There are only a few important economic and corporate earnings reports scheduled for release this week. Scheduled economic reports include Empire Manufacturing, Housing Starts, Building Permits, Initial Jobless Claims, Continuing Claims, Leading Indicators and Philadelphia Fed. The Leading Indicators and Philadelphia Fed. report both have market-moving potential.
Lowe's(LOW), Barnes & Noble(BKS), Home Depot(HD), Deere(DE), Saks Fifth Avenue(SKS), Staples(SPLS), Applied Materials(AMAT), Hewlett Packard(HPQ), Marvell Technology(MRVL) and Nordstrom(JWN) 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 GigaWorld IT Forum, Semi Book-to-Bill, Piper Jaffray Tech Conference, Wireless Enterprise Symposium, Goldman Global Chemical Conference, Bank of America Investors Conference and Prudential Software Summit could all impact trading this week.
BOTTOM LINE: While U.S. stocks may begin the week lower on weakness in Asia, I expect shares to rise as the week progresses. The market's oversold state, strong earnings reports, investor conferences and stabilizing interest rates should provide the catalysts for a continuation of the rally that began last Wednesday. There are many positive aspects to the US market and economy that are currently being ignored as investor psychology has been damaged by the constant barrage of negative reporting in the mainstream press. Job growth is accelerating substantially, American's net worth is at all-time highs, home ownership is at all-time highs, consumer spending is very strong, corporate spending is accelerating, corporate profits are at all-time highs, corporate cash levels are at all-time highs, interest rates and inflation are relatively low, the 04 P/E on the S&P 500 is 17.04 and falling(the lowest in 7 years and down 41% from its highs reached during the bubble), the US dollar has stabilized, US and world economic growth will be the best in two decades this year, the budget deficit is shrinking, manufacturing is improving rapidly, exports to China are exploding, the Japanese economy is finally showing real growth and Europe is improving. These many positives are forgotten as the vast majority of headlines focus on something bad about Iraq or inflation. This intense focus on negativity could result in a self-fulfilling prophecy of slower economic growth as investors lose confidence, stocks drop, consumers lose confidence and consumer/corporate spending slows. At this time, I do not anticipate such a scenario.
Monday, May 17, 2004
Sunday, May 16, 2004
Chart of the Week
Initial Jobless Claims
Bottom Line: Initial jobless claims, which began to rise substantially in 2000 as the stock market bubble burst and the economy tanked, peaked shortly after the 9/11 terroist attacks. The 4-week moving average fell again last week, bringing it to its best levels in over 3 years.
Bottom Line: Initial jobless claims, which began to rise substantially in 2000 as the stock market bubble burst and the economy tanked, peaked shortly after the 9/11 terroist attacks. The 4-week moving average fell again last week, bringing it to its best levels in over 3 years.
Market Week in Review
S&P 500 1,095.70 -.27%
U.S. stocks fell modestly last week as more negative images from Iraq and rising oil prices dominated headlines, drowning out strong economic and corporate reports. Cisco, Dell, Disney and Qualcomm gave positive assessments of the current and future states of their businesses and all four stocks declined. Around the clock reporting on the torture at the Abu Ghraib prison in Iraq and the recent video of an American being beheaded weighed heavily on investors' psyche throughout the week. The higher-than-expected Producer Price Index report also weighed on shares as traders continue to view rising inflation as a big negative for stocks.
There were also a number of positive developments throughout the week. Major U.S. companies Cisco, Dell, Disney and Qualcomm all reported double-digit earnings and revenue growth. Cisco reported an earnings gain of 23% and sales gain of 22%, both above expectations. Cisco also raised their forecast for next quarter. Cisco's CFO said corporate spending is the best since the tech sector imploded several years ago and that they plan to hire 1,000 people in the near future. The major U.S. indices appeared to make at least a short-term bottom on Wednesday. As the S&P 500 touched its 200-day moving-average, the ARMS index spiked and Barton Biggs made positive comments on CNBC, investors began to buy in a big way. Many stocks finished higher on good volume Wednesday, recovering from significant declines earlier in the day. Moreover, the 10-year T-note rallied significantly on Friday as it appeared to make at least a short-term bottom as well. Finally, the AAII % Bulls dropped significantly last week in a sign that investor complacency continues to fall.
