Earnings Announcements
Company/Estimate
GCI/1.00
NYT/.36
NVLS/.10
TSCO/.05
SMSC/.16
MDC/1.51
IFIN/.45
Splits
FOSL 3-for-2
Economic Data
None of note.
Weekend Recommendations
Forbes on Fox had guests that were mixed on SU and BHP. Bulls and Bears had guests that were positive on SIMG, GS, IDTI, DIS, MECA and mixed on SLM, AA, GG and IACI. Cashin' In had guests that were positive on NUS, IJS, LLTC, UPL, SIRI, EBAY, mixed on FRED and negative on TYC. Louis Rukeyser's Wall Street had guests that were positive on EWJ, ACGL, HDI, ISLE, MRX, ZBRA, AAPL, SUNW, AMTD, G, APA and ATH. Wall St. Week w/Fortune had guests that were positive on MCD, TYC, IPG, BHI, BJS, SLB, SM, SPN and BLD. Business Week says NOK's recent shortfall is an anomaly in the booming cell-phone market. Business Week says improving ad market will help VIA. Finally, Business Week has a negative article on MSFT, saying slowing sales, late products and antitrust suits continue to plague the stock. Money manager's told Barron's they were positive on stocks and reducing cash, favorites include AL, WNC, DOW, HPQ, TYC and CHB. Barron's had positive columns on BIIB and COMS. Barron's had a negative article on ODSY. Goldman Sachs reiterated Outperform on PH and FD. GS says gulf-coast gaming trends better-than-expected. GS reiterated Underperform on MAY. GS views DELL as one of most attractive technology opportunities, likes EMC and LXK too.
Weekend News
Electronic News has an interesting article on recent research from In-Stat/MDR on the broadband market. France may sell about 100 tons of its central bank's gold reserves in the next few months, Le Parisien reported. Sony's motion-picture unit bought the rights to make a movie of the book written by former White House counterterrorism adviser Richard Clarke, the NY Times reported. Democrats and a few Republicans in the U.S. House of Representatives favor an increase in U.S. fuel taxes that is opposed by President Bush, the Washington Post reported. Public-safety officials in the U.S. expect a difficult wildfire season later this year because of drought, higher temperatures and millions of dead trees, the LA Times reported. Soaring plywood prices may crimp future profits of homebuilders, the NT Times reported. Israeli Prime Minister Ariel Sharon plans to give President Bush a written commitment next week that Israel will withdraw from the Gaza Strip, Agence France-Presse said. Samsung, Honda and Toyota are among foreign companies that are spending billions of dollars to build or expand U.S. operations, helping local economies, the NY Times reported. Travelers from Asia's growing middle class are expected to boost tourism revenue around the world by 600% within 10 years, Newsweek reported. The U.S. economy, with help from China, is spurring the first simultaneous acceleration of growth in Europe and Asia in 20 years, Bloomberg reported.
Late-Night Trading
Asian indices are unch. to +2.00% on average.
S&P 500 indicated -.12%.
NASDAQ indicated -.07%.
BOTTOM LINE: The Portfolio is 75% net long heading into the week. I expect U.S. stocks to rise tomorrow as the situation in Iraq improved slightly and no terrorist attacks occurred over the religious holidays. I will look to add market exposure on any unexpected weakness in the morning.
Sunday, April 11, 2004
Weekly Outlook
There are a number of economic reports scheduled for release this week. There are also several notable U.S. companies due to report earnings. Scheduled economic reports include Advance Retail Sales, Business Inventories, Consumer Price Index, Empire Manufacturing, Initial Jobless Claims, Philadelphia Fed, Housing Starts, Industrial Production, Capacity Utilization and U. of Mich. Consumer Confidence. Advance Retail Sales, Consumer Price Index and U. of Mich. Consumer Confidence are the most important releases this week.
Intel(INTC), Johnson & Johnson(JNJ), Merrill Lynch(MER), Citigroup(C), Apple Computer(AAPL), Bank of America(BAC), Delta Air(DAL), Harley-Davidson(HDI), Texas Instruments(TXN), EMC Corp.(EMC) and IBM(IBM) are some of the more important companies that release quarterly earnings this week.
BOTTOM LINE: The numerous economic and corporate earnings reports on tap this week should continue to paint a positive picture of the current state of the U.S. economy. I expect stocks to rise barring a worsening of the situation in Iraq or a significant rise in energy prices.
