There are a number of important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports this week include Wholesale Inventories, Preliminary Non-farm Productivity/Unit Labor Costs, Monthly Budget Statement, Import Price Index, Advance Retail Sales, Initial Jobless Claims, Business Inventories, Producer Price Index, Trade Balance and the preliminary Univ. of Mich. Consumer Confidence. Advance Retail Sales, Initial Jobless Claims, Producer Price Index and Consumer Confidence all have market-moving potential.
Cablevision Systems(CVC), EchoStar Communications(DISH), May Dept. Stores(MAY), Abercrombie & Fitch(ANF), Cisco Systems(CSCO), Computer Sciences(CSC), Walt Disney Company(DIS), Federated Dept. Stores(FD), Fox Entertainment Group(FOX), Target Corp.(TGT), Wal-Mart Stores(WMT) and Dell Inc.(DELL) are some of the more important companies that release quarterly earnings this week. There are also several other events that have market-moving potential. The Fed rate decision, Pacific Crest Technology Forum, CIBC Enterprise Software Conference and the Schwab Soundview Semiconductor Conference could also impact trading this week.
Bottom Line: I expect U.S. stocks to finish the week mixed as shares rebound from oversold levels early in the week and see weakness towards week's end ahead of the Olympics. The P/E on the next 12 months expected earnings is 16.09 and falling. The Morgan Stanley Tech Index is down 21.64% since its recent highs in January. The argument that U.S. shares are expensive is getting harder to make by the day. Corporate earnings growth for the first half of the year exceeded 25% and should exceed 15% in the second half. Corporate Balance sheets are cleaner and profitability is at record-high levels, business models are better, managements are less aggressive, interest rates are historically low and there have been no terror acts on U.S. soil since 9/11. It is my contention that stocks will see their lows for the year this month. If terrorists are going to strike the U.S., it will likely happen imminently. In my opinion, the closer we get to the election, the more the chances of an attack diminish. Investor anxiety is finally rising significantly, which is a very good contrary indicator. If all goes relatively well at the Olympics a short-term rally will commence. However, levels of investor anxiety will probably reach their peaks toward the end of this month before the Republican Convention. A successful retest of this month's lows will likely occur in September. The substantial rally I envision for the fourth quarter should begin in earnest in October and accelerate after the election in November. I still expect all the major U.S. indices to show gains for the year. My short-term trading indicators are at very oversold levels and the Portfolio is 50% net long heading into the week.
Sunday, August 08, 2004
Saturday, August 07, 2004
Market Week in Review
S&P 500 1,063.97 -3.43%
Click here for the Weekly Wrap by Briefing.com.
Bottom Line: The U.S. market's main problem in recent months has been a supply/demand issue. A sharp acceleration in the number of IPOs created too much supply ahead of a period of very high anxiety for investors. Fundamentals in most sectors have continued to improve. Thus, investors did not want to sell their stock, but didn't want to commit new capital ahead of possible terrorist acts and the U.S. election. This resulted in the slow deterioration in stock prices witnessed over the last few months. However, real sellers are finally starting to emerge as fundamentals have weakened slightly in some sectors and more so in others. This is very painful, but is actually a positive as it provides the necessary levels of investor angst to propel stocks sharply higher in the fourth quarter. The VIX, Put/Call, Arms and AAII % Bulls readings all showed significant increases in anxiety. Furthermore, natural gas, base metal and unleaded gas futures all declined last week. I continue to believe the CRB Index is on the verge of breaking down through its 200-day moving average, which bodes well for future readings of inflation. Finally, interest rates are plunging. The yield on the 10-year T-note has now declined almost 75 basis points from its recent high set just 2 months ago. With most commodity prices dropping, recent inflation readings decelerating and interest rates plunging, the mainstream press and the bears will likely find other negative issues besides inflation to harp on in the near future.
Click here for the Weekly Wrap by Briefing.com.
