Mid-day Update

S&P 500 1,094.30 -.13%
NASDAQ 1,915.61 +.02%

Leading Sectors
Airlines +4.13%
Iron/Steel +3.57%
Homebuilders +3.46%

Lagging Sectors
Restaurants -.62%
I-Banks -.64%
Biotech -1.41%

Other
Crude Oil 55.18 +.02%
Natural Gas 7.97 -1.67%
Gold 430.10 +1.03%
Base Metals 111.02 -1.63%
U.S. Dollar 85.0 -1.01%
10-Yr. T-note Yield 3.95% +-.48%
VIX 16.52 +8.12%
Put/Call .76 +2.70%
NYSE Arms 1.23 -3.15%

Market Movers
GOOG +5.5% on continuing optimism over last week's earnings report.
ONXX -27.2% after the company said it doesn't expect to begin selling an experimental kidney-cancer treatment until 2006.
TXU +13.4% after boosting 05 estimates substantially, announcing 50M share buyback and boosting dividend.
ISG +24.0% Mittal agreed to Buy the company for $4.5B, forming the world's largest steel company.
*Steel stocks up across the board on ISG deal.
ADP +5.5% after beating 1Q estimates.
VFC +7.1% after beating 3Q estimates, raising 4Q outlook and boosting dividend.
JBSS -28.6% on disappointing 1Q earnings.
CNF -6.1% after missing 3Q estimates and lowering 4Q guidance.
*Homebuilding stocks up across the board on strong existing home sales report.

Economic Data
Existing Home Sales for September were 6.75M versus estimates of 6.51M and 6.55M in August.

Recommendations
Goldman Sachs reiterated Outperform on NEM, VLTR, SII and PDG. Goldman reiterated Underperform on FISV, RAI and LSI. Citi SmithBarney upgraded semiconductor sector globally, favorites are INTC, ADI, FCS, IRF, LLTC, MCRL, MXIM, NSM, SMTC. Citi reiterated Buy on CTSH, target $40. Citi reiterated Buy on NE, target $57. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on PLCE, target $40. AIG raised to Buy at Deutsche Bank, target $69. SUP cut to Reduce at UBS, target $22. XL cut to Underweight at Morgan Stanley. OSTK raised to Buy at Legg Mason, target $69. CDX raised to Buy at Bank of America, target $31. ACE raised to Overweight at Morgan Stanley, target $41. IPCR raised to Overweight at JP Morgan. HCA cut to Underperform at CSFB, target $31. PHM raised to Outperform at CSFB, target $55. LRCX added to JP Morgan "Focus List", target $30.

Mid-day News
U.S. stocks are quietly mixed mid-day as a better-than-expected housing report is being offset by declining biotech shares. Delta Air is close to an agreement to give its pilots a big equity stake in return for cuts in pay and benefits, the Wall Street Journal reported. Barney New York plans to open 32 stores in the next five years, almost doubling its size, in hopes of finding a buyer for the company, the NY Post reported. AOL Music's Web site has become an important tool in the recording industry for promoting musicians and records, the NY Daily News said. Constellation Brands may face rivals in its bid to acquire California winemaker Robert Mondavi, the LA Times said. Applied Digital Solutions, which makes implantable chips to track people and pets, may face hurdles in selling chips that instantly provide patients' medical histories, Barron's reported. Deckers Outdoor's Ugg footwear remains in demand by retailers, even as fashion critics claim the sheepskin boots are out of style, the LA Times reported. U.S. Supreme Court Justice Rehnquist has been hospitalized for thyroid cancer, CNN reported. Ispat Intl. NV, part of the world's second-largest steelmaker, said it will buy LNM Holdings NV and then merge with Intl. Steel Group to create the world's largest steelmaker, Bloomberg reported. Violent crime in the U.S. declined 3% last year and has decreased 26% since 1994, according to the FBI's annual crime report. The European Union said it's ending sanctions on $4 billion of U.S. imports in about two months, Bloomberg reported. Norway's government intervened for the second time this year to forcibly end a labor conflict that threatened to shut down all oil and gas production from the world's third-largest crude exporter, Bloomberg said. The $866 billion hedge fund industry is making a last-ditch attempt to stop a U.S. SEC plan to impose new regulations on the private investment partnerships, Bloomberg reported. U.S. sales of previously owned houses rose in September to the third-highest pace on record, evidence that low borrowing costs were attracting buyers and helping sustain the economic expansion, Bloomberg said. RealClearPolitics.com has President Bush with an average national lead in the 3-way race for president of 3.1 percentage points in all major polls.