Bottom Line: U.S. stocks appear to have made at least a short-term bottom last week and likely an intermediate-term one. However, I am concerned that good earnings reports continue to be met with selling. Cisco is a very large company that is reporting 20%+ growth. The US dollar is only down 2.2% from year-ago levels and has risen 7.8% from its recent lows. Thus, the argument by the bears that currency is artificially boosting growth does not have merit. Furthermore, corporate IT spending, which is highly correlated to job growth, should continue to accelerate throughout the year. The VOIP market, a growing driver of Cisco revenues, will continue to accelerate as well. At around 28 times 04 estimates CSCO is not cheap, however I would argue that one of the premier tech companies in the world growing 20% deserves a premium multiple. While I do not currently have a position in Cisco, the stock which is down 26.4% from its recent highs should be considered by long-term investors.
I continue to believe that investors are overreacting to inflation and China. Oil accounts for less than 5% of inflation and would have to trade at $78/bbl. to equal the inflation-adjusted prices of the early 80's. Moreover, OPEC will likely increase production soon as it is in their interest not to damage world economic growth. Basic materials prices continue to fall as traders anticipate slowing demand from China. Furthermore, consumer prices are expected to rise 2.2% this year, well below the 3.0% average of the last 84 years. Finally, modest inflation has almost always been good for stocks as companies regain pricing power, profits soar and hiring accelerates. Numerous statements by Chinese officials indicate they want to slow growth from unsustainable levels, which is beneficial to world growth in the long-run. At this point, I do not believe that China is in danger of an economic collapse, which is what many stock prices of companies operating in China suggest.
U.S. stocks fell modestly last week as more negative images from Iraq and rising oil prices dominated headlines, drowning out strong economic and corporate reports. Cisco, Dell, Disney and Qualcomm gave positive assessments of the current and future states of their businesses and all four stocks declined. Around the clock reporting on the torture at the Abu Ghraib prison in Iraq and the recent video of an American being beheaded weighed heavily on investors' psyche throughout the week. The higher-than-expected Producer Price Index report also weighed on shares as traders continue to view rising inflation as a big negative for stocks.
There were also a number of positive developments throughout the week. Major U.S. companies Cisco, Dell, Disney and Qualcomm all reported double-digit earnings and revenue growth. Cisco reported an earnings gain of 23% and sales gain of 22%, both above expectations. Cisco also raised their forecast for next quarter. Cisco's CFO said corporate spending is the best since the tech sector imploded several years ago and that they plan to hire 1,000 people in the near future. The major U.S. indices appeared to make at least a short-term bottom on Wednesday. As the S&P 500 touched its 200-day moving-average, the ARMS index spiked and Barton Biggs made positive comments on CNBC, investors began to buy in a big way. Many stocks finished higher on good volume Wednesday, recovering from significant declines earlier in the day. Moreover, the 10-year T-note rallied significantly on Friday as it appeared to make at least a short-term bottom as well. Finally, the AAII % Bulls dropped significantly last week in a sign that investor complacency continues to fall.
Bottom Line: U.S. stocks appear to have made at least a short-term bottom last week and likely an intermediate-term one. However, I am concerned that good earnings reports continue to be met with selling. Cisco is a very large company that is reporting 20%+ growth. The US dollar is only down 2.2% from year-ago levels and has risen 7.8% from its recent lows. Thus, the argument by the bears that currency is artificially boosting growth does not have merit. Furthermore, corporate IT spending, which is highly correlated to job growth, should continue to accelerate throughout the year. The VOIP market, a growing driver of Cisco revenues, will continue to accelerate as well. At around 28 times 04 estimates CSCO is not cheap, however I would argue that one of the premier tech companies in the world growing 20% deserves a premium multiple. While I do not currently have a position in Cisco, the stock which is down 26.4% from its recent highs should be considered by long-term investors.