Bottom Line: The U.S. market's main problem in recent months has been a supply/demand issue. A sharp acceleration in the number of IPOs created too much supply ahead of a period of very high anxiety for investors. Fundamentals in most sectors have continued to improve. Thus, investors did not want to sell their stock, but didn't want to commit new capital ahead of possible terrorist acts and the U.S. election. This resulted in the slow deterioration in stock prices witnessed over the last few months. However, real sellers are finally starting to emerge as fundamentals have weakened slightly in some sectors and more so in others. This is very painful, but is actually a positive as it provides the necessary levels of investor angst to propel stocks sharply higher in the fourth quarter. The VIX, Put/Call, Arms and AAII % Bulls readings all showed significant increases in anxiety. Furthermore, natural gas, base metal and unleaded gas futures all declined last week. I continue to believe the CRB Index is on the verge of breaking down through its 200-day moving average, which bodes well for future readings of inflation. Finally, interest rates are plunging. The yield on the 10-year T-note has now declined almost 75 basis points from its recent high set just 2 months ago. With most commodity prices dropping, recent inflation readings decelerating and interest rates plunging, the mainstream press and the bears will likely find other negative issues besides inflation to harp on in the near future.
Economic Week in Review
ECRI Weekly Leading Index 131.90 +.69%
The ISM Manufacturing Index for July was 62.0 versus estimates of 62.0 and 61.1 in June. The ISM Prices Paid Index for July was 77.0 versus estimates of 79.0 and a reading of 81.0 in June. U.S. manufacturing strengthened in July at a rate near the 20-year high set in January amid gains in orders and production, a sign the economy began to accelerate after a second-quarter slowdown, Bloomberg said. The Index has exceeded 60 for nine straight months, the longest such stretch since July 1972 through June 1973, Bloomberg reported. "Manufacturing is picking up and inflationary pressures are coming off a bit and that's good news for manufacturers," said Drew Matus, a senior economist at Lehman Brothers. "The slowdown in GDP growth seen in the second quarter is unlikely to last long," said Henry Willmore, chief U.S. economist at Barclays Capital.
Personal Income for June rose .2% versus estimates of a .3% rise and a .6% increase in May. Personal Spending for June fell .7% versus an estimate of a .1% decline and an increase of 1.0% in May. The Core PCE Deflator, Greenspan's favorite measure of inflation, rose 1.5% versus estimates of a 1.7% increase and a rise of 1.5% in May. June capped the weakest quarter for consumer spending since the 2001 recession, Bloomberg said. Higher gasoline prices, less tax-cut stimulus, the first quarter spike in home buying and extraordinarily wet weather likely restrained spending economists said. "There isn't any reason to think that spending won't come back in July," said Cary Leahey, a senior economist at Deutsche Bank.
Total Vehicle Sale for July were 17.3M versus estimates of 16.8M and 15.4M in June. Domestic Vehicle Sales for July were 14.1M versus estimates of 13.3M and 12.2M in June. Incentive spending at all the manufacturers was up an average of $380 to $2,747. Sales at General Motors and Ford were down year-over-year, while DaimlerChrysler and Toyota were up, Bloomberg reported. "As we've seen in any given month consumers still respond to pricing opportunities," said Paul Ballew, chief sales analyst for General Motors.
Factory Orders for June rose .7% versus estimates of a .5% rise and an upwardly revised increase of .4% in May. "We are seeing the best environment in over three years for industrial manufacturers," said Eaton's CEO Sandy Cutler. "We believe we're beginning to see this economy build broadly." Business investment last quarter rose at a 10% annual pace compared with an 8% gain in the first three months of the year. Corporate spending last quarter supplanted consumer purchases as the main contributor to growth for the first time since early 1995, Bloomberg reported.
The ISM Non-Manufacturing Index for July rose to 64.8 versus estimates of 61.5 and a reading of 59.9 in June. The index now has exceeded 50, signaling expansion in industries that account for 85% of the U.S. economy, for 14 straight months. "The service sector is humming," said Sung Won Sohn, chief economist at Wells Fargo. The index of new orders for non-manufacturing companies rose to an all-time record while the inventory component of the index fell. The number of companies adding workers fell to 18% in July from 27% a month earlier, Bloomberg said. "There's nothing in our business sector, the freight sector, that I can say I have cautions about," said Douglas Duncan, CEO of FedEx.