Bottom Line: The Portfolio is substantially higher mid-day on strength in my security, internet and telecom ADR longs. I added a few new longs this morning, bringing the Portfolio to 100% net long. One of my new longs is OS and I am using a $13.50 stop-loss on this position. The strong housing report is a very good sign for the U.S. economy and once again crushes the Bears hopes for a bursting of the so-called "housing bubble." I continue to expect the U.S. economy to grow around 4% for the 3rd quarter and accelerate to around 5% growth during the 4th quarter as election uncertainty lifts, oil falls in price and domestic terrorism fears diminish. I also believe technology shares will continue to outperform through year-end. It is probable that the major indices are very close or at a bottom for the year. I will look to add market exposure on any weakness through week's end.

Monday Watch

Earnings of Note
Company/Estimate
AFCI/.02
AXP/.69
BLS/.51
CNF/.77
EXBD/.37
EDS/.08
FLEX/.17
HLT/.13
INSP/.25
ISSX/.16
KMB/.90
K/.55
NBR/.46
PBI/.63
PHM/2.00
R/.79
DGX/1.27
ZMH/.53

Splits
CELG 2-for-1
PDCO 2-for-1

Economic Data
Existing Home Sales for September estimated at 6.51M versus 6.54M in August.

Weekend Recommendations
Wall Street Week w/Fortune had guests that were positive on GIS, CL, KO, FNM, GDW, BRK, RMK, MAT, FLDR, LNDC, MUR, CVX, MDX, IMDC,SYD and PDCO. Louis Rukeyser's Wall Street had guests that were positive on XOM, PFE, IBM, CMX, NFX, UNP, ADBL, PWN, PXP, VIP and LUKOY. Barron's had positive comments on WYE, DBD, NUHC, FNM, CMLS, COCO, LH, ESI, IACI and negative comments on PSUN, ARO, DKS. Goldman Sachs reiterated Outperform on UDR, ALL, SLB, IP, SPP, DTC, BBY, EBAY, DD, ROH, DOW, BC and ASN. Goldman reiterated Underperform on AVB, CYT, SIAL, CR and ATI.

Weekend News
Japan may extend loans to the Iraqi oil ministry to help fund oil and gas projects, the Middle East Economic Survey said. San Francisco transit police are for the first time patrolling the city's subway system with assault weapons and gas masks to deter potential terrorists as Election Day nears, the San Francisco Chronicle reported. President Bush may tap Ben Bernanke to replace Alan Greenspan as chairman of the U.S. Federal Reserve and John Kerry might nominate Alan Blinder if he is elected, Barron's said. Hamid Karzai has won the required majority of votes for outright victory in Afghanistan's presidential election, Agence France-Presse reported. Google is not developing a browser and won't enter any browser wars with Microsoft and Yahoo!, the Financial Times said. NY Democratic Attorney General Spitzer may bring a civil lawsuit against Aon Corp., the world's second largest insurance broker, for antitrust violations, the NY Times reported. Nu Skin Enterprises(NUS) expects its China sales to grow as much as 20-fold in three to five years, making the country its biggest international market, China Daily reported. Wal-Mart said U.S. sales at stores open at least a year are rising within its forecast of 2-4%, boosted by boys' and girls' wear and bedding, Bloomberg said. U.S. intelligence and law enforcement authorities said no direct evidence has been found to indicate plans for an election-related terrorist attack, Bloomberg said. The Fed can raise rates at a measured pace because U.S. economic growth is "solid" and rising energy costs haven't yet sparked concern about a broader acceleration of inflation, Fed Governor Susan Bies said. President Bush called on Congress to pass legislation he proposed to comply with guidelines set out by the federal commission studying the intelligence failures that led to the Sept. 11, 2001, attacks, Bloomberg reported. Northwestern Japan was jolted by aftershocks after a series of earthquakes killed 23 and injured more than 2,100, forcing thousands more to seek shelter in the deadliest temblor since 1995, Bloomberg reported. The creation of a U.S. insurance regulator is gaining support in Congress and among consumer groups after Spitzer disclosed his probe of improper sales practices, Bloomberg said.

