Bottom Line: The above chart illustrates the magnitude of the stock market collapse that began in early 2000 and ended in 2002. This is one of the many reasons that investors have been "irrationally pessimistic" this year.
Sunday, November 14, 2004
Chart of the Week
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 Empire Manufacturing(Mon.), Producer Price Index(Tues.), Housing Market Index(Tues.), Consumer Price Index(Wed.), Housing Starts(Wed.), Industrial Production(Wed.), Capacity Utilization(Wed.), Leading Indicators(Thur.), Initial Jobless Claims(Thur.) and Philadelphia Fed.(Thur.). The PPI, CPI and Philly Fed all have market-moving potential.
Wal-Mart(WMT-Tue.), Lowe's(LOW-Mon.), Staples(SPLS-Tues.), Home Depot(HD-Thur.), JC Penney(JCP-Tues.), Gap(GPS-Wed.), Medtronic(MDT-Wed.), Walt Disney(DIS-Thur.), Hewlett Packard(HPQ-Fri.) and Applied Materials(AMAT-Wed.) 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 Merrill Lynch Financial Services Conference(Mon.), Fed's Santomero speaking(Tues.), Fed's Moskow speaking(Tues.), CSFB Healthcare Conference(Wed.), UBS Communications Conference(Wed.), SEMI Book-to-Bill(Thur.) and Fed's Greenspan speaking(Fri.) could also impact trading this week.
Wal-Mart(WMT-Tue.), Lowe's(LOW-Mon.), Staples(SPLS-Tues.), Home Depot(HD-Thur.), JC Penney(JCP-Tues.), Gap(GPS-Wed.), Medtronic(MDT-Wed.), Walt Disney(DIS-Thur.), Hewlett Packard(HPQ-Fri.) and Applied Materials(AMAT-Wed.) 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 Merrill Lynch Financial Services Conference(Mon.), Fed's Santomero speaking(Tues.), Fed's Moskow speaking(Tues.), CSFB Healthcare Conference(Wed.), UBS Communications Conference(Wed.), SEMI Book-to-Bill(Thur.) and Fed's Greenspan speaking(Fri.) could also impact trading this week.
Bottom Line: I expect U.S. stocks to finish the week higher on strong economic reports, declining energy prices, short-covering, bargain-hunting and improvements in Iraq. New inflows into equity funds should also help boost shares. I expect long-term interest rates to move modestly higher this week as the CPI/PPI exceed estimates and investors anticipate stronger economic growth. Any pullback over the next few weeks will be mild as investors who missed the rally jump in, shorts cover to protect gains and new money is put to work on the long side. 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 1,184.17 +1.5%
Click here for the Weekly Wrap by Briefing.com.
Click here for the Weekly Wrap by Briefing.com.
Bottom Line: Market action last week continued to impress as the advance/decline line rose further and volume remained healthy. All the major U.S. indices have broken up through their downtrend lines that were in place since the beginning of the year. The S&P 500 is at a new high for the year and the Russell 2000 is at an ALL-TIME high. Moreover, many different sectors are showing leadership. It is also a big positive that long-term interest rates are remaining low even with a declining dollar, falling energy prices and rising stock market. Finally, the strong demand for IPOs is a very positive sign for the market and economy. I would like to see the AAII % Bulls fall from currently elevated levels.
Saturday, November 13, 2004
Economic Week in Review
ECRI Weekly Leading Index 132.30 +.23%
Wholesale Inventories for September rose .5% versus estimates of a .7% increase and a 1.1% gain in August. Wholesalers had enough supplies to last 1.15 months at the sales rate for September, the same as in the prior three months and close to the all-time low of 1.12 in April. "The general expectation among a lot of customers is that inventory levels are much stronger and there's no need to place orders as far in advance, and that may lead to shortages later," said David Bowers, president of the semiconductor business at Nu Horizons Electronic.
The Import Price Index for October rose 1.5% versus estimates of a 1.0% increase and a .5% gain in September. The Commerce Department reported separately that the U.S. trade gap unexpectedly narrowed in September to $51.6 billion as oil imports fell and exports of U.S. goods and services rose to a record, Bloomberg said. Excluding oil, the prices of imported goods showed the biggest drop since August 2003, Bloomberg reported. "It's very challenging, the way it is now, for businesses to raise prices," said Wesley Beal, an economist at financial research firm IDEAglobal.