Initial Jobless Claims for last week fell to 336K versus estimates of 340K and 347K the prior week. Continuing claims fell to 2911K versus estimates of 2920K and a downwardly revised 2946K prior. The Unemployment rate for July fell to 5.5% versus estimates of 5.6% and 5.6% in June. The unemployment rate is now at its best level in almost three years, Bloomberg reported. The Change in Non-farm Payrolls for July fell to 32K versus estimates of 240K and a downwardly revised 78K in June. "I have little doubt that the Fed will raise rates by 25 basis points next week, but the odds of moves in September and beyond have obviously diminished," said Stephen Stanley, chief economist at RBS Greenwich Capital. The July payrolls number "doesn't justify what we're seeing in the marketplace," said Jeff Joerres, CEO of Manpower. "When we talk to CEOs or heads of human resources, they're looking at their book of business and seeing that it's very good." The Change in Manufacturing Payrolls for July rose to 10K versus estimates of 10K and an upwardly revised loss of 1K in June. "Any fear of a major disruption in the economy due to the June slowdown in misplaced," said Brian Wesbury, chief economist at Griffin Kubik Stephens & Thompson.
Bottom Line: Overall, last week's data points were good, notwithstanding the shortfall in payrolls for July. Manufacturing continues to improve at rates not seen in decades. As well, more and more data show that inflation has peaked intermediate-term and is heading lower. The decline in oil prices I see in the next few months should solidify this view. I continue to believe that the decline in consumer spending is temporary. June was the wettest month on record for the entire Southeast and sixth wettest for the entire country. As well, the spike in home sales during the first quarter likely left the consumer a bit tapped out. Gasoline prices fell 5% last week and will likely head lower in the coming months. Finally, auto sales appear to be rebounding already and interest rates are plunging, which bodes well for intermediate-term consumer spending. The service sector, which accounts for the vast majority of the U.S. economy, appears to be rebounding to very high levels as well. It was very good to see the unemployment rate decline for the first time in a number of months. However, the dramatic slowdown in payrolls is worrisome. I believe that CEOs are highly disturbed by the anti-business political rhetoric and possibility of terrorism before the U.S. election. Thus, they have temporarily reigned in spending to an extent and hiring considerably. Less anti-business political rhetoric after the election, pent-up demand and an end to tax incentives at year-end should lead to a very good fourth quarter for corporate spending and hiring.
The ISM Manufacturing Index for July was 62.0 versus estimates of 62.0 and 61.1 in June. The ISM Prices Paid Index for July was 77.0 versus estimates of 79.0 and a reading of 81.0 in June. U.S. manufacturing strengthened in July at a rate near the 20-year high set in January amid gains in orders and production, a sign the economy began to accelerate after a second-quarter slowdown, Bloomberg said. The Index has exceeded 60 for nine straight months, the longest such stretch since July 1972 through June 1973, Bloomberg reported. "Manufacturing is picking up and inflationary pressures are coming off a bit and that's good news for manufacturers," said Drew Matus, a senior economist at Lehman Brothers. "The slowdown in GDP growth seen in the second quarter is unlikely to last long," said Henry Willmore, chief U.S. economist at Barclays Capital.
Personal Income for June rose .2% versus estimates of a .3% rise and a .6% increase in May. Personal Spending for June fell .7% versus an estimate of a .1% decline and an increase of 1.0% in May. The Core PCE Deflator, Greenspan's favorite measure of inflation, rose 1.5% versus estimates of a 1.7% increase and a rise of 1.5% in May. June capped the weakest quarter for consumer spending since the 2001 recession, Bloomberg said. Higher gasoline prices, less tax-cut stimulus, the first quarter spike in home buying and extraordinarily wet weather likely restrained spending economists said. "There isn't any reason to think that spending won't come back in July," said Cary Leahey, a senior economist at Deutsche Bank.
Total Vehicle Sale for July were 17.3M versus estimates of 16.8M and 15.4M in June. Domestic Vehicle Sales for July were 14.1M versus estimates of 13.3M and 12.2M in June. Incentive spending at all the manufacturers was up an average of $380 to $2,747. Sales at General Motors and Ford were down year-over-year, while DaimlerChrysler and Toyota were up, Bloomberg reported. "As we've seen in any given month consumers still respond to pricing opportunities," said Paul Ballew, chief sales analyst for General Motors.
