Monday Watch

Earnings of Note
Company/Estimate
ACDO/.36
ASF/.10
CHK/.30
MXIM/.42
NBIX/-.39
PDLI/-.21
TYC/.43
SYY/.35

Splits
Rock 3-for-2

Economic Data
Personal Income for September is estimated to rise .3% versus a .4% increase in August.
Personal Spending for September is estimated to rise .6% versus no change in August.
PCE Deflator for September is estimated to rise 2.0% versus a 2.1% increase in August.
PCE Core for September is estimated to rise 1.5% versus a 1.4% gain in August.
Construction Spending for September is estimated up .4% versus a .8% gain in August.
ISM Manufacturing for October is estimated at 58.5 versus a reading of 58.5 in September.
ISM Prices Paid for October is estimated at 79.0 versus a reading of 76.0 in September.

Weekend Recommendations
Cashin' In had guests that were positive on FHRX and mixed on HD, SZE, MRK. Forbes on Fox had guests that were positive on KRB, SYY, PLMO, MOT, AAPL and TXN. Bulls and Bears had guests that were positive on EBAY, VLO, LLL, CMCSA, RUK, CAN and SMH. Barron's had positive comments on PGR, NVS, FTI, AIG, HSP, VAR, WSH, CLE, PMI, RDN, DE, MOV, TIF, COH, JWN, NMG/A and negative comments on LVLT. Goldman Sachs reiterated Outperform on HC, AMGN, TU, GILD, EBAY, BBY and KO. Goldman reiterated Underperform on FRNT.

Weekend News
Survivors in the U.S. airline industry will be carriers that forget full-service and improve operating efficiency to keep fares and travel delays to a minimum, the NY Times reported. Sempra Energy, owner of the largest U.S. natural gas utility, won approval to build a liquefied natural gas terminal in Mexico, the first such facility on North America's West Coast, the LA Times reported. Democratic NY Attorney General Spitzer may file civil fraud accusations against insurance broker Aon Corp. within two weeks as part of his investigation into the industry, the NY Times reported. Northwest Airlines, which has pared about a quarter of its workforce since 2001, plans to bring back about 600 furloughed flight attendants, the AP reported. Kaiser Permanente, a California-based HMO, may be a model for the U.S. health care system, with its emphasis on preventive care and controlling chronic illnesses, the NY Times reported. U.S. venture capital investment fell 15% in the third quarter, after five straight quarters of growth, evidence of a cooling-off that may benefit the industry, the NY Times reported. Iraqi Prime Minister Allawi said he will order an assault on the insurgent-controlled city of Fallujah if efforts to end the standoff aren't resolved soon, the AP reported. Afghanistan will create a ministry for narcotics to fight drug trafficking the country, Agence France-Presse said. FedEx Corp. will increase its trans-Atlantic shipping capacity by one-fifth in March, the Wall Street Journal said. GM, which has four manufacturing ventures in China, said it will help the country's largest carmaker develop low-polluting vehicles that run on gasoline-electric engines and fuel cells, Bloomberg said. U.S. employers probably added 175,000 workers to payrolls in October, the most in five months, while the unemployment rate held at a three-year low of 5.4%, the median forecast in a Bloomberg News survey of economists show. Crude oil is rising modestly in NY after reports said unions in Nigeria, the fifth-biggest supplier to the U.S., called a strike this month to disrupt the country's oil exports, Bloomberg said.

Late-Night Trading
Asian indices are mixed, -.75% to +.25% on average.
S&P 500 indicated -.17%.
NASDAQ 100 indicated -.27%

BOTTOM LINE: I expect U.S. stocks to open mixed in the morning and rise modestly into the afternoon on good economic reports, diminishing domestic terrorism fears, stable oil prices, good earnings reports, short-covering. The Portfolio is 125% net long heading into tomorrow.

Charts of the Week

2004 U.S. Presidential Winner

Click here for charts.

