Earnings of Note
Company/Estimate
ACDO/.42
ATN/.21
ASF/.12
ESPD/.18
IACI/.16
NBIX/-.36
PCLN/.08
Splits
None of Note.
Economic Data
Construction Spending for March estimated +.5% versus -.1% in February.
ISM Manufacturing for April estimated at 62.7 versus 62.5 prior month.
ISM Prices Paid for April estimated at 85.0 versus 86.0 in March.
Total Vehicles Sales for April estimated at 17.0M versus 16.7M in March.
Domestic Vehicle Sales for April estimated at 13.5M versus 13.3M prior month.
Weekend Recommendations
Forbes on Fox had guests that were positive on JNJ, WFMI, BBBY, BEAS, COGN, CSR and mixed on HAL and NMG/A. Bulls and Bears had guests that were positive on GE, NFX, MOT, LNCR, PETM, mixed on HAL and negative on DIS. Cashin' In had guests that were positive on MANT, MLNM, FLML, NVEC, CBT and mixed on MRVL. Louis Rukeyser's Wall Street had guests that were positive on COL, WAG, CCU, CLX, DVN, OSI and FNM. Wall St. Week w/Fortune had guests that were positive on BBH, CSCO, SIVB, BAC, GE, MSFT and CCE. Barron's had a positive column on VOD and negative columns on ZLC and TASR.
Weekend News
Economist.com has a positive article on California's economy, saying it is poised for a rebound. Google is being sued by a unit of rival Yahoo! over the way it sells advertising, the Daily Telegraph reported. UN Secretary-General Kofi Annan said on Sunday any UN official found guilty of corruption in the burgeoning Iraqi oil-for-food scandal would be dismissed and be held liable for legal action, Agence France-Presse reported. Tyco won a $1B contract to build a computerized network of radio transmitters across New York state designed to correct lapses among emergency response agencies, the New York Times reported. China is facing "severe" pressure to meet demand for oil products because of rapid consumption growth and production-capacity constraints, Xinhua News reported. The UK is set to send as many as 4,000 extra soldiers to secure Najaf in the biggest expansion of British forces in Iraq since the beginning of the war, the Sunday Telegraph said. The UK government has bought ani-radiation drugs worth $88.9M to cover half the country's population in the event of a dirty bomb. Chinese Vice Premier Huang Ju urged officials to curb money supply and suspend or halt work on industrial projects that aren't in line with government policy to ensure long-term stable economic growth, China Central TV reported. Wall Street firms are increasing their hiring in NYC as profits rebound, Crain's New York Business reported. Pfizer plans to buy more biotechnology companies to finance new drug discoveries, the Financial Times said. Photographs allegedly showing UK troops abusing a hooded Iraqi prisoner are probably fakes, the London-based Times said. Warren Buffett said he increased his bet against the U.S. dollar, Bloomberg reported. Paul Tudor Jones, founder of the $9.4B hedge fund firm Tudor Investment Corp., is increasing his investments in China, Bloomberg reported.
Late-Night Trading
Asian indices are mostly lower, -1.25% to +.25% on average.
S&P 500 indicated +.04%.
NASDAQ indicated +.36%.
BOTTOM LINE: The Portfolio is 25% net short heading into the week. While the market could rally at any time from its oversold state, I would like to see sentiment indicators such as the Bullish %, VIX, ARMS and Put/Call ratio show less investor complacency. Interest rates will likely rise further during the week in anticipation of Friday's employment report. U.S. stocks should open higher in the morning on some positive developments in Iraq, strong economic data and no significant terrorist acts over the weekend. I will monitor the strength of the open before deciding whether or not to shift market exposure.
Monday, May 03, 2004
Sunday, May 02, 2004
Weekly Outlook
There are number of economic reports scheduled for release this week as well as a few significant corporate earnings reports. Scheduled economic reports include ISM Manufacturing/Prices Paid, Vehicle Sales, Factory Orders, ISM Non-Manufacturing, Non-farm Productivity, Unit Labor Costs, Unemployment Rate and Change in Non-farm Payrolls. ISM Manufacturing/Non-Manufacturing, Unit Labor Costs and Change in Non-farm Payrolls have the most market-moving potential.