Factory Orders for June rose .7% versus estimates of a .5% rise and an upwardly revised increase of .4% in May. "We are seeing the best environment in over three years for industrial manufacturers," said Eaton's CEO Sandy Cutler. "We believe we're beginning to see this economy build broadly." Business investment last quarter rose at a 10% annual pace compared with an 8% gain in the first three months of the year. Corporate spending last quarter supplanted consumer purchases as the main contributor to growth for the first time since early 1995, Bloomberg reported.
The ISM Non-Manufacturing Index for July rose to 64.8 versus estimates of 61.5 and a reading of 59.9 in June. The index now has exceeded 50, signaling expansion in industries that account for 85% of the U.S. economy, for 14 straight months. "The service sector is humming," said Sung Won Sohn, chief economist at Wells Fargo. The index of new orders for non-manufacturing companies rose to an all-time record while the inventory component of the index fell. The number of companies adding workers fell to 18% in July from 27% a month earlier, Bloomberg said. "There's nothing in our business sector, the freight sector, that I can say I have cautions about," said Douglas Duncan, CEO of FedEx.
Initial Jobless Claims for last week fell to 336K versus estimates of 340K and 347K the prior week. Continuing claims fell to 2911K versus estimates of 2920K and a downwardly revised 2946K prior. The Unemployment rate for July fell to 5.5% versus estimates of 5.6% and 5.6% in June. The unemployment rate is now at its best level in almost three years, Bloomberg reported. The Change in Non-farm Payrolls for July fell to 32K versus estimates of 240K and a downwardly revised 78K in June. "I have little doubt that the Fed will raise rates by 25 basis points next week, but the odds of moves in September and beyond have obviously diminished," said Stephen Stanley, chief economist at RBS Greenwich Capital. The July payrolls number "doesn't justify what we're seeing in the marketplace," said Jeff Joerres, CEO of Manpower. "When we talk to CEOs or heads of human resources, they're looking at their book of business and seeing that it's very good." The Change in Manufacturing Payrolls for July rose to 10K versus estimates of 10K and an upwardly revised loss of 1K in June. "Any fear of a major disruption in the economy due to the June slowdown in misplaced," said Brian Wesbury, chief economist at Griffin Kubik Stephens & Thompson.
Bottom Line: Overall, last week's data points were good, notwithstanding the shortfall in payrolls for July. Manufacturing continues to improve at rates not seen in decades. As well, more and more data show that inflation has peaked intermediate-term and is heading lower. The decline in oil prices I see in the next few months should solidify this view. I continue to believe that the decline in consumer spending is temporary. June was the wettest month on record for the entire Southeast and sixth wettest for the entire country. As well, the spike in home sales during the first quarter likely left the consumer a bit tapped out. Gasoline prices fell 5% last week and will likely head lower in the coming months. Finally, auto sales appear to be rebounding already and interest rates are plunging, which bodes well for intermediate-term consumer spending. The service sector, which accounts for the vast majority of the U.S. economy, appears to be rebounding to very high levels as well. It was very good to see the unemployment rate decline for the first time in a number of months. However, the dramatic slowdown in payrolls is worrisome. I believe that CEOs are highly disturbed by the anti-business political rhetoric and possibility of terrorism before the U.S. election. Thus, they have temporarily reigned in spending to an extent and hiring considerably. Less anti-business political rhetoric after the election, pent-up demand and an end to tax incentives at year-end should lead to a very good fourth quarter for corporate spending and hiring.