Intel(INTC), Johnson & Johnson(JNJ), Merrill Lynch(MER), Citigroup(C), Apple Computer(AAPL), Bank of America(BAC), Delta Air(DAL), Harley-Davidson(HDI), Texas Instruments(TXN), EMC Corp.(EMC) and IBM(IBM) are some of the more important companies that release quarterly earnings this week.
BOTTOM LINE: The numerous economic and corporate earnings reports on tap this week should continue to paint a positive picture of the current state of the U.S. economy. I expect stocks to rise barring a worsening of the situation in Iraq or a significant rise in energy prices.
Charts of the Week
Unit Labor Costs Non-farm Business (1977-2003)
30-Year Treasury Yield (1977-2003)
BOTTOM LINE: It is not a coincidence that interest rates have fallen as unit labor costs fall. 70% of inflation is comprised of unit labor costs, while only 5% is comprised of commodity costs. It is very likely the Fed will begin raising rates in the next few months, however the frequency and magnitude of their subsequent hikes will probably be less than investors currently anticipate. The current slack in the labor market and deflationary forces emanating from developing countries should keep unit labor costs in check for the foreseeable future, thus allowing the Fed to raise rates at a relatively slow pace compared to past periods of Fed tightening.
30-Year Treasury Yield (1977-2003)
BOTTOM LINE: It is not a coincidence that interest rates have fallen as unit labor costs fall. 70% of inflation is comprised of unit labor costs, while only 5% is comprised of commodity costs. It is very likely the Fed will begin raising rates in the next few months, however the frequency and magnitude of their subsequent hikes will probably be less than investors currently anticipate. The current slack in the labor market and deflationary forces emanating from developing countries should keep unit labor costs in check for the foreseeable future, thus allowing the Fed to raise rates at a relatively slow pace compared to past periods of Fed tightening.
Market Week in Review
S&P 500 1,139.32 +.63% for the week.
U.S. stocks finished mostly higher on the week as stellar corporate earnings and economic reports were offset by rising energy prices and violence in Iraq. Yahoo!(YHOO), Dell(DELL), General Electric(GE), Genentech(DNA), Research in Motion(RIMM), Cummins(CMI), Black & Decker(BDK) and Cigna(CI) are notable U.S. companies that raised their revenue or earnings guidance. HMO's paced gains for the week as Cigna's strong quarterly report and Oxford Health(OHP) takeover speculation ignited investor interest in the group. The all-time high reading in the ISM Non-manufacturing Index and three-year low in initial jobless claims both painted very positive pictures of the current state of the U.S. economy, thus leading to further strength in commodity-related groups. Finally, small/mid-cap security-related stocks soared as traders speculate demand for their products from government's around the globe will significantly increase on terrorism fears.
With strong economic growth comes increased demand for energy. Crude oil rose 8.3% for the week, its strongest rise in over a year. The very strong economic reports also resulted in speculation that the Fed was falling behind the curve with respect to inflation. This prompted further selling in Homebuilders as investors bet interest rate increases will dampen demand for homes. Retailers also underperformed last week. Rising gasoline prices, harder year-over-year future sales comparisons and declining monetary stimulus all led to weakness in retail shares. Violent headlines from overseas also contributed to a lackluster performance for U.S. stocks. The very positive economic and corporate earnings reports were drowned out by the media's intense focus on all that could go wrong in Iraq.
BOTTOM LINE: It is my optimistic opinion that the burst of violence in Iraq in temporary in nature. This is giving investors a chance to buy U.S. shares at artificially depressed levels. Numerous bell-weather U.S. companies are beating estimates by a significant margin, thus making current valuations even more attractive. Inflation is not currently a problem and won't be for the foreseeable future. Only 5% of inflation is comprised of commodity prices. 70% of inflation comes from unit labor costs. There is still too much slack in the labor market to see any significant pick-up in unit labor costs at this time, thus allowing the Fed to increase rates at a slower pace than most investors currently anticipate.
U.S. stocks finished mostly higher on the week as stellar corporate earnings and economic reports were offset by rising energy prices and violence in Iraq. Yahoo!(YHOO), Dell(DELL), General Electric(GE), Genentech(DNA), Research in Motion(RIMM), Cummins(CMI), Black & Decker(BDK) and Cigna(CI) are notable U.S. companies that raised their revenue or earnings guidance. HMO's paced gains for the week as Cigna's strong quarterly report and Oxford Health(OHP) takeover speculation ignited investor interest in the group. The all-time high reading in the ISM Non-manufacturing Index and three-year low in initial jobless claims both painted very positive pictures of the current state of the U.S. economy, thus leading to further strength in commodity-related groups. Finally, small/mid-cap security-related stocks soared as traders speculate demand for their products from government's around the globe will significantly increase on terrorism fears.