Bottom Line: The Iowa Electronic Markets show President Bush's chances of re-election at 54.8% versus the chances of a Kerry victory at 45.2%. Upon careful study of all the polls, underlying dynamics within the polls, the biased nature of some polls, Tradsports.com futures and the Iowa Electronic Markets, I have concluded that President Bush will receive 310 electoral votes to Senator Kerry's 228. Thus, President Bush should win re-election by a large enough margin to prevent any delay in the final outcome and substantially diminish the impact of the many lawsuits that are sure to follow. As a result, I expect the Dow Jones Industrial Average to rally 150-200 points on Wednesday.

Weekly Outlook

There are a number of important economic reports and significant corporate earnings reports scheduled for release this week. Economic reports include Personal Income(Mon.), Personal Spending(Mon.), PCE Deflator(Mon.), Construction Spending(Mon.), ISM Manufacturing(Mon.), Factory Orders(Wed.), ISM Non-Manufacturing(Wed.), Vehicle Sales(Wed.), Preliminary 3Q Non-farm Productivity(Thur.), Unit Labor Costs(Thur.), Initial Jobless Claims(Thur.), Unemployment Rate(Fri.), Change in Non-farm Payrolls(Fri.) and Consumer Credit(Fri.). Personal Spending, ISM Manufacturing, ISM Non-Manufacturing and Change in Non-farm Payrolls all have market-moving potential.

Cigna(CI-Mon.), Maxim Integrated(MXIM-Mon.), Tyco Intl.(TYC-Mon.), MBIA Inc.(MBI-Tues.), Fox Entertainment(FOX-Wed.), IAC/InterActiveCorp(IACI-Wed.), Qualcomm(QCOM-Wed.), Time Warner(TWX-Wed.), CVS Corp.(CVS-Thur.), XM Satellite Radio(XMSR-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 Morgan Stanley Software, Services, Internet & Networking Conference(Mon.), the U.S. Presidential Election(Tue.), Merrill Lynch Global Energy Conference(Wed.) and Chain Store Comp Sales Releases(Thur.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week sharply higher on strong economic reports, significantly diminishing domestic terrorism fears, no delay in the declaration of a winner in the election, an end to uncertainty over the direction of the country, subsiding negativity from the media and politicians, falling energy prices and good earnings reports. Equities will likely open mixed on Mon./Tues. mornings and move modestly higher by both day's end. I expect U.S. shares to gap higher on Wed. with the DJIA rising 100-250 points, depending on the various election outcomes I foresee. Stocks should continue moving modestly higher to end the week. My short-term trading indicators are giving Buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,130.20 +3.15%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Market action last week was very positive as most stocks rose and volume increased. Recent gains, anxiety over the election and terrorism, worries over slowing demand from China and a spate of supply in the form of IPOs failed to send shares lower. Insurance and HMO stocks rebounded sharply after investors concluded that Spitzer's recent probe wouldn't permanently cripple the offending companies. 32 companies have made their public debuts this month, the best October for IPOs since 1999. Many have been extraordinarily successful. Moreover, it is a big positive that the overall market was able to absorb this new supply and still work higher over the course of the month. In my opinion, China's interest rate hike was more of a gesture than an escalation in the country's attempts to slow growth from current levels. However, the perception by speculators that Chinese demand for oil will slow should continue to help push energy prices lower. It is also healthy to finally see stocks with stellar earnings reports move substantially higher on the news. Finally, measures of investor anxiety were mixed on the week.

Economic Week in Review

ECRI Weekly Leading Index 130.60 -.76%

Existing Home Sales for September rose to 6.75M, at the third-highest pace on record, versus estimates of 6.51M and 6.55M in August. The West and Northeast were the two strongest regions of the country. The three hurricanes that pummeled Florida kept U.S. sales from rising further in the South, the National Association of Realtors said. David Lereah, chief economist for the real-estate association, said September re-sales were down 20% to 30% in metropolitan areas of Florida that were affected by the hurricanes. Those sales should show up in the October report. The association continues to forecast that 2004 will be the best year ever for sales, Bloomberg said. "Real estate has been and will continue to be a pillar of the economy," said James Gillespie, president of Coldwell Banker Real Estate. The inventory of houses for sale fell to 4.4 months' supply. 69% of U.S. households owned their residence as of Sept.30, close to the all-time record of 69.2% set mid-year.