Initial Jobless Claims for last week were 333K versus estimates of 337K and 331K the prior week. Continuing Claims were 2813K versus estimates of 2800K and 2794K prior. The four-week moving average of claims, a less-volatile indicator, dropped to the lowest level since July, Bloomberg said. With productivity slowing in the third quarter, hiring accelerated last month, suggesting stronger demand will lead to more jobs, Bloomberg reported. "Growth has been very strong and you've probably seen as much productivity gains as you are going to," said Gary Bigg, an economist at Banc of America. "From now on, you are going to have to hire employees to increase your output."
Federal Reserve policy makers raised the benchmark U.S. interest rate for a fourth straight time and restated a plan to carry out further increases at a "measured" pace. The FOMC raised the overnight bank lending rate by a quarter of a point to 2%, saying the labor market improved and the economy is showing "moderate" growth even amid higher oil prices, Bloomberg said. "This shows they're satisfied at the moment that the economy is growing nicely and that inflation is under very good control," said Lyle E. Gramley, former Fed governor and now an adviser at Washington Research Group.
Advance Retail Sales for October rose .2% versus estimates of a .1% increase and a 1.6% rise in September. Retail Sales Less Autos for October rose .9% versus estimates of a .6% increase and a .8% rise in September. "It's a very positive sign for the holiday season," said Tim McGee, chief economist at U.S. Trust Corp. "With job growth picking up and wage and salary gains accelerating, all the pieces are in place for the consumer to keep spending." Spending at clothing and accessory stores jumped 3%, the biggest increase in two years, Bloomberg reported.
The preliminary Univ. of Mich. Consumer Confidence reading for November was 95.5 versus estimates of 93.1 and a reading of 91.7 in October. U.S. consumer confidence rose in early November as President Bush won undisputed re-election, stocks climbed, energy prices fell and job creation surged, Bloomberg reported. The University's current conditions index, which reflects Americans' perception of their finances and whether it's a good time to buy big-ticket items, rose to 106.2 from 104 in October. The expectations index, based on optimism about the next one to five years, rose to 88.7 from 83.8 last month, Bloomberg said.
Business Inventories for September rose .1% versus estimates of a .5% gain and a .7% increase in August. "What we see is very , very little inventory build at our customers, very little build within our own company and our industry, and significant accumulation of inventory at our suppliers," said Roy Vallee, CEO of Avnet. The overall increase in sales at U.S. retailers, wholesalers and manufacturers in September brought the level to $956.8 billion. The inventory-to-sales ratio held at 1.32 months, Bloomberg reported.
Wholesale Inventories for September rose .5% versus estimates of a .7% increase and a 1.1% gain in August. Wholesalers had enough supplies to last 1.15 months at the sales rate for September, the same as in the prior three months and close to the all-time low of 1.12 in April. "The general expectation among a lot of customers is that inventory levels are much stronger and there's no need to place orders as far in advance, and that may lead to shortages later," said David Bowers, president of the semiconductor business at Nu Horizons Electronic.
The Import Price Index for October rose 1.5% versus estimates of a 1.0% increase and a .5% gain in September. The Commerce Department reported separately that the U.S. trade gap unexpectedly narrowed in September to $51.6 billion as oil imports fell and exports of U.S. goods and services rose to a record, Bloomberg said. Excluding oil, the prices of imported goods showed the biggest drop since August 2003, Bloomberg reported. "It's very challenging, the way it is now, for businesses to raise prices," said Wesley Beal, an economist at financial research firm IDEAglobal.
Initial Jobless Claims for last week were 333K versus estimates of 337K and 331K the prior week. Continuing Claims were 2813K versus estimates of 2800K and 2794K prior. The four-week moving average of claims, a less-volatile indicator, dropped to the lowest level since July, Bloomberg said. With productivity slowing in the third quarter, hiring accelerated last month, suggesting stronger demand will lead to more jobs, Bloomberg reported. "Growth has been very strong and you've probably seen as much productivity gains as you are going to," said Gary Bigg, an economist at Banc of America. "From now on, you are going to have to hire employees to increase your output."
