Bottom Line: Phelps Dodge(PD), the leading U.S. copper producer, rose 8.82% to a new all-time high last week. Accelerating demand for copper bodes well for future U.S. economic growth. I expect PD to break $100/share before year-end.
Sunday, September 26, 2004
Chart of the Week
Phelps Dodge Corporation
Bottom Line: Phelps Dodge(PD), the leading U.S. copper producer, rose 8.82% to a new all-time high last week. Accelerating demand for copper bodes well for future U.S. economic growth. I expect PD to break $100/share before year-end.
Bottom Line: Phelps Dodge(PD), the leading U.S. copper producer, rose 8.82% to a new all-time high last week. Accelerating demand for copper bodes well for future U.S. economic growth. I expect PD to break $100/share before year-end.
Weekly Outlook
There are a number of important economic reports and a few significant corporate earnings reports scheduled for release this week. Economic reports include New Home Sales, Consumer Confidence, Final 2Q GDP readings, Personal Income, Personal Spending, PCE Deflator, Initial Jobless Claims, Help Wanted Index, Chicago Purchasing Manager, Final Univ. of Mich. Consumer Confidence, Construction Spending, ISM Manufacturing/Prices Paid and Vehicle Sales. New Home Sales, Consumer Confidence, GDP readings, Personal Spending, Chicago Purchasing Manager and ISM all have market-moving potential.
Walgreen(WAG), Solectron(SLR), American Greeting(AM), Micron Technology(MU), Constellation Brands(STZ) and Family Dollar Stores(FDO) are some of the more important companies that release quarterly earnings this week. There are also a number of other events that have market-moving potential. The UBS Global Life Sciences Conference, Oil & Gas Investment Symposium West, Deutsche Bank Global Oil & Gas Conference, Merrill Lynch Media Conference, Thomas Weisel Consumer Conference, Fed's Hoenig speaking, CSFB Chemical Conference, Fed's McTeer speaking and the Fed's Geithner speaking could also impact trading this week.
Bottom Line: I expect U.S. stocks to finish the week mixed as earnings worries and profit-taking offset better economic data and quarter-end window dressing. As well, investor complacency and the market's technically overbought state should lead to further consolidation. Investors are overreacting to slowing earnings growth as 3Q earnings are projected to rise 14.2% versus a historical average of 7%. Moreover, the negative-to-positive preannouncement ratio is currently around 2.0, below the market's long-term average. My short-term trading indicators are giving mixed signals and the Portfolio is market neutral(longs-shorts=0% market exposure) heading into the week.
Walgreen(WAG), Solectron(SLR), American Greeting(AM), Micron Technology(MU), Constellation Brands(STZ) and Family Dollar Stores(FDO) are some of the more important companies that release quarterly earnings this week. There are also a number of other events that have market-moving potential. The UBS Global Life Sciences Conference, Oil & Gas Investment Symposium West, Deutsche Bank Global Oil & Gas Conference, Merrill Lynch Media Conference, Thomas Weisel Consumer Conference, Fed's Hoenig speaking, CSFB Chemical Conference, Fed's McTeer speaking and the Fed's Geithner speaking could also impact trading this week.
Bottom Line: I expect U.S. stocks to finish the week mixed as earnings worries and profit-taking offset better economic data and quarter-end window dressing. As well, investor complacency and the market's technically overbought state should lead to further consolidation. Investors are overreacting to slowing earnings growth as 3Q earnings are projected to rise 14.2% versus a historical average of 7%. Moreover, the negative-to-positive preannouncement ratio is currently around 2.0, below the market's long-term average. My short-term trading indicators are giving mixed signals and the Portfolio is market neutral(longs-shorts=0% market exposure) heading into the week.