IAC/Interactive Corp.(IACI), Clear Channel(CCU), Emerson(EMR), Northrop Grumman(NOC), Tyco(TYC), CVS Corp.(CVS), Caremark(CMX), Fox Entertainment(FOX) and XM Satellite Radio(XMSR) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The JP Morgan Tech/Telecom Conference, FOMC Policy announcement, Morgan Stanley Healthcare Conference and FOMC minutes release may also impact the market.
BOTTOM LINE: The S&P 500's P/E on 04 estimates is 17.33 and falling, the lowest level since the depths of the Asian/Long-term capital crises in 1998. The S&P 500's current valuation is also lower than in 1992 and 1987, years preceding major bull moves. The economy is growing the fastest since the early 80's, American household net-worth is at all-time highs, American home ownership is at all-time highs, corporate profitability is at all-time highs, interest rates and inflation are relatively low and consumer spending is very strong, yet the stock market is falling. Multiple sectors appear to be breaking down technically. This leads me to conclude investor psychology has changed and the market is in the middle of a P/E multiple contraction phase. Market participants appear to be factoring in the likelihood of another major terrorist attack on U.S. soil. The strong fundamental backdrop for stocks should keep this phase from turning into another bear market. With my short-term trading indicators on sell signals, investor complacency still relatively high and deteriorating technicals in multiple sectors, I expect more weakness in the near-term. I will look to make additional short sales into any bounce from technically oversold levels.
IAC/Interactive Corp.(IACI), Clear Channel(CCU), Emerson(EMR), Northrop Grumman(NOC), Tyco(TYC), CVS Corp.(CVS), Caremark(CMX), Fox Entertainment(FOX) and XM Satellite Radio(XMSR) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The JP Morgan Tech/Telecom Conference, FOMC Policy announcement, Morgan Stanley Healthcare Conference and FOMC minutes release may also impact the market.
BOTTOM LINE: The S&P 500's P/E on 04 estimates is 17.33 and falling, the lowest level since the depths of the Asian/Long-term capital crises in 1998. The S&P 500's current valuation is also lower than in 1992 and 1987, years preceding major bull moves. The economy is growing the fastest since the early 80's, American household net-worth is at all-time highs, American home ownership is at all-time highs, corporate profitability is at all-time highs, interest rates and inflation are relatively low and consumer spending is very strong, yet the stock market is falling. Multiple sectors appear to be breaking down technically. This leads me to conclude investor psychology has changed and the market is in the middle of a P/E multiple contraction phase. Market participants appear to be factoring in the likelihood of another major terrorist attack on U.S. soil. The strong fundamental backdrop for stocks should keep this phase from turning into another bear market. With my short-term trading indicators on sell signals, investor complacency still relatively high and deteriorating technicals in multiple sectors, I expect more weakness in the near-term. I will look to make additional short sales into any bounce from technically oversold levels.
Chart of the Week
NASDAQ Cumulative Advance/Decline Line
Bottom Line: Many technology stocks are approaching technically oversold levels. However, breadth on the tech-heavy NASDAQ continues to deteriorate. Thus, while an oversold bounce could occur at any time, the NASDAQ will likely work its way lower over the next few weeks.
Bottom Line: Many technology stocks are approaching technically oversold levels. However, breadth on the tech-heavy NASDAQ continues to deteriorate. Thus, while an oversold bounce could occur at any time, the NASDAQ will likely work its way lower over the next few weeks.
Market Week in Review
S&P 500 1,107.30 -2.92% for the week.
U.S. stocks finished lower last week on fears over rising inflation, escalating violence in the Middle East and China's cooling economy. The NASDAQ had its largest weekly decline in two years as networking, semiconductor and disk drive stocks fell substantially. Nortel Networks, North America's biggest maker of telephone equipment, tumbled 35% after it fired its CEO because of an accounting misstatement that will cut last year's earnings in half. Furthermore, JDS Uniphase, the world's biggest maker of fiber-optic network parts, sank 28% for the biggest decline in the S&P 500. The company said it may lose more money than analysts expected this quarter. Defensive sectors, such as utilities, tobacco and pharmaceuticals all displayed relative strength for the week.