Federal Reserve policy makers raised the benchmark U.S. interest rate for a fourth straight time and restated a plan to carry out further increases at a "measured" pace. The FOMC raised the overnight bank lending rate by a quarter of a point to 2%, saying the labor market improved and the economy is showing "moderate" growth even amid higher oil prices, Bloomberg said. "This shows they're satisfied at the moment that the economy is growing nicely and that inflation is under very good control," said Lyle E. Gramley, former Fed governor and now an adviser at Washington Research Group.
Advance Retail Sales for October rose .2% versus estimates of a .1% increase and a 1.6% rise in September. Retail Sales Less Autos for October rose .9% versus estimates of a .6% increase and a .8% rise in September. "It's a very positive sign for the holiday season," said Tim McGee, chief economist at U.S. Trust Corp. "With job growth picking up and wage and salary gains accelerating, all the pieces are in place for the consumer to keep spending." Spending at clothing and accessory stores jumped 3%, the biggest increase in two years, Bloomberg reported.
The preliminary Univ. of Mich. Consumer Confidence reading for November was 95.5 versus estimates of 93.1 and a reading of 91.7 in October. U.S. consumer confidence rose in early November as President Bush won undisputed re-election, stocks climbed, energy prices fell and job creation surged, Bloomberg reported. The University's current conditions index, which reflects Americans' perception of their finances and whether it's a good time to buy big-ticket items, rose to 106.2 from 104 in October. The expectations index, based on optimism about the next one to five years, rose to 88.7 from 83.8 last month, Bloomberg said.
Business Inventories for September rose .1% versus estimates of a .5% gain and a .7% increase in August. "What we see is very , very little inventory build at our customers, very little build within our own company and our industry, and significant accumulation of inventory at our suppliers," said Roy Vallee, CEO of Avnet. The overall increase in sales at U.S. retailers, wholesalers and manufacturers in September brought the level to $956.8 billion. The inventory-to-sales ratio held at 1.32 months, Bloomberg reported.
Bottom Line: Overall, last week's economic data were positive. Inventories, while falling recently, will likely increase over the next few months as companies anticipate rising demand. This will also help boost U.S. GDP growth. Measures of inflation for October will show a temporary acceleration in inflation, however the recent fall in energy prices bodes well for inflation readings in the intermediate-term. Job creation is accelerating to more typical levels as productivity falls, confidence improves and demand strengthens. The Fed raised rates 25 basis points, as expected, and will likely hike rates another 25 basis points in December as economic growth accelerates and job creation improves. Retail sales should be surprisingly strong during the holiday season as the U.S. consumer is in better shape than is commonly perceived. Furthermore, consumer sentiment is already improving as a result of the election and declining energy prices. Consumer Confidence should reach new highs for this cycle over the next couple of months on improving job prospects, a further decline in energy prices, a rising stock market, less negative political/media rhetoric, improvements in the big picture in Iraq and decelerating inflation readings.
Friday, November 12, 2004
Weekly Scoreboard*
Indices
S&P 500 1,184.17 +1.5%
Dow 10,539.01 +1.5%
NASDAQ 2,085.34 +2.3%
Russell 2000 621.98 +2.9%
S&P Equity Long/Short Index 991.06 +1.0%
Put/Call .75 +7.1%
NYSE Arms .83 +7.8%
Volatility(VIX) 13.33 -4.6%
AAII % Bulls 62.50 +9.4%
US Dollar 83.78 -.1%
CRB 283.29 -.1%
Futures Spot Prices
Gold 438.30 +.9%
Crude Oil 47.32 -4.5%
Unleaded Gasoline 125.69 -2.3%
Natural Gas 7.18 -9.7%
Heating Oil 136.36 -1.0%
Base Metals 118.30 +.8%
10-year US Treasury Yield 4.18% +.1%
Average 30-year Mortgage Rate 5.8% +1.0%
Leading Sectors
Iron/Steel +7.4%
Homebuilders +6.2%
HMOs +5.5%
Lagging Sectors
Insurance +.65%
Energy +.35%
Drugs -.39%
*% Gain or loss for the week
S&P 500 1,184.17 +1.5%
Dow 10,539.01 +1.5%
NASDAQ 2,085.34 +2.3%
Russell 2000 621.98 +2.9%
S&P Equity Long/Short Index 991.06 +1.0%
Put/Call .75 +7.1%
NYSE Arms .83 +7.8%
Volatility(VIX) 13.33 -4.6%
AAII % Bulls 62.50 +9.4%
US Dollar 83.78 -.1%
CRB 283.29 -.1%
Futures Spot Prices
Gold 438.30 +.9%
Crude Oil 47.32 -4.5%
Unleaded Gasoline 125.69 -2.3%
Natural Gas 7.18 -9.7%
Heating Oil 136.36 -1.0%
Base Metals 118.30 +.8%
10-year US Treasury Yield 4.18% +.1%
Average 30-year Mortgage Rate 5.8% +1.0%
Leading Sectors
Iron/Steel +7.4%
Homebuilders +6.2%
HMOs +5.5%
Lagging Sectors
Insurance +.65%
Energy +.35%
Drugs -.39%
*% Gain or loss for the week
Mid-day Update
S&P 500 1,177.41 +.33%
NASDAQ 2,068.62 +.36%
Leading Sectors
Homebuilders +2.86%
Iron/Steel +2.34%
Oil Service +1.85%
Lagging Sectors
Broadcasting -.51%
Restaurants -.55%
Biotech -.72%
Other
Crude Oil 47.42 unch.