I continue to believe that investors are overreacting to inflation and China. Oil accounts for less than 5% of inflation and would have to trade at $78/bbl. to equal the inflation-adjusted prices of the early 80's. Moreover, OPEC will likely increase production soon as it is in their interest not to damage world economic growth. Basic materials prices continue to fall as traders anticipate slowing demand from China. Furthermore, consumer prices are expected to rise 2.2% this year, well below the 3.0% average of the last 84 years. Finally, modest inflation has almost always been good for stocks as companies regain pricing power, profits soar and hiring accelerates. Numerous statements by Chinese officials indicate they want to slow growth from unsustainable levels, which is beneficial to world growth in the long-run. At this point, I do not believe that China is in danger of an economic collapse, which is what many stock prices of companies operating in China suggest.
Saturday, May 15, 2004
Economic Week in Review
ECRI Weekly Leading Index 135.70 +.15%
The OECD predicted the U.S. economy will expand 4.7% this year, the fastest pace in two decades, up from an earlier forecast of 4.2% growth. The OECD predicts China's economy will grow close to 8% this year, notwithstanding recent attempts by the government to curb growth. Inflation in OECD member countries is seen slowing to about 1.7% this year on average, the lowest level in more than three decades, the OECD said. "The world economy is experiencing a strong and sustainable recovery," said OECD chief economist Jean-Philippe Cotis.
Federal Reserve policy makers will eventually raise interest rates to ensure inflation doesn't accelerate as the U.S. economy expands at a "solid" pace with "strong" job growth, said Michael Moskow, president of the Federal Reserve Bank of Chicago. Furthermore, U.S. Treasury Undersecretary John Taylor said Japan's economy has escaped a 13-year slump, and government policies may deliver lasting growth.
China's industrial production and M2 both grew at 19% from a year earlier as imports jumped 43%, contributing to China's fourth monthly trade deficit, Bloomberg reported. The Chinese government is trying to engineer a gradual economic slowdown by curbing investment and lending in certain industries. Failure of these measures may force the central bank to raise interest rates, Bloomberg reported. China will probably succeed in cooling its economy without rising interest rates or changing the Yuan's peg to the dollar, Standard & Poor's said.
The European Central Bank said recent economic reports confirm its view of an accelerating recovery in the dozen euro nations, suggesting it sees no need to cut interest rates further. While euro economies expanded at a modest pace at the start of the year, most recent date have been more encouraging, said the ECB in its monthly report.
U.S. Producer Prices rose .7% in April versus economists' expectations of a .3% rise and a .5% rise in March. Excluding volatile food and energy prices, the core rate rose .2%, meeting expectations and the same as the prior month. "With the economy growing rapidly and more than a year of commodity-price increases, there's a pretty clear formula for rising goods prices," said Kevin Harris, an economist at MCM.
U.S. Advance Retail Sales fell .5% in April versus expectations of .2% decline and a 2.0% rise in March. Retail Sales Less Autos fell .1% versus expectations of a .2% fall and a 1.8% rise in March. An early Easter holiday this year probably contributed to the jump in March and detracted from sales last month, economists said. Rising wages and renewed optimism are likely to keep consumers buying after tax refunds have been spent and underpin the economy later this year, Bloomberg reported. The economy created 625,000 jobs in March and April, the biggest two-month increase since the stock market bubble burst in March/April 2000, Bloomberg reported. "You are still going to see fairly solid consumer spending in coming months," John Shin, an economist at Lehman Brothers said.