There were a few positive developments last week. Most of the economic and corporate reports were better-than-expected. As well, Genentech and OSI Pharmaceuticals soared after saying their experimental Tarceva medicine extended the lives of lung-cancer patients who no longer responded to other treatments. This is the first time any drug in this class has shown a survival benefit. United Healthcare agreed to purchase Oxford Health Plans for about $56.79/share. Finally, more than 80% of S&P 500 members have reported results and profit at those companies has climbed 27%, with 75% beating expectations. The average positive surprise has been 8%.
Bottom Line: The semiconductor index broke substantially below its 200-day moving average last week, while many other sub-sectors of technology are hovering near this key technical level. Investor psychology has deteriorated a great deal in the last few weeks as the media's obsession with negativity and terrorism over-shadow all positive news. The many exceptional economic and corporate reports have been ignored by investors for the few that have been troublesome. Even as China attempts to slow-down its scorching economy to 7% growth from 10%, investors focus on the damage this will do to companies that sell to China rather than the positive affects this will have on inflation. While inflation has accelerated from its historically low levels, it is not a problem as of yet and does not appear it will become one for the foreseeable future. Historically, stocks perform exceptionally well during periods of slightly rising inflation as companies regain pricing power, boosting profits. I also believe it is very positive for the sustainability of long-term world growth that China is addressing its problems now. This should prevent a collapse in their economy, which is what the China "bubble" bears have been predicting. Technology "bubble" stocks dropped substantially numerous times in the 90's, only to rebound to higher highs, before peaking in 2000. I think companies that sell to China will outperform for many more years before their eventual peak. These stocks are in a bad correction within a long-term secular bull move in my opinion.
U.S. stocks finished lower last week on fears over rising inflation, escalating violence in the Middle East and China's cooling economy. The NASDAQ had its largest weekly decline in two years as networking, semiconductor and disk drive stocks fell substantially. Nortel Networks, North America's biggest maker of telephone equipment, tumbled 35% after it fired its CEO because of an accounting misstatement that will cut last year's earnings in half. Furthermore, JDS Uniphase, the world's biggest maker of fiber-optic network parts, sank 28% for the biggest decline in the S&P 500. The company said it may lose more money than analysts expected this quarter. Defensive sectors, such as utilities, tobacco and pharmaceuticals all displayed relative strength for the week.
There were a few positive developments last week. Most of the economic and corporate reports were better-than-expected. As well, Genentech and OSI Pharmaceuticals soared after saying their experimental Tarceva medicine extended the lives of lung-cancer patients who no longer responded to other treatments. This is the first time any drug in this class has shown a survival benefit. United Healthcare agreed to purchase Oxford Health Plans for about $56.79/share. Finally, more than 80% of S&P 500 members have reported results and profit at those companies has climbed 27%, with 75% beating expectations. The average positive surprise has been 8%.
Bottom Line: The semiconductor index broke substantially below its 200-day moving average last week, while many other sub-sectors of technology are hovering near this key technical level. Investor psychology has deteriorated a great deal in the last few weeks as the media's obsession with negativity and terrorism over-shadow all positive news. The many exceptional economic and corporate reports have been ignored by investors for the few that have been troublesome. Even as China attempts to slow-down its scorching economy to 7% growth from 10%, investors focus on the damage this will do to companies that sell to China rather than the positive affects this will have on inflation. While inflation has accelerated from its historically low levels, it is not a problem as of yet and does not appear it will become one for the foreseeable future. Historically, stocks perform exceptionally well during periods of slightly rising inflation as companies regain pricing power, boosting profits. I also believe it is very positive for the sustainability of long-term world growth that China is addressing its problems now. This should prevent a collapse in their economy, which is what the China "bubble" bears have been predicting. Technology "bubble" stocks dropped substantially numerous times in the 90's, only to rebound to higher highs, before peaking in 2000. I think companies that sell to China will outperform for many more years before their eventual peak. These stocks are in a bad correction within a long-term secular bull move in my opinion.
Saturday, May 01, 2004
Economic Week in Review
ECRI Weekly Leading Index 135.20 +.52%
New Home Sales for March rose to a record 1228K versus expectations of 1173K and 1128K in February. Builders such as Centex and D.R. Horton are confident rising employment will underpin sales, boosting the economy. A measure of the supply of homes for sale fell to the lowest since August. "Lean inventories and mortgage rates that are still low even if they have started edging up in recent weeks, suggests this is still going to be a very strong year for housing," said Ellen Beeson, an economist at Bank of Tokyo-Mitsubishi.