With strong economic growth comes increased demand for energy. Crude oil rose 8.3% for the week, its strongest rise in over a year. The very strong economic reports also resulted in speculation that the Fed was falling behind the curve with respect to inflation. This prompted further selling in Homebuilders as investors bet interest rate increases will dampen demand for homes. Retailers also underperformed last week. Rising gasoline prices, harder year-over-year future sales comparisons and declining monetary stimulus all led to weakness in retail shares. Violent headlines from overseas also contributed to a lackluster performance for U.S. stocks. The very positive economic and corporate earnings reports were drowned out by the media's intense focus on all that could go wrong in Iraq.
BOTTOM LINE: It is my optimistic opinion that the burst of violence in Iraq in temporary in nature. This is giving investors a chance to buy U.S. shares at artificially depressed levels. Numerous bell-weather U.S. companies are beating estimates by a significant margin, thus making current valuations even more attractive. Inflation is not currently a problem and won't be for the foreseeable future. Only 5% of inflation is comprised of commodity prices. 70% of inflation comes from unit labor costs. There is still too much slack in the labor market to see any significant pick-up in unit labor costs at this time, thus allowing the Fed to increase rates at a slower pace than most investors currently anticipate.
Saturday, April 10, 2004
Economic Week in Review
ECRI Weekly Leading Index 135.50 +1.19%
The ISM Non-manufacturing Index for March, which accounts for about 85% of the U.S. economy, rose to an all-time record high of 65.8 vs. 60.8 in February and expectations of 61.5. "This is a very strong report -- its confirmation of the big rise in payrolls we saw Friday, and it's a sign that consumers are spending," said Chris Low, chief economist at FTN Financial. Allen Questrom, CEO of J.C. Penney, said that the tax cuts have been a key issue in the last couple of years in terms of restarting the economy's growth engines and biding time for corporations to begin spending again. Penney plans to add more new stores than it has in the past several years, Questrom said. 15 of 17 industries reported increases in business, led by wholesalers, mining, communications, retail and construction. The index of prices paid, a measure of costs for purchased materials and services, surged to 65.7 from 57.3 in February. The survey's employment index rose to 53.9, the sixth straight month of growth. Furthermore, CEO's may be gaining optimism and showing that in their hiring plans, a quarterly survey showed. The NY-based Conference Board's index of business confidence rose to 73 in the first quarter, the highest reading since 1983.
Morgan Stanley and Lehman Brothers said they will cut their U.S. budget deficit forecasts by $40-50B for 04 as strong economic growth, smaller-than-expected tax refunds and slower government spending all contribute to a smaller deficit.
Executives at Starbucks, McDonalds, Microsoft, Coke, Nike, Ford, GE and American Airlines all said they aren't seeing any negative impact on their businesses overseas, notwithstanding the recent geopolitical turmoil. A Harris Interactive poll conducted Feb. 27 to March 4 in Britain, France, Germany, Spain and Italy found that only 13% of those surveyed had a negative opinion of Americans.
Higher energy prices don't threaten growth in the U.S. economy or add much to inflation concerns, William Poole, president of the Federal Reserve Bank of St. Louis told USA Today. "There is no regular and reliable relationship between inflation in materials prices or goods at an early stage of production and retail price inflation," Poole said. Unit Labor Costs, which account for 70% of inflation have been falling since the early 80's. "As long as there are no threats to the continuation of low and stable inflation, then we have space, to be slower in raising rates than we would if we start to see conditions developing that do show threats to the inflation environment," Poole said.
The National Association of Realtors, raised its estimate for home sales for the fourth time this year, saying stronger jobs growth will offset a rise in interest rates. The Association also expects the average price of a home to rise another 4.5% this year after last year's 7.5% rise.
The Import Price Index rose .9% in March vs. a .4% rise in February and expectations of a .6% rise. Excluding petroleum, import prices have climbed 1% in 12 months, the smallest rise since a similar gain in October. The increase in consumer prices excluding food and energy has remained tame, rising 1.2% over the 12 months through February, close to the smallest gain since 1966.