U.S. Consumer Prices rose .2% in April versus expectations of a .3% rise and a .4% gain in March. CPI Ex Food & Energy rose .3% versus expectations of a .2% rise and a .4% increase in March. The Fed's Moskow downplayed recent signs of inflation, saying the fall in the value of the dollar that has increased import prices and led to higher commodity prices is "likely temporary," Bloomberg reported. Consumer prices are now expected to rise 2.2% this year, well below the 3% average rise over the last 84 years, Bloomberg reported.
U.S. Industrial Production in April rose .8% versus expectations of a .5% rise and a .1% decline in March. This was the seventh increase in the last eight months as companies made more semiconductors, computers, furniture and appliances. The proportion of industrial capacity in use rose to 76.9%, the highest since July 2001. Record low inventories relative to sales and exports at an all-time high are triggering bottlenecks, encouraging manufacturers to boost production to try and keep pace, Bloomberg reported. "Manufacturing in going full steam ahead," said Robert McGee, chief economist at U.S. Trust.
The preliminary Univ. of Mich. Consumer Confidence reading for May was 94.2 versus expectations of 96.0 and 94.2 in April. The economy is doing very well and jobs are picking up, but rising gasoline prices and negative news from Iraq are overshadowing the many positives, Bloomberg reported. U.S. motorists will pay an average of $1.94/gallon for gas this summer because of soaring crude-oil costs, strong demand and tight fuel inventories, the Energy Department said May 11.
Bottom Line: Overall, last week's data continued to paint a very bright picture of the current state of the U.S. and world economies. Economic growth is undeniably strong. Comments from European officials about the state of their economies were the most positive in a long time, which bodes well for many U.S. multinationals that have large exposure to the region. I also expect the Chinese government to succeed with their attempts at a soft-landing for its scorching economy. Low, but accelerating, inflation is a positive for stocks historically. Companies are regaining some pricing power, profits are soaring and hiring is accelerating. As well, most of the concerns about inflation revolve around crude oil and basic materials prices. While high oil prices are definitely having an impact, the media is making the problem out to be much worse than it really is at this point. Gas would have to reach $3.69/gallon, on an inflation-adjusted basis, to be equal to the prices American consumers paid at the heights of the Iran hostage crisis at the start of the 80's. Furthermore, basic materials prices will continue to fall in the near-term on an increasing U.S. dollar and slowing Chinese demand. I still expect the Fed to raise the Fed Funds rate 50 basis points at the June 29-30 meeting, while the market is anticipating a 25 basis point increase. A significant fall in the stock market or a sharp pullback in consumer spending could potentially push the rate hike out to a further date. Again, the main worry I have at this point is that the mainstream media's obsession with negativity is hurting investor psychology, thus potentially creating a self-fulfilling prophecy of slower economic growth.
The OECD predicted the U.S. economy will expand 4.7% this year, the fastest pace in two decades, up from an earlier forecast of 4.2% growth. The OECD predicts China's economy will grow close to 8% this year, notwithstanding recent attempts by the government to curb growth. Inflation in OECD member countries is seen slowing to about 1.7% this year on average, the lowest level in more than three decades, the OECD said. "The world economy is experiencing a strong and sustainable recovery," said OECD chief economist Jean-Philippe Cotis.
Federal Reserve policy makers will eventually raise interest rates to ensure inflation doesn't accelerate as the U.S. economy expands at a "solid" pace with "strong" job growth, said Michael Moskow, president of the Federal Reserve Bank of Chicago. Furthermore, U.S. Treasury Undersecretary John Taylor said Japan's economy has escaped a 13-year slump, and government policies may deliver lasting growth.
China's industrial production and M2 both grew at 19% from a year earlier as imports jumped 43%, contributing to China's fourth monthly trade deficit, Bloomberg reported. The Chinese government is trying to engineer a gradual economic slowdown by curbing investment and lending in certain industries. Failure of these measures may force the central bank to raise interest rates, Bloomberg reported. China will probably succeed in cooling its economy without rising interest rates or changing the Yuan's peg to the dollar, Standard & Poor's said.