Market Week in Review
S&P 500 1,110.11 -1.63%
Click here for the Weekly Wrap by Briefing.com
Bottom Line: Last week's market action was mostly negative as U.S. stocks fell, driving the S&P 500 to its first weekly loss in seven, amid disappointing earnings and rising energy prices. However, most cyclicals continued to hold up well, pointing towards a re-acceleration of economic growth. Moreover, the Base Metal Spot Price Index broke out last week, which also bodes well for a pick-up in growth. Many investors view the current decline in long-term interest rates as a forecast of very slow economic growth or recession. I do not agree with this assessment at this point and view the decline as a big positive. Measures of investor anxiety were mixed last week and will likely head higher over the next few weeks. Finally, most stocks remain technically overbought after recent gains.
Click here for the Weekly Wrap by Briefing.com
Bottom Line: Last week's market action was mostly negative as U.S. stocks fell, driving the S&P 500 to its first weekly loss in seven, amid disappointing earnings and rising energy prices. However, most cyclicals continued to hold up well, pointing towards a re-acceleration of economic growth. Moreover, the Base Metal Spot Price Index broke out last week, which also bodes well for a pick-up in growth. Many investors view the current decline in long-term interest rates as a forecast of very slow economic growth or recession. I do not agree with this assessment at this point and view the decline as a big positive. Measures of investor anxiety were mixed last week and will likely head higher over the next few weeks. Finally, most stocks remain technically overbought after recent gains.
Saturday, September 25, 2004
Economic Week in Review
ECRI Weekly Leading Index 131.40 -.15%
Housing Starts for August were 2000K versus estimates of 1930K and 1988K in July. Building Permits for August were 1952K versus estimates of 1985K and 2066K in July. "I don’t know many people who can't buy homes because of mortgage rates, and there is still unmet demand for affordable homes," said Sun Won Sohn, chief economist at Wells Fargo. "Housing remains quite strong, and is still there as a source of support for the economy, however the decline in building permits does suggest that builders are turning somewhat more cautious," said Lynn Reaser, chief economist at Banc of America Capital. Starts in the northeast rose 6.5%, showing the most strength of any region and the best performance since 1990, Bloomberg said.
The FOMC raised rates 25 basis points to 1.75%. "With underlying inflation expected to be relatively low, the committee believes that policy accommodation can be removed at a pace that is likely to be measured," said members of the Fed in their policy statement. Low automobile and clothing prices helped hold the rise in the consumer price index to 2.7% for the year ended in August, below the average rate of inflation of 3.0% for the last 41 years, Bloomberg reported. The third rate-hike this year and the possibility the FOMC may keep raising rates suggests central bankers are confident that the world's largest economy will continue to expand, Bloomberg reported. "Output growth appears to have regained some traction and labor market conditions have improved modestly," the FOMC statement also said.
Initial Jobless Claims for last week were 350K versus estimates of 335K and 336K the prior week. Continuing Claims were 2883K versus estimates of 2880K and 2878K prior. Claims began to fluctuate last month because of disruptions from hurricanes, with figures ranging from 317,000 to 360,000 since the first storm, Charley, struck Florida on Aug. 13, Bloomberg reported. Last week's number is close to the 344,000 average for the year and consistent with increased hiring as demand recovers from a mid-year lull, economists said. "The September numbers may be understating actual hiring demand," said Mat Johnson, chief economist at ThinkEquity Partners.
Leading Indicators for August fell .3% versus estimates of a .2% decline and a .3% fall in July. The index of coincident indicators, a gauge of current economic conditions, rose .2% for a second month. The index tracks payrolls, incomes, sales and production, Bloomberg reported. "The economy has moderated slightly, but is still very much at positive levels," said John McConnell, chief executive of Worthington Industries. "I don't think there will be long-term inflationary pressures that will disrupt growth in the economy." Worthington shapes steel for automakers.
Durable Goods Orders for August fell .5% versus estimates of a .3% fall and an upwardly revised 1.8% increase in July. Durable Goods Less Transportation for August rose 2.3% versus estimates of a .8% rise and no change in July. The increase excluding transportation equipment was led by orders for metals, computers and communications equipment. The numbers suggest the U.S. manufacturing economy gained strength last month. "The basic message is that most manufacturing industries are currently faring quite well," said Ken Mayland, president of ClearView Economics. "These numbers are begging for the employment of more production workers." Lehman Brothers raised its forecast for economic growth in the third quarter to 4% at an annual rate from 3.3%. The U.S. economy is projected to expand 4.3% this year, the most since the height of the stock market bubble in 1999, Bloomberg reported.