Weekly Scoreboard*
Indices
S&P 500 1,063.97 -3.43%
Dow 9,815.33 -3.20%
NASDAQ 1,776.89 -5.85%
Russell 2000 519.65 -5.74%
S&P Equity Long/Short Index 957.39 +.09%
Put/Call 1.38 +115.62%
NYSE Arms 3.44 +162.59%
Volatility(VIX) 19.34 +26.24%
AAII % Bulls 30.99 -8.85%
US Dollar 88.36 -1.74%
CRB 268.50 +.27%
Futures Spot Prices
Gold 402.10 +2.19%
Crude Oil 43.95 +.55%
Unleaded Gasoline 123.47 -5.39%
Natural Gas 5.59 -8.39%
Base Metals 108.60 -3.15%
10-year US Treasury Yield 4.22% -5.8%
Average 30-year Mortgage Rate 5.99% -1.48%
Leading Sectors
Homebuilders +1.27%
Utilities +1.09%
Broadcasting -.17%
Lagging Sectors
Networking -7.28%
Biotech -8.39%
Airlines -9.36%
*% Gain or loss for the week
S&P 500 1,063.97 -3.43%
Dow 9,815.33 -3.20%
NASDAQ 1,776.89 -5.85%
Russell 2000 519.65 -5.74%
S&P Equity Long/Short Index 957.39 +.09%
Put/Call 1.38 +115.62%
NYSE Arms 3.44 +162.59%
Volatility(VIX) 19.34 +26.24%
AAII % Bulls 30.99 -8.85%
US Dollar 88.36 -1.74%
CRB 268.50 +.27%
Futures Spot Prices
Gold 402.10 +2.19%
Crude Oil 43.95 +.55%
Unleaded Gasoline 123.47 -5.39%
Natural Gas 5.59 -8.39%
Base Metals 108.60 -3.15%
10-year US Treasury Yield 4.22% -5.8%
Average 30-year Mortgage Rate 5.99% -1.48%
Leading Sectors
Homebuilders +1.27%
Utilities +1.09%
Broadcasting -.17%
Lagging Sectors
Networking -7.28%
Biotech -8.39%
Airlines -9.36%
*% Gain or loss for the week
Friday, August 06, 2004
Mid-day Update
S&P 500 1,070.76 -.92%
NASDAQ 1,797.44 -1.33%
Leading Sectors
Utilities +1.07%
Homebuilders +.90%
Banks -.22%
Lagging Sectors
Iron/Steel -2.23%
Semis -2.66%
Fashion -2.67%
Other
Crude Oil 44.48 +.16%
Natural Gas 5.65 -1.09%
Gold 402.40 +1.98%
Base Metals 108.60 -1.28%
U.S. Dollar 88.31 -1.48%
10-Yr. T-note Yield 4.23% -3.88%
VIX 18.94 +3.38%
Put/Call 1.51 +93.59%
NYSE Arms 2.84 +.35%
Market Movers
NVT +15.6% on strong demand for its IPO.
NVDA -31.5% after missing 2Q estimates substantially and multiple downgrades.
BSX -5.6% after the FDA said it may broaden a probe of its products.
DOVP +21.85% after saying it may receive as much as $455 million from Merck for the right to experimental drugs for depression and other diseases.
PNRA +5.6% after Piper Jaffray upgrade to Market Perform.
DTSI -24.2% after disappointing 2Q results.
VSTA -25.9% after missing 2Q estimates, lowering 04 outlook and multiple downgrades.
GB -28.6% after missing 2Q forecast, lowering 04 guidance and multiple downgrades.
BCSI -31.9% after lowering 1Q forecast and downgrade by ThinkEquity to Accumulate.
Economic Data
Unemployment for July was 5.5% versus estimates of 5.6% and 5.6% in June.
Change in Non-farm Payrolls for July was 32K versus estimates of 240K and a downwardly revised 78K in June.
Change in Manufacturing Payrolls for July was 10K versus estimates of 10K and an upwardly revised -1K in June.
Recommendations
Goldman Sachs reiterated Outperform on CLX, ADP, WAG, STZ, UNH, DTV, BSX and AMLN. Goldman reiterated Underperform on DAL. Citi SmithBarney rated WYY Buy, target $73. Citi rated STT Buy, target $57. AMX raised to Buy at Deutsche Bank, target $40. BLX raised to Buy at Deutsche Bank, target $18.55. VLO raised to Buy at Deutsche Bank, target $80. PCO raised to Buy at Deutsche Bank, target $40. GB cut to Underweight at Morgan Stanley. RDEN raised to Overweight at JP Morgan. QLTI raised to Strong Buy at Raymond James, target $24. SONSE raised to Strong Buy at Raymond James, target $7.50.