The European Central Bank said recent economic reports confirm its view of an accelerating recovery in the dozen euro nations, suggesting it sees no need to cut interest rates further. While euro economies expanded at a modest pace at the start of the year, most recent date have been more encouraging, said the ECB in its monthly report.
U.S. Producer Prices rose .7% in April versus economists' expectations of a .3% rise and a .5% rise in March. Excluding volatile food and energy prices, the core rate rose .2%, meeting expectations and the same as the prior month. "With the economy growing rapidly and more than a year of commodity-price increases, there's a pretty clear formula for rising goods prices," said Kevin Harris, an economist at MCM.
U.S. Advance Retail Sales fell .5% in April versus expectations of .2% decline and a 2.0% rise in March. Retail Sales Less Autos fell .1% versus expectations of a .2% fall and a 1.8% rise in March. An early Easter holiday this year probably contributed to the jump in March and detracted from sales last month, economists said. Rising wages and renewed optimism are likely to keep consumers buying after tax refunds have been spent and underpin the economy later this year, Bloomberg reported. The economy created 625,000 jobs in March and April, the biggest two-month increase since the stock market bubble burst in March/April 2000, Bloomberg reported. "You are still going to see fairly solid consumer spending in coming months," John Shin, an economist at Lehman Brothers said.
U.S. Consumer Prices rose .2% in April versus expectations of a .3% rise and a .4% gain in March. CPI Ex Food & Energy rose .3% versus expectations of a .2% rise and a .4% increase in March. The Fed's Moskow downplayed recent signs of inflation, saying the fall in the value of the dollar that has increased import prices and led to higher commodity prices is "likely temporary," Bloomberg reported. Consumer prices are now expected to rise 2.2% this year, well below the 3% average rise over the last 84 years, Bloomberg reported.
U.S. Industrial Production in April rose .8% versus expectations of a .5% rise and a .1% decline in March. This was the seventh increase in the last eight months as companies made more semiconductors, computers, furniture and appliances. The proportion of industrial capacity in use rose to 76.9%, the highest since July 2001. Record low inventories relative to sales and exports at an all-time high are triggering bottlenecks, encouraging manufacturers to boost production to try and keep pace, Bloomberg reported. "Manufacturing in going full steam ahead," said Robert McGee, chief economist at U.S. Trust.
The preliminary Univ. of Mich. Consumer Confidence reading for May was 94.2 versus expectations of 96.0 and 94.2 in April. The economy is doing very well and jobs are picking up, but rising gasoline prices and negative news from Iraq are overshadowing the many positives, Bloomberg reported. U.S. motorists will pay an average of $1.94/gallon for gas this summer because of soaring crude-oil costs, strong demand and tight fuel inventories, the Energy Department said May 11.
Bottom Line: Overall, last week's data continued to paint a very bright picture of the current state of the U.S. and world economies. Economic growth is undeniably strong. Comments from European officials about the state of their economies were the most positive in a long time, which bodes well for many U.S. multinationals that have large exposure to the region. I also expect the Chinese government to succeed with their attempts at a soft-landing for its scorching economy. Low, but accelerating, inflation is a positive for stocks historically. Companies are regaining some pricing power, profits are soaring and hiring is accelerating. As well, most of the concerns about inflation revolve around crude oil and basic materials prices. While high oil prices are definitely having an impact, the media is making the problem out to be much worse than it really is at this point. Gas would have to reach $3.69/gallon, on an inflation-adjusted basis, to be equal to the prices American consumers paid at the heights of the Iran hostage crisis at the start of the 80's. Furthermore, basic materials prices will continue to fall in the near-term on an increasing U.S. dollar and slowing Chinese demand. I still expect the Fed to raise the Fed Funds rate 50 basis points at the June 29-30 meeting, while the market is anticipating a 25 basis point increase. A significant fall in the stock market or a sharp pullback in consumer spending could potentially push the rate hike out to a further date. Again, the main worry I have at this point is that the mainstream media's obsession with negativity is hurting investor psychology, thus potentially creating a self-fulfilling prophecy of slower economic growth.