Existing Home Sales for August were 6.54M versus estimates of 6.63M and 6.72M in July. "Sales are down a bit due to higher interest rates," said David Lereah, the National Association of Realtors' chief economist. However, mortgage rates are now falling as inflation expectations diminish, Bloomberg reported. The average rate on a 30-year fixed mortgage fell to 5.7% this week from 6.25% in June, according to Freddie Mac. The median selling price of an existing home in the U.S. was $190,100 last month, up 7.3% from a year ago. As well, 81% of consumers surveyed by the Univ. of Mich. this month said it was a good time to buy a home, up from 77% in August, Bloomberg reported.
Bottom Line: Overall, last week's economic data were mixed. Measures of the health of the housing market remain very strong, but show deceleration from all-time record high levels. However, the recent decline in mortgage rates may reignite the housing market towards year-end. While I do not think it was necessary for the Fed to raise rates last week or maintain their "measured pace of increases" language, I do understand why they are doing this. I believe it is to have ammunition, in the form of rate-cuts, in case of an emergency situation. Moreover, the Fed Funds rate is still so low that the increases aren't negatively impacting business activity to any extent. It also sends the message that they are being vigilant with respect to inflation, thus resulting in diminished inflation expectations and falling long-term interest rates. The hurricanes over the last few weeks likely affected the leading indicators negatively and continue to disrupt jobless claims. However, rebuilding efforts should boost these measures during the fourth quarter. The Durable Goods report was very positive and also bodes well for future economic growth.
Housing Starts for August were 2000K versus estimates of 1930K and 1988K in July. Building Permits for August were 1952K versus estimates of 1985K and 2066K in July. "I don’t know many people who can't buy homes because of mortgage rates, and there is still unmet demand for affordable homes," said Sun Won Sohn, chief economist at Wells Fargo. "Housing remains quite strong, and is still there as a source of support for the economy, however the decline in building permits does suggest that builders are turning somewhat more cautious," said Lynn Reaser, chief economist at Banc of America Capital. Starts in the northeast rose 6.5%, showing the most strength of any region and the best performance since 1990, Bloomberg said.
The FOMC raised rates 25 basis points to 1.75%. "With underlying inflation expected to be relatively low, the committee believes that policy accommodation can be removed at a pace that is likely to be measured," said members of the Fed in their policy statement. Low automobile and clothing prices helped hold the rise in the consumer price index to 2.7% for the year ended in August, below the average rate of inflation of 3.0% for the last 41 years, Bloomberg reported. The third rate-hike this year and the possibility the FOMC may keep raising rates suggests central bankers are confident that the world's largest economy will continue to expand, Bloomberg reported. "Output growth appears to have regained some traction and labor market conditions have improved modestly," the FOMC statement also said.
Initial Jobless Claims for last week were 350K versus estimates of 335K and 336K the prior week. Continuing Claims were 2883K versus estimates of 2880K and 2878K prior. Claims began to fluctuate last month because of disruptions from hurricanes, with figures ranging from 317,000 to 360,000 since the first storm, Charley, struck Florida on Aug. 13, Bloomberg reported. Last week's number is close to the 344,000 average for the year and consistent with increased hiring as demand recovers from a mid-year lull, economists said. "The September numbers may be understating actual hiring demand," said Mat Johnson, chief economist at ThinkEquity Partners.
Leading Indicators for August fell .3% versus estimates of a .2% decline and a .3% fall in July. The index of coincident indicators, a gauge of current economic conditions, rose .2% for a second month. The index tracks payrolls, incomes, sales and production, Bloomberg reported. "The economy has moderated slightly, but is still very much at positive levels," said John McConnell, chief executive of Worthington Industries. "I don't think there will be long-term inflationary pressures that will disrupt growth in the economy." Worthington shapes steel for automakers.