The Conference Board's Consumer Confidence Index rose to 92.9 in April versus expectations of 88.5 and an 88.5 reading in March. "When non-farm payrolls rise by 308,000 in a month, it's going to help consumer confidence," said Delos Smith, a Conference Board Economist.
Existing Home Sales rose to 6.48M in March versus expectations of 6.2M and 6.13M the prior month. The 5.7% increase was the second-fastest pace on record. Re-sales account for 85% of the housing market. U.S. home ownership in the three months through March set a record for the third quarter in a row.
Gross Domestic Product for the first quarter rose 4.2% versus expectations of 5.0% and 4.1% in the fourth quarter. The rise was paced by consumer spending and business investment in office equipment and software. The GDP price deflator, a measure of inflation, rose at a 2.5% annual rate, the most since mid-2001. Unadjusted for inflation, GDP rose at a 6.8% annual rate. "These somewhat higher prices will boost corporate profits, which should permit greater investment and hiring," said Rich Yamarone, chief economist of Argus Research. Higher refund checks because of last year's tax cuts and the Fed's lowest interest rate in four decades helped boost retail sales, while more orders for equipment suggest businesses are gaining confidence that may lead to more hiring, Bloomberg reported.
Personal Income for March rose .4%, meeting expectations, versus a .5% rise in February. This is the strongest three-month pace for income growth since the stock market bubble burst in 2000. Personal Spending for March rose .4% versus expectations of a .7% rise and a .4% rise in February. Spending also benefited from tax refunds and mortgage re-financings.
The University of Michigan Consumer Confidence Index fell to 94.2 in April versus expectations of 94.0 and a final reading of 95.8 in March. Violence in Iraq and record-high gasoline prices likely offset very good economic data, leading to the slight decline, Bloomberg reported.
The Chicago Purchasing Manager report rose to 63.9 in April versus expectations of 61.0 and a reading of 57.6 in March. "Inventories are very lean," Mike England, chief economist at Action Economics said. "Factories are scurrying to rebuild their stocks." The index confirms other reports that showed manufacturing continues to strengthen, Bloomberg reported.
Bottom Line: The housing market continues to exhibit extraordinary strength. While it will likely cool a bit in coming months, an improving labor market should prevent any significant weakness. However, with homebuilding stocks up about 60% over the last 12 months, further weakness in the group should be expected in the near-term within the context of a secular bull move. Consumer confidence readings remain relatively strong considering the daily barrage of negative reporting, high gas prices and recent spurt of violence in the Middle East. Moreover, consumers' exceptionally strong spending patterns over the last few weeks paint an even more robust picture of the true state of the consumer psyche. GDP growth, while not exceptional after inflationary adjustments, was very good once again and will certainly be revised upwards. The U.S. economy has grown 5.5% on average over the last 3 quarters, the best performance since the early 80's. The Chicago Purchasing Manager report is a key gauge of mid-western manufacturing activity. It is also improving at the fastest rate since the early 80's. Overall, the economic data released last week continued to paint a very bright picture of the current state of the U.S. economy. While inflationary pressures have increased, they remain relatively low and should not be a serious problem for the foreseeable future.
New Home Sales for March rose to a record 1228K versus expectations of 1173K and 1128K in February. Builders such as Centex and D.R. Horton are confident rising employment will underpin sales, boosting the economy. A measure of the supply of homes for sale fell to the lowest since August. "Lean inventories and mortgage rates that are still low even if they have started edging up in recent weeks, suggests this is still going to be a very strong year for housing," said Ellen Beeson, an economist at Bank of Tokyo-Mitsubishi.
The Conference Board's Consumer Confidence Index rose to 92.9 in April versus expectations of 88.5 and an 88.5 reading in March. "When non-farm payrolls rise by 308,000 in a month, it's going to help consumer confidence," said Delos Smith, a Conference Board Economist.
Existing Home Sales rose to 6.48M in March versus expectations of 6.2M and 6.13M the prior month. The 5.7% increase was the second-fastest pace on record. Re-sales account for 85% of the housing market. U.S. home ownership in the three months through March set a record for the third quarter in a row.