Weekly Scoreboard
Indices
S&P 500 1,095.70 -.27%
Dow 10,012.87 -1.03%
NASDAQ 1,904.25 -.72%
Russell 2000 543.76 -.50%
Total Market 258.36 -.42%
Volatility(VIX) 18.47 +1.88%
AAII Bullish % 32.89 -15.62%
US Dollar 91.66 +.55%
CRB 269.19 -1.17%
Futures Spot Prices
Gold 377.10 -.61%
Crude Oil 41.38 +3.50%
Natural Gas 6.40 +1.60%
Base Metals 102.02 -1.21%
10-year US Treasury Yield 4.77% -.06%
Average 30-year Mortgage Rate 6.34% +3.59%
Leading Sectors
Papers +2.77%
Commodity +1.06%
HMO's +1.02%
Lagging Sectors
Disk Drives -2.90%
Fashion -3.16%
Nanotechnology -3.52%
*% Gain or loss for the week
S&P 500 1,095.70 -.27%
Dow 10,012.87 -1.03%
NASDAQ 1,904.25 -.72%
Russell 2000 543.76 -.50%
Total Market 258.36 -.42%
Volatility(VIX) 18.47 +1.88%
AAII Bullish % 32.89 -15.62%
US Dollar 91.66 +.55%
CRB 269.19 -1.17%
Futures Spot Prices
Gold 377.10 -.61%
Crude Oil 41.38 +3.50%
Natural Gas 6.40 +1.60%
Base Metals 102.02 -1.21%
10-year US Treasury Yield 4.77% -.06%
Average 30-year Mortgage Rate 6.34% +3.59%
Leading Sectors
Papers +2.77%
Commodity +1.06%
HMO's +1.02%
Lagging Sectors
Disk Drives -2.90%
Fashion -3.16%
Nanotechnology -3.52%
*% Gain or loss for the week
Friday, May 14, 2004
Mid-day Report
S&P 500 1,099.46 +.28%
NASDAQ 1,915.62 -.55%
Leading Sectors
Energy +1.60%
Gaming +1.54%
Tobacco +1.41%
Lagging Sectors
Networking -2.12%
Disk Drives -3.18%
Iron/Steel -5.32%
Other
Crude Oil 41.33 +.61%
Natural Gas 6.42 -.93%
Gold 375.70 +.21%
Base Metals 102.06 +.47%
U.S. Dollar 91.68 -.29%
10-Yr. Long-Bond Yield 4.79% -1.23%
VIX 18.34 -2.92%
Put/Call .92 +1.28%
NYSE Arms 1.39 +40.40%
Market Movers
BEAS -20.3% after missing 1Q revenue estimates and multiple downgrades.
MERX -31.4% after cutting 4Q forecast substantially and downgrade to Underperform by RBC Capital.
JNPR -4.49% after rivals Hitachi, NEC and Furukawa said they will jointly develop next-generation Internet router equipment.
GCO +15.7% after significantly boosting 1Q forecast.
ISCA +7.45% after saying it will acquire Martinsville Speedway for $192M and sell North Carolina Speedway to Speedway Motorsports for $100.4M.
IMPC -34.16% on disappointing 2Q earnings and 04 licensing revenue.
Chinese commodity stocks down across the board on concerns over potential hard-landing in China economy.
Economic Data
Consumer Price Index for April +.2% versus +.3% estimate and +.5% in March.
CPI Ex Food & Energy for April +.3% versus +.2% estimate and +.4% in March.
Business Inventories for March +.7% versus +.5% estimate and +.8% in February.
Industrial Production for April +.8% versus +.5% estimate and -.1% in March.
Capacity Utilization for April 76.9% versus estimates of 76.7% and 76.5% in March.
Preliminary Univ. of Mich. Consumer Confidence for May 94.2 versus 96.0 estimate and 94.2 in April.