Durable Goods Orders for August fell .5% versus estimates of a .3% fall and an upwardly revised 1.8% increase in July. Durable Goods Less Transportation for August rose 2.3% versus estimates of a .8% rise and no change in July. The increase excluding transportation equipment was led by orders for metals, computers and communications equipment. The numbers suggest the U.S. manufacturing economy gained strength last month. "The basic message is that most manufacturing industries are currently faring quite well," said Ken Mayland, president of ClearView Economics. "These numbers are begging for the employment of more production workers." Lehman Brothers raised its forecast for economic growth in the third quarter to 4% at an annual rate from 3.3%. The U.S. economy is projected to expand 4.3% this year, the most since the height of the stock market bubble in 1999, Bloomberg reported.
Existing Home Sales for August were 6.54M versus estimates of 6.63M and 6.72M in July. "Sales are down a bit due to higher interest rates," said David Lereah, the National Association of Realtors' chief economist. However, mortgage rates are now falling as inflation expectations diminish, Bloomberg reported. The average rate on a 30-year fixed mortgage fell to 5.7% this week from 6.25% in June, according to Freddie Mac. The median selling price of an existing home in the U.S. was $190,100 last month, up 7.3% from a year ago. As well, 81% of consumers surveyed by the Univ. of Mich. this month said it was a good time to buy a home, up from 77% in August, Bloomberg reported.
Bottom Line: Overall, last week's economic data were mixed. Measures of the health of the housing market remain very strong, but show deceleration from all-time record high levels. However, the recent decline in mortgage rates may reignite the housing market towards year-end. While I do not think it was necessary for the Fed to raise rates last week or maintain their "measured pace of increases" language, I do understand why they are doing this. I believe it is to have ammunition, in the form of rate-cuts, in case of an emergency situation. Moreover, the Fed Funds rate is still so low that the increases aren't negatively impacting business activity to any extent. It also sends the message that they are being vigilant with respect to inflation, thus resulting in diminished inflation expectations and falling long-term interest rates. The hurricanes over the last few weeks likely affected the leading indicators negatively and continue to disrupt jobless claims. However, rebuilding efforts should boost these measures during the fourth quarter. The Durable Goods report was very positive and also bodes well for future economic growth.
Friday, September 24, 2004
Weekly Scoreboard*
Indices
S&P 500 1,110.11 -1.63%
Dow 10,047.24 -2.31%
NASDAQ 1,879.48 -1.60%
Russell 2000 565.97 -1.26%
S&P Equity Long/Short Index 969.46 +.29%
Put/Call .93 +13.41%
NYSE Arms 1.05 +43.84%
Volatility(VIX) 14.28 +1.78%
AAII % Bulls 51.22 +12.70%
US Dollar 88.40 -.53%
CRB 277.77 +1.22%
Futures Spot Prices
Gold 409.70 +.54%
Crude Oil 48.88 +7.15%
Unleaded Gasoline 134.82 +6.20%
Natural Gas 5.39 +5.21%
Base Metals 116.00 +5.87%
10-year US Treasury Yield 4.03% -1.95%
Average 30-year Mortgage Rate 5.70% -.87%
Leading Sectors
Oil Service +2.70%
Energy +2.02%
Gaming +1.84%
Lagging Sectors
Internet -3.08%
Iron/Steel -3.19%
Airlines -8.41%
*% Gain or loss for the week
S&P 500 1,110.11 -1.63%
Dow 10,047.24 -2.31%
NASDAQ 1,879.48 -1.60%
Russell 2000 565.97 -1.26%
S&P Equity Long/Short Index 969.46 +.29%
Put/Call .93 +13.41%
NYSE Arms 1.05 +43.84%
Volatility(VIX) 14.28 +1.78%
AAII % Bulls 51.22 +12.70%
US Dollar 88.40 -.53%
CRB 277.77 +1.22%
Futures Spot Prices
Gold 409.70 +.54%
Crude Oil 48.88 +7.15%
Unleaded Gasoline 134.82 +6.20%
Natural Gas 5.39 +5.21%
Base Metals 116.00 +5.87%
10-year US Treasury Yield 4.03% -1.95%
Average 30-year Mortgage Rate 5.70% -.87%
Leading Sectors
Oil Service +2.70%
Energy +2.02%
Gaming +1.84%
Lagging Sectors
Internet -3.08%
Iron/Steel -3.19%
Airlines -8.41%
*% Gain or loss for the week
Mid-day Update
S&P 500 1,111.01 +.24%
NASDAQ 1,884.52 -.10%
Leading Sectors
Oil Service +2.02%
Restaurants +1.23%
Energy +1.23%
Lagging Sectors
Disk Drives -1.79%
Airlines -2.72%
Semis -2.88%
Other
Crude Oil 48.43 -.12%
Natural Gas 5.40 -2.95%
Gold 409.80 -.68%
Base Metals 116.36 +.11%
U.S. Dollar 88.44 unch.