Late-Night Trading
Asian indices are lower, -1.50% to -.50% on average.
S&P 500 indicated -.42%.
NASDAQ 100 indicated -.48%

BOTTOM LINE: I expect U.S. stocks to open modestly lower in the morning on weakness in Asia, worries over U.S. politics and high energy prices. The Portfolio is 75% net long heading into tomorrow.

Chart of the Week

Dow Jones Transportation Average


Bottom Line: The Transportation Average reached a 5-year high last week and is now only 11.2% below its all-time high set May 12, 1999. Historically, this index is a leading indicator of economic growth. From 5/12/1999 through 3/8/2000 the index plummeted 40.6%, while the major indices rose, correctly predicting the most devastating broad market decline since the Great Depression and ensuing plunge in economic growth that began in early 2000. The Bears and many media pundits suggestion that high energy prices are pushing the U.S. economy towards recession do not correspond with the strength of this energy-intensive leading index.

Weekly Outlook

There are a number of important economic reports and significant corporate earnings reports scheduled for release this week. Economic reports include Existing Home Sales(Mon.), Consumer Confidence(Tues.), Durable Goods Orders(Wed.), New Home Sales(Wed.), Fed's Beige Book(Wed.), Initial Jobless Claims(Thur.), Continuing Claims(Thur.), 3Q Actual GDP(Fri.), 3Q Actual Personal Consumption(Fri.) and 3Q Actual Price Deflator(Fri.). Existing Home Sales, Consumer Confidence, New Home Sales, Initial Jobless Claims and 3Q Actual GDP all have market-moving potential.

Ryder Systems(R-Mon.), Pulte Homes(PHM-Mon.), DuPont(DD-Tues.), Procter & Gamble(PG-Wed.), Boeing(BA-Wed.), Sirius Satellite(SIRI-Wed.), Unilever(UL-Wed.), Martha Stewart Living(MSO-Thur.), JetBlue Airways(JBLU-Thur.) and Verizon(VZ-Thur.) are some of the more important companies that release quarterly earnings this week. There are also some other events that have market-moving potential. The JP Morgan Small-cap Conference(Mon.), CSFB Building Products Conference(Wed.) and Prudential Technology Conference(Wed.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week modestly higher as shares head lower early in the week and then rebound towards week's end on diminishing domestic terrorism fears, optimism over future economic growth and anticipation of an end to the bitter political rhetoric. My short-term trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,095.74 -1.12%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Market action last week was mixed as HMO and telecom stocks led the S&P 500 and DJIA lower, while software and semiconductor shares boosted the NASDAQ. Last week was not good for the Bulls, however declines were relatively muted considering energy's continuing rise, a tightening of the Presidential polls, mixed earnings reports and steep declines in the HMO sector. Once again, Democratic NY Attorney General Spitzer's widening insurance probe resulted in major losses for unknowing investors and will undoubtedly lead to future job losses in the HMO industry. As I have stated before, executives should be held more personally liable for any illegal actions and the companies themselves less liable, to minimize job losses and investor pain. It is extremely unfair and is a significant burden on the U.S. economy to punish so many innocent people for the actions of a few rogue executives. On the positive side, interest rates fell again, most commodity prices stabilized, technology/small-caps stocks outperformed and the advance/decline line only fell modestly. Measures of investor anxiety were mixed on the week.