Natural Gas 7.19 -.64%
Gold 438.90 +.80%
Base Metals 118.30 +1.47%
U.S. Dollar 83.74 -.64%
10-Yr. T-note Yield 4.18% -1.63%
VIX 13.10 +.54%
Put/Call .78 +9.86%
NYSE Arms .85 -8.60%
Market Movers
DELL +7.2% after meeting 3Q estimates and reiterating 4Q outlook.
A -13.7% after missing 4Q estimates, lowering 1Q guidance and multiple downgrades.
PSS +16.3% after beating 3Q estimates and raising 4Q outlook.
PIXR +4.5% after substantially beating 3Q estimates and boosting 04 outlook.
DRIV +10.5% on no news.
VRSN +6.8% on continued optimism over VOIP security product.
CPO +5.4% on Citi upgrade to Buy.
GTIV -15.4% on negative WSJ article and Fulcrum downgrade to Neutral.
MATK -9.8% after saying the European Patent Office revoked its European DHA/ARA Oil Blends patent.
ZBRA -4.0% after denying rumors that it lost a significant client.
Economic Data
Advance Retail Sales for October rose .2% versus estimates of a .1% gain and a 1.6% rise in September.
Retail Sales Less Autos for October rose .9% versus estimates of a .6% rise and a .8% gain in September.
Preliminary Univ. of Mich. Consumer Confidence for November was 95.5 versus estimates of 93.1 and a reading of 91.7 in October.
Business Inventories for September rose .1% versus estimates of a .5% increase and a .7% rise in August.
Recommendations
-Goldman Sachs reiterated Outperform on KSS, SBC, GCI, DEX, AGN and DELL. Goldman reiterated Underperform on BVF and FRX. Goldman reiterated Attractive view of Metals, favorites are AL, N, FCX and NEM.
-Citi SmithBarney upgraded CPO to Buy, target $57. Citi reiterated Buy on GE, target $38. Citi reiterated Buy on TPX, target $24. Citi reiterated Buy on DHI, target $55. Citi reiterated Buy on DELL, target $43. Citi reiterated Sell on PGR, target $79. Citi reiterated Sell on ABT, target $39. Citi reiterated Buy on JNJ, target $71. Citi reiterated Buy on NT, target $5. Citi reiterated Buy on HD, target $46.50. Citi reiterated Buy on LOW, target $70. Citi reiterated Buy on BEAS, target $11.50. Citi rated JNJ Buy, target $71.
-JP Morgan added DOW to Focus List, target $60. CEY cut to Underweight at JP Morgan.
-UBS rated WPSC Reduce, target $29.
-Bank of America cut A to Sell, target $16.75. BofA cut CEC to Sell, target $33. BofA raised TEN to Buy, target $19.
-CSFB cut JNY to Underperform, target $30.