Initial Jobless claims for the week ending April 3 were 328K vs. 342K the prior week and expectations of 340K. Increasing demand from the strongest economic growth since the early 80's is making it harder for companies to rely on productivity gains from existing workers. Moreover, corporate profits last quarter reached an all-time record high of 8.5% of GDP, thus giving companies the financial ability to increase hiring. A recent survey by the Conference Board showed that over half of all CEO's surveyed planned to increase hiring in the near future. "Companies are hiring and starting to rebuild inventories and that is a sign of confidence," said James O'Sullivan, a senior Economist at UBS Securities. Finally, optimism among U.S. manufacturing executives in March reached an all-time record, Manufacturers Alliance/MAPI said.
Worldwide sales of semiconductor manufacturing equipment rose 10% last year and will surge 40% in 2004 as chipmakers upgrade plants and buy tools for new production techniques, researcher Gartner said. The International Monetary Fund expects the U.S. economy will expand 4.6% this year, the most since the early 80's. The IMF cut its forecast for the 12 countries in the European Union to 1.7% for 04.
BOTTOM LINE: There are several key takeaways for the week. The U.S. service sector, accounting for 85% of the U.S. economy, is on fire. Corporate CEO's confidence is improving dramatically, leading to a rapid improvement in the employment picture. The Fed will likely raise rates at a slower pace than investors currently expect. The first hike will likely come in the next few months, however the magnitude and frequency of the increases will remain subdued until unit labor costs begin to rise substantially. Considering the extent that developing countries are effectively exporting substantial labor cost deflation, it is unlikely U.S. unit labor costs will rise materially in the near future.
The violence in Iraq over the past week will likely result in a modest decline in consumer confidence in the near future. However, I believe the situation is not nearly as bad as it appears. Without going into too much detail, I believe that the spurt of violence was a calculated political move orchestrated by the grand ayatollah of the Iraqi Shia, Ali al-Sistani. He is essentially using al-Sadr as a pawn to "remind" the U.S. that it needs to cater to his demands for the transition on June 30. al-Sistani has the power to put down al-Sadr at any time of his choosing. I believe the U.S. will work out a deal that is acceptable to al-Sistani, thus ending al-Sadr's brief moment of glory. If I am right, the violence has peaked or will peak in the near future. It is highly unlikely that al-Sistani and the U.S. commanders will allow the situation to spiral out of control.
The ISM Non-manufacturing Index for March, which accounts for about 85% of the U.S. economy, rose to an all-time record high of 65.8 vs. 60.8 in February and expectations of 61.5. "This is a very strong report -- its confirmation of the big rise in payrolls we saw Friday, and it's a sign that consumers are spending," said Chris Low, chief economist at FTN Financial. Allen Questrom, CEO of J.C. Penney, said that the tax cuts have been a key issue in the last couple of years in terms of restarting the economy's growth engines and biding time for corporations to begin spending again. Penney plans to add more new stores than it has in the past several years, Questrom said. 15 of 17 industries reported increases in business, led by wholesalers, mining, communications, retail and construction. The index of prices paid, a measure of costs for purchased materials and services, surged to 65.7 from 57.3 in February. The survey's employment index rose to 53.9, the sixth straight month of growth. Furthermore, CEO's may be gaining optimism and showing that in their hiring plans, a quarterly survey showed. The NY-based Conference Board's index of business confidence rose to 73 in the first quarter, the highest reading since 1983.
Morgan Stanley and Lehman Brothers said they will cut their U.S. budget deficit forecasts by $40-50B for 04 as strong economic growth, smaller-than-expected tax refunds and slower government spending all contribute to a smaller deficit.
Executives at Starbucks, McDonalds, Microsoft, Coke, Nike, Ford, GE and American Airlines all said they aren't seeing any negative impact on their businesses overseas, notwithstanding the recent geopolitical turmoil. A Harris Interactive poll conducted Feb. 27 to March 4 in Britain, France, Germany, Spain and Italy found that only 13% of those surveyed had a negative opinion of Americans.
Higher energy prices don't threaten growth in the U.S. economy or add much to inflation concerns, William Poole, president of the Federal Reserve Bank of St. Louis told USA Today. "There is no regular and reliable relationship between inflation in materials prices or goods at an early stage of production and retail price inflation," Poole said. Unit Labor Costs, which account for 70% of inflation have been falling since the early 80's. "As long as there are no threats to the continuation of low and stable inflation, then we have space, to be slower in raising rates than we would if we start to see conditions developing that do show threats to the inflation environment," Poole said.
The National Association of Realtors, raised its estimate for home sales for the fourth time this year, saying stronger jobs growth will offset a rise in interest rates. The Association also expects the average price of a home to rise another 4.5% this year after last year's 7.5% rise.