Economic Week in Review

ECRI Weekly Leading Index 131.60 +.46%

The NAHB Housing Market Index for October rose to 72, the highest in a year, versus estimates of 68 and a reading of 67 in September. The index of optimism among U.S. homebuilders soared in October as mortgage rates hovered near a four-decade low, increasing the likelihood that construction will bolster economic growth, Bloomberg said. Readings higher than 50 mean more builders view conditions as good than poor. The group's index has exceeded 60 for 17 months in a row, Bloomberg reported. A gauge of market expectations for the next six months rose to 84 from 75, the highest level in 5 years. The increase in expectations was the largest in 13 years.

The Consumer Price Index for September rose .2% versus estimates of a .2% increase and a .1% gain in August. The CPI Ex Food & Energy for September rose .3% versus estimates of a .2% rise and a .1% increase in August. A 2.7% jump in the cost of hotel stays and other lodging away from home accounted for about three-fourths of the September increase in the core, the Labor Dept. said. Alan Greenspan said that while high crude oil prices are having an effect on the economy, they aren't high enough to spark inflation and slow growth like the U.S. experienced in prior energy shocks, Bloomberg said. Prices for new automobiles fell .2% and clothing/food prices were unchanged.

Housing Starts for September were 1898K versus estimates of 1950K and 2020K in August. Building Permits for September were 2005K versus estimates of 1950K and 1969K in August. The larger-than-expected decrease suggest the market my have cooled a bit after a buying surge in recent months. However, the pace through September was rapid enough for this year to be the best for home construction since 1978, Bloomberg reported. Some of the dip "likely reflects the impact of hurricanes Frances, Ivan and Jeanne, and will not persist," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. Moreover, the 1.8% rise in building permits was the best showing in a few months, indicating construction will be sustained, Bloomberg said. Measured at an annual rate, construction grew 10.4% in the third quarter. "That implies the contribution of housing to GDP will be quite strong," said Gary Bigg, an economist at Bank of America Securities.

Initial Jobless Claims for last week were 329K versus estimates of 345K and 354K the prior week. Continuing Claims were 2798K versus estimates of 2840K and 2806K prior. "Employment is probably growing solidly," said James O'Sullivan, senior economist at UBS Securities. "The bottom line is that the claims numbers are pretty strong." "The job market is getting better and hiring is increasing the most in sales, accounting and healthcare," said Andrew McKelvey, chief executive of Monster Worldwide.

Leading Indicators for September fell .1% versus estimates of a .1% decline and a .3% decrease in August. "We have to get through this election cycle and then I think you will see the business community begin to make decisions on new capital investments and new hiring as we go into next year," said David Ratcliffe, CEO of Southern Co. and chairman of the Atlanta Federal Reserve Bank board. As well, hurricanes that struck the southeast during the month probably acted as a restraint on the leading indicators index because they limited hours worked and pushed up first-time jobless claims, economists said. "We do not view the recent declines in the LEI as signaling any sort of fundamental shift in economic activity," said David Resler, chief economist at Nomura Securities.

The Philadelphia Fed. Index rose to 28.5 in October versus estimates of 18.0 and a reading of 13.4 in September. The survey covers Delaware, eastern Pennsylvania and southern New Jersey. The index reached a 10-year high of 38.8 earlier this year and has exceeded 30 for four months this year, Bloomberg reported. Moreover, the percentage of firms reporting increases in business activity(40%) exceeded the percentage reporting decreases(11%) for the 17th straight month.

Bottom Line: Overall, last week's economic data were modestly positive. The better-than-expected readings for the Housing Market Index and Building Permits suggest housing, already strong, should accelerate into year-end. Core consumer prices continue to rise at a relatively moderate pace, keeping inflation in check. Declining prices for autos, electronics, phone services and clothing are mostly offsetting rising commodity and healthcare prices. Jobless claims are showing improvement in the labor market again after the temporary depressing effects from the record-setting hurricanes that ravaged Florida and other southern states. While the monthly Leading Indicators declined, the Weekly Leading Index rose and should begin heading higher during November as the negative effects from the U.S. election diminish. Measures of manufacturing activity remain high and should also show acceleration in November.