10-Yr. T-note Yield 4.04 +.81%
VIX 14.32 -3.24%
Put/Call 1.0 +8.70%
NYSE Arms 1.08 -32.05%
Market Movers
COGT +47.5% on strong demand for IPO.
MSO +7.7% on continuing optimism over recent events.
ECSI +16.0% after agreeing to be bought by STJ for $11.75/share.
AH +4.1% after saying it won a $23 million contract from the U.S. Army.
JLG +11.9% after beating 4Q estimates and making positive comments.
ESIO -19.3% after missing 1Q estimates and lowering 2Q outlook.
PSRC -17.2% after beating 1Q forecast, but lowering 2Q estimates.
Economic Data
Durable Goods Orders for August fell .5% versus estimates of a .3% decline and an upwardly revised 1.8% increase in July.
Durable Goods Less Transportation for August rose 2.3% versus estimates of a .8% increase and an upwardly revised 0.0% in July.
Existing Home Sales for August were 6.54M versus estimates of 6.63M and 6.72M in July.
Recommendations
Goldman Sachs reiterated Outperform on MER, BPO and VNO. Citi SmithBarney upgraded MRO to Buy, target $45. Citi reiterated Buy on BK, target $37. Citi reiterated Buy on DOW, target $50. Citi reiterated Sell on PGL, target $36. Citi reiterated Buy on FLEX, target $22. Citi reiterated Buy on PRU, target $55. MDCO rated Reduce at UBS, target $25. NTMD rated Buy at UBS, target $32. APC, KMG, XTO raised to Buy at Citi. NTMD rated Overweight at JP Morgan. DTE raised to Overweight at Morgan Stanley. ARO raised to Buy at Deutsche Bank, target $33. Lehman says US Dollar will decline as interest rates fall.
Mid-day News
U.S. stocks are mixed mid-day on conflicting economic data, weakness in technology stocks and stabilizing energy prices. Hollywood directors will get at least $40 million in increased payments to their health-care plan under a proposed three-year contract agreement they reached with producers, the NY Times reported. NYC said it created a communications system to get emergency information to the public quickly over television and radio, the NY Times reported. IBM plans to open an office in Fairfax County, Virginia, that will created 1,200 government-contracting jobs, the Washington Post reported. California Governor Schwarzenegger signed into law bills intended to protect the environment, including measures to protect the Sierra Nevada mountain range and decrease cruise ship pollution, the LA Times reported. Two California ballot propositions aimed at expanding slot-machine gambling in the state are failing among likely voters, less that six weeks before the election, the LA Times said. Oil-tanker rates from the Persian Gulf to the U.S. and Asia surged to seven-month highs as refiners scoured the market for ships to haul October cargoes, preparing to meet increased heating demand, Bloomberg said. Russian President Putin said state-run companies may bid for OAO Yukos assets in any sales to collect back taxes, Bloomberg reported. Hurricane Jeanne is heading for the U.S. and may reach Florida's east coast this weekend, making it the first time the state has been hit by four hurricanes in one season, Bloomberg reported.