Mid-day News
U.S. stocks are lower mid-day after a much weaker-than-expected jobs report and continuing worries over high energy prices. A study of about 1,800 women in Mexico found the risk of developing breast cancer was more than two times greater in those that had diets with high carbohydrate intake, the AP reported. Talk-show host Oprah Winfrey signed a three-year contract renewal yesterday that will keep her syndicated show on the air through the 2010-2011 tv season, the Chicago Sun-Times said. OPEC raised production to 30.02 million barrels a day in July, its highest in 25 years, according to Middle East Economic Survey estimates. The Moscow Arbitration Court ruled that the government's plan to seize the main oil unit of OAO Yukos Oil is illegal, Interfax reported. Janus Capital intends to start relying more on brokers to sell its mutual fund portfolios, marking a shift in the company's sales strategy, Denver's Rocky Mountain News reported. Bristol-Myers Squibb is closing a manufacturing plant in Syracuse, NY, as it streamlines operations worldwide to save money, Bloomberg reported. Shares of Barclays Plc, Britain's third-largest bank, surged as much as 11% after a report the company may get a bid from Citigroup, Bloomberg reported. Shares of MCI rose as much as 20% in early trading after the company said it will pay a .40 quarterly dividend to distribute cash to shareholders, Bloomberg said. DaimlerChrysler may run out of engines for its diesel-powered Jeep Liberty sport-utility vehicle based on interest the light truck is generating among prospective buyers, Bloomberg said. U.S. Treasury Notes soared after a report showed the economy added fewer jobs than forecast for a second straight month, raising speculation an economic slowdown in more than temporary, Bloomberg said. However, the U.S. unemployment rate fell to 5.5%, better than expectations of 5.6%, Bloomberg reported.
BOTTOM LINE: The Portfolio is higher today as my steel and healthcare shorts are dropping substantially, more than offsetting losses in my biotech and gaming longs. I have not traded today and the Portfolio is still 50% net short. Anti-business political rhetoric and terrorism fears are resulting in a loss of confidence by executives. Thus, corporations are hiring fewer people and spending less. I continue to believe this weakness is temporary and economic growth will accelerate in the 4th quarter. I expect stocks to drift modestly lower into the close as buyers fail to materialize heading into a weekend with oil near record levels. However, with interest rates plunging, the Arms and Put/Call readings at very high levels and the VIX rising, a rally will likely materialize on Monday and follow-through on Tuesday with the Fed rate hike. I expect the Fed to raise rates 25 basis points and to make comments that they will take a "wait and see" approach with respect to further rate hikes. After Tuesday's rate increase, I expect the Fed to remain on hold at least through the October meeting.
NASDAQ 1,797.44 -1.33%
Leading Sectors
Utilities +1.07%
Homebuilders +.90%
Banks -.22%
Lagging Sectors
Iron/Steel -2.23%
Semis -2.66%
Fashion -2.67%
Other
Crude Oil 44.48 +.16%
Natural Gas 5.65 -1.09%
Gold 402.40 +1.98%
Base Metals 108.60 -1.28%
U.S. Dollar 88.31 -1.48%
10-Yr. T-note Yield 4.23% -3.88%
VIX 18.94 +3.38%
Put/Call 1.51 +93.59%
NYSE Arms 2.84 +.35%
Market Movers
NVT +15.6% on strong demand for its IPO.
NVDA -31.5% after missing 2Q estimates substantially and multiple downgrades.
BSX -5.6% after the FDA said it may broaden a probe of its products.
DOVP +21.85% after saying it may receive as much as $455 million from Merck for the right to experimental drugs for depression and other diseases.
PNRA +5.6% after Piper Jaffray upgrade to Market Perform.
DTSI -24.2% after disappointing 2Q results.
VSTA -25.9% after missing 2Q estimates, lowering 04 outlook and multiple downgrades.
GB -28.6% after missing 2Q forecast, lowering 04 guidance and multiple downgrades.
BCSI -31.9% after lowering 1Q forecast and downgrade by ThinkEquity to Accumulate.
Economic Data
Unemployment for July was 5.5% versus estimates of 5.6% and 5.6% in June.
