. of Mich. Consumer Confidence reading increased in the last two weeks. This is a significant development in my opinion. The U.S. consumer saw multiple terror attacks, the NASDAQ correcting almost 12%, record-high gas prices, very negative political campaigning and "slower-than-expected" job growth, yet consumer's confidence rose. Maybe the U.S. consumer is finally seeing through the mainstream media's intense focus on negativity and is realizing their net worth is at all-time highs, U.S. economic growth is at 20-year highs, the housing market is the best in U.S. history, corporate profits are near all-time highs, job creation is inevitable, there has not been a terror attack on U.S. soil since 9/11, inflation is near all-time lows, interest rates are near 46-year lows, unemployment is relatively low and falling, entrepreneurship is climbing, more parents are able to afford to send their children to college/graduate school and our standard of living is the highest in the world and climbing.
Weekly Scoreboard*
Indices
S&P 500 1,108.06 -.15%
Dow 10,212.97 +.26%
NASDAQ 1,960.02 +1.00%
Russell 2000 572.92 +.38%
Wilshire 5000 10,840.18 -.12%
Volatility(VIX) 17.33 -9.50%
AAII Bullish % 31.48 -18.45%
US Dollar 88.89 +.84%
CRB 278.75 -.09%
Futures Spot Prices
Gold 423.20 +2.30%
Crude Oil 35.73 -5.10%
Natural Gas 5.4 -3.42%
Base Metals 112.11 -.85%
10-year US Treasury Yield 3.84% +1.59%
Average 30-year Mortgage Rate 5.40% +.37%
Leading Sectors
Airlines +4.23%
Semis +3.43%
Gaming +3.39%
Lagging Sectors
Broadcasting -2.77%
Energy -3.09%
Oil Service -4.49%
*% Gain or loss for the week
S&P 500 1,108.06 -.15%
Dow 10,212.97 +.26%
NASDAQ 1,960.02 +1.00%
Russell 2000 572.92 +.38%
Wilshire 5000 10,840.18 -.12%
Volatility(VIX) 17.33 -9.50%
AAII Bullish % 31.48 -18.45%
US Dollar 88.89 +.84%
CRB 278.75 -.09%
Futures Spot Prices
Gold 423.20 +2.30%
Crude Oil 35.73 -5.10%
Natural Gas 5.4 -3.42%
Base Metals 112.11 -.85%
10-year US Treasury Yield 3.84% +1.59%
Average 30-year Mortgage Rate 5.40% +.37%
Leading Sectors
Airlines +4.23%
Semis +3.43%
Gaming +3.39%
Lagging Sectors
Broadcasting -2.77%
Energy -3.09%
Oil Service -4.49%
*% Gain or loss for the week
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