The Conference Board's Consumer Confidence reading for October fell to 92.8 versus estimates of 94.0 and a reading of 96.7 in September. The percentage of Americans that saw jobs as hard to get fell to 27.8%, Bloomberg reported. As well, the survey found the percentage of consumers planning to buy a car rose to 7.4% from 6.3% last month. While confidence has fallen in recent months, consumers' actions suggest confidence is strong as evidenced by near-record home sales and the highest auto sales in three years last month, Bloomberg said.

Durable Goods Orders for September rose .2% versus estimates of a .5% rise and a .6% fall in August. Durable Goods Less Transportation for September rose 1.7% versus estimates of a .3% increase and a 2.8% gain in August. Business investment in new equipment is accelerating this year amid record profits and low interest rates, Bloomberg reported. "The general economic improvement and the drive for more productivity is fueling demand for capital goods," said Stuart Hoffman, chief economist at PNC Financial. Moreover, bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 2.6% last month, the most since March. Orders for computers and electronic products rose 9.3% last month, the most since June 2000, Bloomberg reported. Communications equipment orders rocketed 35.6% higher. "The recovery is very broad-based and across all sectors we serve and all regions globally," said Lynn McPheeters, the CFO of Caterpillar Inc. Finally, some companies are replacing outdated equipment to take advantage of tax incentives that are set to expire at the end of the year, Bloomberg reported.

New Home Sales rose to 1206K in September, the third highest on record, versus estimates of 1150K and 1165K in August. "It's a remarkable performance," said Ethan Harris, chief economist at Lehman Brothers. Sales of new home this year will reach 1.164 million, surpassing last year's record, Bloomberg reported. "Traffic is up, signups are up and the country is doing extremely well," said Richard Dugas, CEO of Pulte Homes. Pulte, the third-largest homebuilder by stock market value, said earlier in the week its third-quarter profit rose 54% and that the backlog of homes ordered and awaiting delivery rose 23% to 20,400 units. The median price of a new home rose 3% from a year ago. The deceleration in price increases is a result of starter homes, houses priced less than $150,000, accounting for a greater percentage of the total, Bloomberg reported. New home sales in the Midwest rose led gains throughout the country with an increase of 12%, Bloomberg said. Even with Georgia reporting 12.14 inches of rain, the most ever for any September, and Florida experiencing significant rainfall throughout the month, sales rose 2.7% in the South. For the nation, September was the 13th wettest month on record, Bloomberg reported. Finally, the inventory of new homes for sale fell to a 4.1 months supply. "This underscores the very strong underlying sales pace," said Stephen Stanley, chief economist at RBS Greenwich Capital.

Initial Jobless Claims for last week were 350K versus estimates of 335K and 330K the prior week. Continuing Claims were 2823K versus estimates of 2818K and 2785K prior. The less volatile four-week moving-average fell to 343K from 349K. "This indicates that the labor markets remain fundamentally stable," said Steven Wood, President of Insight Economics. For the year so far, initial claims have averaged 344K compared to 402K in 2003, Bloomberg reported. Hiring "appeared to increase modestly," the Fed said in its recent 'beige book' report. Some districts reported "shortages" of skilled manufacturing workers, truck drivers and "upper-level" finance workers, Bloomberg reported. Finally, layoffs involving 50 or more workers are down 17% from the same period last year.

The advance 3Q GDP reading showed 3.7% growth versus estimates of 4.3% and 3.3% during 2Q. Advance 3Q Personal Consumption rose 4.6% versus estimates of 4.6% and a 1.6% rise in 2Q. The advance reading for the GDP Price Deflator rose 1.3% versus estimates of a 1.6% increase and a 3.2% gain in 2Q. The Employment Cost Index rose .9% in 3Q versus estimates of a 1.0% gain and a .9% increase in 2Q. Consumer spending grew at almost triple the pace of the second quarter, business spending rose, and a measure of inflation in the report fell to the lowest rate since 1962, Bloomberg reported.