Change in Non-farm Payrolls for July was 32K versus estimates of 240K and a downwardly revised 78K in June.
Change in Manufacturing Payrolls for July was 10K versus estimates of 10K and an upwardly revised -1K in June.
Recommendations
Goldman Sachs reiterated Outperform on CLX, ADP, WAG, STZ, UNH, DTV, BSX and AMLN. Goldman reiterated Underperform on DAL. Citi SmithBarney rated WYY Buy, target $73. Citi rated STT Buy, target $57. AMX raised to Buy at Deutsche Bank, target $40. BLX raised to Buy at Deutsche Bank, target $18.55. VLO raised to Buy at Deutsche Bank, target $80. PCO raised to Buy at Deutsche Bank, target $40. GB cut to Underweight at Morgan Stanley. RDEN raised to Overweight at JP Morgan. QLTI raised to Strong Buy at Raymond James, target $24. SONSE raised to Strong Buy at Raymond James, target $7.50.
Mid-day News
U.S. stocks are lower mid-day after a much weaker-than-expected jobs report and continuing worries over high energy prices. A study of about 1,800 women in Mexico found the risk of developing breast cancer was more than two times greater in those that had diets with high carbohydrate intake, the AP reported. Talk-show host Oprah Winfrey signed a three-year contract renewal yesterday that will keep her syndicated show on the air through the 2010-2011 tv season, the Chicago Sun-Times said. OPEC raised production to 30.02 million barrels a day in July, its highest in 25 years, according to Middle East Economic Survey estimates. The Moscow Arbitration Court ruled that the government's plan to seize the main oil unit of OAO Yukos Oil is illegal, Interfax reported. Janus Capital intends to start relying more on brokers to sell its mutual fund portfolios, marking a shift in the company's sales strategy, Denver's Rocky Mountain News reported. Bristol-Myers Squibb is closing a manufacturing plant in Syracuse, NY, as it streamlines operations worldwide to save money, Bloomberg reported. Shares of Barclays Plc, Britain's third-largest bank, surged as much as 11% after a report the company may get a bid from Citigroup, Bloomberg reported. Shares of MCI rose as much as 20% in early trading after the company said it will pay a .40 quarterly dividend to distribute cash to shareholders, Bloomberg said. DaimlerChrysler may run out of engines for its diesel-powered Jeep Liberty sport-utility vehicle based on interest the light truck is generating among prospective buyers, Bloomberg said. U.S. Treasury Notes soared after a report showed the economy added fewer jobs than forecast for a second straight month, raising speculation an economic slowdown in more than temporary, Bloomberg said. However, the U.S. unemployment rate fell to 5.5%, better than expectations of 5.6%, Bloomberg reported.
BOTTOM LINE: The Portfolio is higher today as my steel and healthcare shorts are dropping substantially, more than offsetting losses in my biotech and gaming longs. I have not traded today and the Portfolio is still 50% net short. Anti-business political rhetoric and terrorism fears are resulting in a loss of confidence by executives. Thus, corporations are hiring fewer people and spending less. I continue to believe this weakness is temporary and economic growth will accelerate in the 4th quarter. I expect stocks to drift modestly lower into the close as buyers fail to materialize heading into a weekend with oil near record levels. However, with interest rates plunging, the Arms and Put/Call readings at very high levels and the VIX rising, a rally will likely materialize on Monday and follow-through on Tuesday with the Fed rate hike. I expect the Fed to raise rates 25 basis points and to make comments that they will take a "wait and see" approach with respect to further rate hikes. After Tuesday's rate increase, I expect the Fed to remain on hold at least through the October meeting.
Friday Watch
Earnings of Note
Company/Estimate
BRK/A/844.50
MXIM/.36
PWR/-.04
Splits
None of note.
Economic Data
Unemployment Rate for July estimated at 5.6% versus 5.6% in June.
Change in Non-farm Payrolls for July estimated at 240K versus 112K in June.
Change in Manufacturing Payrolls for July estimated at 10K versus -11K in June.
Consumer Credit for June estimated at $4.0B versus $8.2B in May.