BOTTOM LINE: The Portfolio is unchanged again mid-day and I have not traded, thus leaving my market neutral stance in tact. The tone of the market is decidedly mixed today. However, the weakness in technology stocks will likely spill over into the rest of the market this afternoon, leaving the major U.S. indices modestly lower on the day.
NASDAQ 1,884.52 -.10%
Leading Sectors
Oil Service +2.02%
Restaurants +1.23%
Energy +1.23%
Lagging Sectors
Disk Drives -1.79%
Airlines -2.72%
Semis -2.88%
Other
Crude Oil 48.43 -.12%
Natural Gas 5.40 -2.95%
Gold 409.80 -.68%
Base Metals 116.36 +.11%
U.S. Dollar 88.44 unch.
10-Yr. T-note Yield 4.04 +.81%
VIX 14.32 -3.24%
Put/Call 1.0 +8.70%
NYSE Arms 1.08 -32.05%
Market Movers
COGT +47.5% on strong demand for IPO.
MSO +7.7% on continuing optimism over recent events.
ECSI +16.0% after agreeing to be bought by STJ for $11.75/share.
AH +4.1% after saying it won a $23 million contract from the U.S. Army.
JLG +11.9% after beating 4Q estimates and making positive comments.
ESIO -19.3% after missing 1Q estimates and lowering 2Q outlook.
PSRC -17.2% after beating 1Q forecast, but lowering 2Q estimates.
Economic Data
Durable Goods Orders for August fell .5% versus estimates of a .3% decline and an upwardly revised 1.8% increase in July.
Durable Goods Less Transportation for August rose 2.3% versus estimates of a .8% increase and an upwardly revised 0.0% in July.
Existing Home Sales for August were 6.54M versus estimates of 6.63M and 6.72M in July.
Recommendations
Goldman Sachs reiterated Outperform on MER, BPO and VNO. Citi SmithBarney upgraded MRO to Buy, target $45. Citi reiterated Buy on BK, target $37. Citi reiterated Buy on DOW, target $50. Citi reiterated Sell on PGL, target $36. Citi reiterated Buy on FLEX, target $22. Citi reiterated Buy on PRU, target $55. MDCO rated Reduce at UBS, target $25. NTMD rated Buy at UBS, target $32. APC, KMG, XTO raised to Buy at Citi. NTMD rated Overweight at JP Morgan. DTE raised to Overweight at Morgan Stanley. ARO raised to Buy at Deutsche Bank, target $33. Lehman says US Dollar will decline as interest rates fall.
Mid-day News
U.S. stocks are mixed mid-day on conflicting economic data, weakness in technology stocks and stabilizing energy prices. Hollywood directors will get at least $40 million in increased payments to their health-care plan under a proposed three-year contract agreement they reached with producers, the NY Times reported. NYC said it created a communications system to get emergency information to the public quickly over television and radio, the NY Times reported. IBM plans to open an office in Fairfax County, Virginia, that will created 1,200 government-contracting jobs, the Washington Post reported. California Governor Schwarzenegger signed into law bills intended to protect the environment, including measures to protect the Sierra Nevada mountain range and decrease cruise ship pollution, the LA Times reported. Two California ballot propositions aimed at expanding slot-machine gambling in the state are failing among likely voters, less that six weeks before the election, the LA Times said. Oil-tanker rates from the Persian Gulf to the U.S. and Asia surged to seven-month highs as refiners scoured the market for ships to haul October cargoes, preparing to meet increased heating demand, Bloomberg said. Russian President Putin said state-run companies may bid for OAO Yukos assets in any sales to collect back taxes, Bloomberg reported. Hurricane Jeanne is heading for the U.S. and may reach Florida's east coast this weekend, making it the first time the state has been hit by four hurricanes in one season, Bloomberg reported.
BOTTOM LINE: The Portfolio is unchanged again mid-day and I have not traded, thus leaving my market neutral stance in tact. The tone of the market is decidedly mixed today. However, the weakness in technology stocks will likely spill over into the rest of the market this afternoon, leaving the major U.S. indices modestly lower on the day.
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