The Final Univ. of Mich. Consumer Confidence reading for October rose to 91.7 versus estimates of 88.0 and a prior estimate of 87.5. The university's current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big-ticket items, rose to 104, Bloomberg reported. When the university's sentiment index is greater than its long-term average of 88, the party in office tends to keep the White House, according to a research report issued last month by economist at Credit Suisse First Boston, Bloomberg reported.

The Chicago Purchasing Manager report for October rose to 68.5, the highest level in more than 16 years as orders and hiring increased, versus estimates of 59.0 and a reading of 61.9 in September. Readings higher than 50 mean growth, and October is the 18th month of uninterrupted expansion, Bloomberg said. "Solid gains in factory activity are due primarily to robust capital goods spending as well as spending on consumer durables and exports," said Steven Wood, chief economists at Insight Economics. Investors watch the Chicago report closely for clues about the strength of manufacturing and the overall U.S. economy, Bloomberg said. "The economy's performance in the third quarter was quite robust and the Chicago index suggests that continued into the fourth quarter," said Edward McKelvey, a senior economist at Goldman Sachs. The Chicago index of new orders rose in October to 79.4, the highest in 20 years, from 67.7 in September, Bloomberg reported. The NAPM employment index rose to 54.1, with a reading higher than 50 meaning more companies said they were hiring than firing, Bloomberg said. A gauge of inventories dropped to 51.8 from 64.7. The Federal Reserve Bank of Chicago says its region produces 40% of the nation's motor vehicles, 35% of the nation's steel and almost half of its farm equipment, making the region a major center for U.S. durable goods manufacturing, Bloomberg said.

Bottom Line: Overall, last week's economic data were very positive and bode well for future U.S. economic growth. Home sales remain exceptionally strong and multiple indicators show a high probability of acceleration into year-end. The Bears and pundits have been wrong about the so-called "home bubble" for several years and will continue to be wrong for the foreseeable future. While measures of consumer confidence have declined in recent months, consumers continue to show extraordinary confidence in their financial situation as evidenced by very strong home and auto purchases. Moreover, measures of the intentions of consumers to purchase big-ticket items continue to accelerate. Finally, the intense negativity perpetuated by the media, foreign officials and politicians in hopes of influencing the U.S. election should subside next month which will boost consumer sentiment greatly. Manufacturing activity is rebounding sharply and should continue to accelerate into year-end as companies seek to replace aging equipment before tax incentives expire. This will lead to an accelerated rate of hiring as companies struggle to meet rising production needs. Moreover, many other recent measures of hiring point to an improving labor market over the next couple of months. U.S. economic growth accelerated during the third quarter and should approach an extremely robust 5% during this quarter as hiring improves, production increases, corporate spending accelerates, energy prices drop, consumer spending increases and rebuilding in Florida takes hold. The 3.7% GDP growth during the third quarter was the highest quarterly growth rate for the U.S. economy before an incumbent President seeks re-election in 25 years. Finally, my prediction of 5% growth for the fourth quarter would result in the fastest 6 quarters of U.S. economic growth since the early 1980s.

Weekly Scoreboard*

Indices
S&P 500 1,130.20 +3.15%
Dow 10,027.47 +2.76%
NASDAQ 1,974.99 +3.12%
Russell 2000 583.79 +2.82%
S&P Equity Long/Short Index 980.34 +.95%
Put/Call .67 -9.46%
NYSE Arms .93 -26.77%
Volatility(VIX) 16.27 +6.48%
AAII % Bulls 42.31 -.40%
US Dollar 84.91 -.91%
CRB 283.70 -.99%

Futures Spot Prices
Gold 429.40 +.89%
Crude Oil 51.78 -6.11%
Unleaded Gasoline 132.85 -7.74%
Natural Gas 8.72 -2.62%
Heating Oil 146.41 -8.41%
Base Metals 116.11 +2.88%
10-year US Treasury Yield 4.02% +1.23%
Average 30-year Mortgage Rate 5.64% -.88%

Leading Sectors
Airlines +15.88%
Homebuilders +8.73%
HMOs +7.8%

Lagging Sectors
Commodity +.86%
Energy -1.08%
Oil Service -2.66%

*% Gain or loss for the week