Recommendations
Goldman Sachs reiterated Outperform on KO, DVN and AL. Goldman reiterated Attractive view of lodging sector. Shares of PTEN, the No. 2 provider of onshore-drilling services to oil-and-gas producers, are expected to rise on increased demand for drilling gear, Business Week reported.
Late-Night News
Asian indices are mostly lower on worries over declines in U.S. shares and higher oil prices. A31 Action Coalition, whose members include self-described anarchists, has called for a nationwide day of non-violent civil disobedience on Aug. 31 during the Republican Convention in midtown Manhattan, the NY Times reported. NYSE seat owners have requested that the exchange buy back more than a quarter of its seats to prevent their prices from declining further, Dow Jones reported. Gap Inc. wants to start a chain that sells moderately priced clothes aimed at women aged 35-50, Business Week reported. Krispy Kreme doesn't write down the value of franchises it buys back, Business Week reported. BP Plc shut a gasoline production unit at its Texas City refinery in the U.S. after a fire, Reuters reported. The U.S. government said North Korea is developing ballistic missile systems designed to carry nuclear warheads and having them tested in Iran, the AP reported. Electronic Data Systems gained a $34 million contract with New Zealand's tax department to replace and maintain computer equipment, the Dominion Post reported. Google is being investigated by California's Department of Corporations for possible securities-law violations between September 2001 and June 2004, Bloomberg reported.
Late-Night Trading
Asian Indices are -.75% to -.25% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.18%
BOTTOM LINE: I expect U.S. stocks to open modestly higher as the Change in Non-farm Payrolls report likely meets expectations. However, continuing worries over terrorism, politics and high energy prices will likely result in weakening stock prices later in the day. A much better-than-expected jobs report could lead to an oversold short-covering rally for a few days and a much worse-than-expected report will further fuel fears of an economic slowdown and probably send stocks lower. The Portfolio is 50% net short heading into tomorrow.
Company/Estimate
BRK/A/844.50
MXIM/.36
PWR/-.04
Splits
None of note.
Economic Data
Unemployment Rate for July estimated at 5.6% versus 5.6% in June.
Change in Non-farm Payrolls for July estimated at 240K versus 112K in June.
Change in Manufacturing Payrolls for July estimated at 10K versus -11K in June.
Consumer Credit for June estimated at $4.0B versus $8.2B in May.
Recommendations
Goldman Sachs reiterated Outperform on KO, DVN and AL. Goldman reiterated Attractive view of lodging sector. Shares of PTEN, the No. 2 provider of onshore-drilling services to oil-and-gas producers, are expected to rise on increased demand for drilling gear, Business Week reported.
Late-Night News
Asian indices are mostly lower on worries over declines in U.S. shares and higher oil prices. A31 Action Coalition, whose members include self-described anarchists, has called for a nationwide day of non-violent civil disobedience on Aug. 31 during the Republican Convention in midtown Manhattan, the NY Times reported. NYSE seat owners have requested that the exchange buy back more than a quarter of its seats to prevent their prices from declining further, Dow Jones reported. Gap Inc. wants to start a chain that sells moderately priced clothes aimed at women aged 35-50, Business Week reported. Krispy Kreme doesn't write down the value of franchises it buys back, Business Week reported. BP Plc shut a gasoline production unit at its Texas City refinery in the U.S. after a fire, Reuters reported. The U.S. government said North Korea is developing ballistic missile systems designed to carry nuclear warheads and having them tested in Iran, the AP reported. Electronic Data Systems gained a $34 million contract with New Zealand's tax department to replace and maintain computer equipment, the Dominion Post reported. Google is being investigated by California's Department of Corporations for possible securities-law violations between September 2001 and June 2004, Bloomberg reported.
Late-Night Trading
Asian Indices are -.75% to -.25% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.18%
BOTTOM LINE: I expect U.S. stocks to open modestly higher as the Change in Non-farm Payrolls report likely meets expectations. However, continuing worries over terrorism, politics and high energy prices will likely result in weakening stock prices later in the day. A much better-than-expected jobs report could lead to an oversold short-covering rally for a few days and a much worse-than-expected report will further fuel fears of an economic slowdown and probably send stocks lower. The Portfolio is 50% net short heading into tomorrow.
Subscribe to:
Posts (Atom)