The Import Price Index rose .9% in March vs. a .4% rise in February and expectations of a .6% rise. Excluding petroleum, import prices have climbed 1% in 12 months, the smallest rise since a similar gain in October. The increase in consumer prices excluding food and energy has remained tame, rising 1.2% over the 12 months through February, close to the smallest gain since 1966.
Initial Jobless claims for the week ending April 3 were 328K vs. 342K the prior week and expectations of 340K. Increasing demand from the strongest economic growth since the early 80's is making it harder for companies to rely on productivity gains from existing workers. Moreover, corporate profits last quarter reached an all-time record high of 8.5% of GDP, thus giving companies the financial ability to increase hiring. A recent survey by the Conference Board showed that over half of all CEO's surveyed planned to increase hiring in the near future. "Companies are hiring and starting to rebuild inventories and that is a sign of confidence," said James O'Sullivan, a senior Economist at UBS Securities. Finally, optimism among U.S. manufacturing executives in March reached an all-time record, Manufacturers Alliance/MAPI said.
Worldwide sales of semiconductor manufacturing equipment rose 10% last year and will surge 40% in 2004 as chipmakers upgrade plants and buy tools for new production techniques, researcher Gartner said. The International Monetary Fund expects the U.S. economy will expand 4.6% this year, the most since the early 80's. The IMF cut its forecast for the 12 countries in the European Union to 1.7% for 04.
BOTTOM LINE: There are several key takeaways for the week. The U.S. service sector, accounting for 85% of the U.S. economy, is on fire. Corporate CEO's confidence is improving dramatically, leading to a rapid improvement in the employment picture. The Fed will likely raise rates at a slower pace than investors currently expect. The first hike will likely come in the next few months, however the magnitude and frequency of the increases will remain subdued until unit labor costs begin to rise substantially. Considering the extent that developing countries are effectively exporting substantial labor cost deflation, it is unlikely U.S. unit labor costs will rise materially in the near future.
The violence in Iraq over the past week will likely result in a modest decline in consumer confidence in the near future. However, I believe the situation is not nearly as bad as it appears. Without going into too much detail, I believe that the spurt of violence was a calculated political move orchestrated by the grand ayatollah of the Iraqi Shia, Ali al-Sistani. He is essentially using al-Sadr as a pawn to "remind" the U.S. that it needs to cater to his demands for the transition on June 30. al-Sistani has the power to put down al-Sadr at any time of his choosing. I believe the U.S. will work out a deal that is acceptable to al-Sistani, thus ending al-Sadr's brief moment of glory. If I am right, the violence has peaked or will peak in the near future. It is highly unlikely that al-Sistani and the U.S. commanders will allow the situation to spiral out of control.
Friday, April 09, 2004
Weekly Scoreboard
Indices
S&P 500 1,139.32 +.63%
Dow 10,442.03 +.66%
NASDAQ 2,052.88 +1.88%
Russell 2000 597.88 +.43%
Wilshire 5000 11,166.06 +.53%
Volatility(VIX) 16.26 -2.34%
AAII Bullish % 58.78 +6.54%
US Dollar 88.98 +2.11%
CRB 282.80 +.48%
Futures Spot Prices
Gold 420.70 -1.89%
Crude Oil 37.14 +8.28%
Natural Gas 5.94 +2.70%
Base Metals 111.52 -3.09%
10-year US Treasury Yield 4.19% +.96%
Average 30-year Mortgage Rate 5.79% +4.89%
Leading Sectors
HMO's +5.09%
Iron/Steel +4.03%
Semis +3.32%
Lagging Sectors
Retail -1.35%
I-Banks -1.65%
Homebuilders -7.02%
*% Gain or loss for the week
S&P 500 1,139.32 +.63%
Dow 10,442.03 +.66%
NASDAQ 2,052.88 +1.88%
Russell 2000 597.88 +.43%
Wilshire 5000 11,166.06 +.53%
Volatility(VIX) 16.26 -2.34%
AAII Bullish % 58.78 +6.54%
US Dollar 88.98 +2.11%
CRB 282.80 +.48%
Futures Spot Prices
Gold 420.70 -1.89%
Crude Oil 37.14 +8.28%
Natural Gas 5.94 +2.70%
Base Metals 111.52 -3.09%
10-year US Treasury Yield 4.19% +.96%
Average 30-year Mortgage Rate 5.79% +4.89%
Leading Sectors
HMO's +5.09%
Iron/Steel +4.03%
Semis +3.32%
Lagging Sectors
Retail -1.35%
I-Banks -1.65%
Homebuilders -7.02%
*% Gain or loss for the week
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