Recommendations
Goldman Sachs said to Buy YHOO after analyst meeting confirmed thesis, sees 25-30% upside. GS reiterated Buy on INTC, CSCO, CTSH, HD, CEN and CAH. GS reiterated Underperform on PBG, BMY, SAY and FHCC. Goldman also said after its Beijing Commodity conference that it sees no signs of a slowdown in demand. Credit tightening polices by Chinese government are benefiting ACH. Overall, Goldman said only an unexpected sharp fall in growth would derail cyclical upturn, favorite beneficiaries are AL, NEM, AA, N and PDG. Citi SmithBarney said to Buy BEAS on weakness. Citi upgraded AEE to Buy and rated WR new Buy. Citi reiterated Buy on GTK, target $65. Citi reiterated Buy on YHOO, target $33. Citi reiterated Buy on WMT, target $64. Citi reiterated Buy on TGT, target $50. NVTL rated Overweight at JP Morgan. WEN raised to Overweight at JP Morgan. POP, GLT, RKT, WMO and WY raised to Buy at Deutsche Bank. ITW raised to Overweight at Lehman, target $120. ESRX raised to Buy at Merrill, target $89.
Mid-day News
U.S. stocks are mixed mid-day as falling interest rates and a strong energy sector are offsetting weakness in technology and basic materials shares. The U.S. would leave Iraq if the country's new administration asked it to do so after the planned handover of power on June 30, Agence France-Presse reported. Nortel said it's the subject of a criminal probe by the U.S. Attorney's Office in Texas. Panera Bread and Papa John's are among U.S. food companies facing an erosion in profits because of a surge in the cost of milk and other dairy products, Bloomberg reported. Airlines are battling losses as jet-fuel supplies drop close to record lows in some regions and prices soar. The worst may be yet to come as refiners sacrifice jet-fuel output to make gasoline, Bloomberg reported. Revlon and Samsonite joined a growing list of companies canceling sales of high-yield, high-risk debt as interest rates rise, Bloomberg said. Consumer prices are now expected to rise 2.2% this year, well below the 3% average rise over the last 84 years, Bloomberg reported.
BOTTOM LINE: The Portfolio is down slightly today as a couple of my security and biotech longs are rising substantially, almost offsetting loses in my tech long positions. The market is rising from its morning lows as expected. I have not traded as of yet and the Portfolio is still 125% net long. I want to reiterate that inflation is not currently a problem and that, historically, moderate inflation is good for stock prices as companies regain pricing power, boost profits and hire more workers. As I predicted months ago, when U.S. job growth accelerated the negative bias of the mainstream press would lead them to focus on inflation instead of the end of the so-called "jobless recovery." This, combined with the 24-7 reporting on torture, is eroding consumer and investor confidence. However, market action today is a big psychological positive for the Bulls as Dell's earnings, rising oil prices, the CPI and Consumer Confidence report could not move stocks substantially lower. I still expect a follow-through rally on good volume sometime in the next few days to confirm Wednesday's strong afternoon advance.
NASDAQ 1,915.62 -.55%
Leading Sectors
Energy +1.60%
Gaming +1.54%
Tobacco +1.41%
Lagging Sectors
Networking -2.12%
Disk Drives -3.18%
Iron/Steel -5.32%
Other
Crude Oil 41.33 +.61%
Natural Gas 6.42 -.93%
Gold 375.70 +.21%
Base Metals 102.06 +.47%
U.S. Dollar 91.68 -.29%
10-Yr. Long-Bond Yield 4.79% -1.23%
VIX 18.34 -2.92%
Put/Call .92 +1.28%
NYSE Arms 1.39 +40.40%
Market Movers
BEAS -20.3% after missing 1Q revenue estimates and multiple downgrades.
MERX -31.4% after cutting 4Q forecast substantially and downgrade to Underperform by RBC Capital.
JNPR -4.49% after rivals Hitachi, NEC and Furukawa said they will jointly develop next-generation Internet router equipment.