Gross Domestic Product for the first quarter rose 4.2% versus expectations of 5.0% and 4.1% in the fourth quarter. The rise was paced by consumer spending and business investment in office equipment and software. The GDP price deflator, a measure of inflation, rose at a 2.5% annual rate, the most since mid-2001. Unadjusted for inflation, GDP rose at a 6.8% annual rate. "These somewhat higher prices will boost corporate profits, which should permit greater investment and hiring," said Rich Yamarone, chief economist of Argus Research. Higher refund checks because of last year's tax cuts and the Fed's lowest interest rate in four decades helped boost retail sales, while more orders for equipment suggest businesses are gaining confidence that may lead to more hiring, Bloomberg reported.
Personal Income for March rose .4%, meeting expectations, versus a .5% rise in February. This is the strongest three-month pace for income growth since the stock market bubble burst in 2000. Personal Spending for March rose .4% versus expectations of a .7% rise and a .4% rise in February. Spending also benefited from tax refunds and mortgage re-financings.
The University of Michigan Consumer Confidence Index fell to 94.2 in April versus expectations of 94.0 and a final reading of 95.8 in March. Violence in Iraq and record-high gasoline prices likely offset very good economic data, leading to the slight decline, Bloomberg reported.
The Chicago Purchasing Manager report rose to 63.9 in April versus expectations of 61.0 and a reading of 57.6 in March. "Inventories are very lean," Mike England, chief economist at Action Economics said. "Factories are scurrying to rebuild their stocks." The index confirms other reports that showed manufacturing continues to strengthen, Bloomberg reported.
Bottom Line: The housing market continues to exhibit extraordinary strength. While it will likely cool a bit in coming months, an improving labor market should prevent any significant weakness. However, with homebuilding stocks up about 60% over the last 12 months, further weakness in the group should be expected in the near-term within the context of a secular bull move. Consumer confidence readings remain relatively strong considering the daily barrage of negative reporting, high gas prices and recent spurt of violence in the Middle East. Moreover, consumers' exceptionally strong spending patterns over the last few weeks paint an even more robust picture of the true state of the consumer psyche. GDP growth, while not exceptional after inflationary adjustments, was very good once again and will certainly be revised upwards. The U.S. economy has grown 5.5% on average over the last 3 quarters, the best performance since the early 80's. The Chicago Purchasing Manager report is a key gauge of mid-western manufacturing activity. It is also improving at the fastest rate since the early 80's. Overall, the economic data released last week continued to paint a very bright picture of the current state of the U.S. economy. While inflationary pressures have increased, they remain relatively low and should not be a serious problem for the foreseeable future.
Weekly Scoreboard
Indices
S&P 500 1,107.30 -2.59%
Dow 10,225.57 -1.96%
NASDAQ 1,920.15 -5.89%
Russell 2000 559.80 -4.44%
Wilshire 5000 10,793.66 -2.94%
Volatility(VIX) 17.19 +19.77%
AAII Bullish % 50.0% unch.
US Dollar 90.53 -.57%
CRB 272.54 +1.17%
Futures Spot Prices
Gold 387.50 -2.10%
Crude Oil 37.38 +2.69%
Natural Gas 5.86 +3.66%
Base Metals 104.19 -2.94%
10-year US Treasury Yield 4.51% +1.12%
Average 30-year Mortgage Rate 6.01% +1.18%
Leading Sectors
Utilities +.07%
Tobacco -.09%
Energy -.12%
Lagging Sectors
Disk Drives -8.49%
Nanotechnology -11.03%
Networking -11.82%
*% Gain or loss for the week
S&P 500 1,107.30 -2.59%
Dow 10,225.57 -1.96%
NASDAQ 1,920.15 -5.89%
Russell 2000 559.80 -4.44%
Wilshire 5000 10,793.66 -2.94%
Volatility(VIX) 17.19 +19.77%
AAII Bullish % 50.0% unch.
US Dollar 90.53 -.57%
CRB 272.54 +1.17%
Futures Spot Prices
Gold 387.50 -2.10%
Crude Oil 37.38 +2.69%
Natural Gas 5.86 +3.66%
Base Metals 104.19 -2.94%
10-year US Treasury Yield 4.51% +1.12%
Average 30-year Mortgage Rate 6.01% +1.18%
Leading Sectors
Utilities +.07%
Tobacco -.09%
Energy -.12%
Lagging Sectors
Disk Drives -8.49%
Nanotechnology -11.03%
Networking -11.82%
*% Gain or loss for the week
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