GCO +15.7% after significantly boosting 1Q forecast.
ISCA +7.45% after saying it will acquire Martinsville Speedway for $192M and sell North Carolina Speedway to Speedway Motorsports for $100.4M.
IMPC -34.16% on disappointing 2Q earnings and 04 licensing revenue.
Chinese commodity stocks down across the board on concerns over potential hard-landing in China economy.
Economic Data
Consumer Price Index for April +.2% versus +.3% estimate and +.5% in March.
CPI Ex Food & Energy for April +.3% versus +.2% estimate and +.4% in March.
Business Inventories for March +.7% versus +.5% estimate and +.8% in February.
Industrial Production for April +.8% versus +.5% estimate and -.1% in March.
Capacity Utilization for April 76.9% versus estimates of 76.7% and 76.5% in March.
Preliminary Univ. of Mich. Consumer Confidence for May 94.2 versus 96.0 estimate and 94.2 in April.
Recommendations
Goldman Sachs said to Buy YHOO after analyst meeting confirmed thesis, sees 25-30% upside. GS reiterated Buy on INTC, CSCO, CTSH, HD, CEN and CAH. GS reiterated Underperform on PBG, BMY, SAY and FHCC. Goldman also said after its Beijing Commodity conference that it sees no signs of a slowdown in demand. Credit tightening polices by Chinese government are benefiting ACH. Overall, Goldman said only an unexpected sharp fall in growth would derail cyclical upturn, favorite beneficiaries are AL, NEM, AA, N and PDG. Citi SmithBarney said to Buy BEAS on weakness. Citi upgraded AEE to Buy and rated WR new Buy. Citi reiterated Buy on GTK, target $65. Citi reiterated Buy on YHOO, target $33. Citi reiterated Buy on WMT, target $64. Citi reiterated Buy on TGT, target $50. NVTL rated Overweight at JP Morgan. WEN raised to Overweight at JP Morgan. POP, GLT, RKT, WMO and WY raised to Buy at Deutsche Bank. ITW raised to Overweight at Lehman, target $120. ESRX raised to Buy at Merrill, target $89.
Mid-day News
U.S. stocks are mixed mid-day as falling interest rates and a strong energy sector are offsetting weakness in technology and basic materials shares. The U.S. would leave Iraq if the country's new administration asked it to do so after the planned handover of power on June 30, Agence France-Presse reported. Nortel said it's the subject of a criminal probe by the U.S. Attorney's Office in Texas. Panera Bread and Papa John's are among U.S. food companies facing an erosion in profits because of a surge in the cost of milk and other dairy products, Bloomberg reported. Airlines are battling losses as jet-fuel supplies drop close to record lows in some regions and prices soar. The worst may be yet to come as refiners sacrifice jet-fuel output to make gasoline, Bloomberg reported. Revlon and Samsonite joined a growing list of companies canceling sales of high-yield, high-risk debt as interest rates rise, Bloomberg said. Consumer prices are now expected to rise 2.2% this year, well below the 3% average rise over the last 84 years, Bloomberg reported.
BOTTOM LINE: The Portfolio is down slightly today as a couple of my security and biotech longs are rising substantially, almost offsetting loses in my tech long positions. The market is rising from its morning lows as expected. I have not traded as of yet and the Portfolio is still 125% net long. I want to reiterate that inflation is not currently a problem and that, historically, moderate inflation is good for stock prices as companies regain pricing power, boost profits and hire more workers. As I predicted months ago, when U.S. job growth accelerated the negative bias of the mainstream press would lead them to focus on inflation instead of the end of the so-called "jobless recovery." This, combined with the 24-7 reporting on torture, is eroding consumer and investor confidence. However, market action today is a big psychological positive for the Bulls as Dell's earnings, rising oil prices, the CPI and Consumer Confidence report could not move stocks substantially lower. I still expect a follow-through rally on good volume sometime in the next few days to confirm Wednesday's strong afternoon advance.
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