Mid-day News
U.S. stocks are higher mid-day on better-than-expected economic reports and another decline in energy prices. Connecticut Attorney General Blumenthal has subpoenaed 42 insurance companies and brokerages seeking information about fraudulent activity, the Wall Street Journal reported. AOL has started telling customers in nine U.S. Southern sates that they must find a new high-speed Internet access provider by Jan. 17, the AP reported. The Coca-Cola Co. increased its annual spending on advertising by as much as $400 million yesterday, joining several large companies that are spending more to stimulate growth, the NY Times reported. U.S. election officials and a report by two universities said electronic voting machines used on Election Day performed well and didn't produce inaccurate outcomes, the NY Times reported. AOL plans to buy a minority stake in Kayak Software to add online travel services, the AP reported. NY Democratic Attorney General Spitzer will sue Universal Life Resources, a health-benefits consultant based in California, CNBC reported. Palestinian leader Arafat's widow will receive $22 million/year from Palestinian Authority funds while the people live in poverty, the Italian paper Corriere della Sera reported. Junk bond prices are expensive with yields at their lowest in seven years and may be poised to drop as appetite for high-risk, high-yield debt wanes, according to Moody's Investors Service. Dell shares rose after CEO Rollins said demand for computers and printers is "quite healthy," keeping the company ahead of schedule on a plan to reach $60 billion in sales by 2007, Bloomberg reported. FedEx said it will have $48 million in costs in its fiscal second quarter to account for repaying the federal government for payments made after the 2001 terrorist attacks, Bloomberg reported. Sales at U.S. retailers rose .9% in October, excluding auto purchases, the biggest increase in five months, Bloomberg said. U.S. consumer confidence rose more-than-expected in November as President Bush won re-election, stocks rose, energy prices fell and job creation surged, Bloomberg reported.
NASDAQ 2,068.62 +.36%
Leading Sectors
Homebuilders +2.86%
Iron/Steel +2.34%
Oil Service +1.85%
Lagging Sectors
Broadcasting -.51%
Restaurants -.55%
Biotech -.72%
Other
Crude Oil 47.42 unch.
Natural Gas 7.19 -.64%
Gold 438.90 +.80%
Base Metals 118.30 +1.47%
U.S. Dollar 83.74 -.64%
10-Yr. T-note Yield 4.18% -1.63%
VIX 13.10 +.54%
Put/Call .78 +9.86%
NYSE Arms .85 -8.60%
Market Movers
DELL +7.2% after meeting 3Q estimates and reiterating 4Q outlook.
A -13.7% after missing 4Q estimates, lowering 1Q guidance and multiple downgrades.
PSS +16.3% after beating 3Q estimates and raising 4Q outlook.
PIXR +4.5% after substantially beating 3Q estimates and boosting 04 outlook.
DRIV +10.5% on no news.
VRSN +6.8% on continued optimism over VOIP security product.
CPO +5.4% on Citi upgrade to Buy.
GTIV -15.4% on negative WSJ article and Fulcrum downgrade to Neutral.
MATK -9.8% after saying the European Patent Office revoked its European DHA/ARA Oil Blends patent.
ZBRA -4.0% after denying rumors that it lost a significant client.
Economic Data
Advance Retail Sales for October rose .2% versus estimates of a .1% gain and a 1.6% rise in September.
Retail Sales Less Autos for October rose .9% versus estimates of a .6% rise and a .8% gain in September.
Preliminary Univ. of Mich. Consumer Confidence for November was 95.5 versus estimates of 93.1 and a reading of 91.7 in October.
Business Inventories for September rose .1% versus estimates of a .5% increase and a .7% rise in August.
Recommendations
-Goldman Sachs reiterated Outperform on KSS, SBC, GCI, DEX, AGN and DELL. Goldman reiterated Underperform on BVF and FRX. Goldman reiterated Attractive view of Metals, favorites are AL, N, FCX and NEM.
-Citi SmithBarney upgraded CPO to Buy, target $57. Citi reiterated Buy on GE, target $38. Citi reiterated Buy on TPX, target $24. Citi reiterated Buy on DHI, target $55. Citi reiterated Buy on DELL, target $43. Citi reiterated Sell on PGR, target $79. Citi reiterated Sell on ABT, target $39. Citi reiterated Buy on JNJ, target $71. Citi reiterated Buy on NT, target $5. Citi reiterated Buy on HD, target $46.50. Citi reiterated Buy on LOW, target $70. Citi reiterated Buy on BEAS, target $11.50. Citi rated JNJ Buy, target $71.
-JP Morgan added DOW to Focus List, target $60. CEY cut to Underweight at JP Morgan.
-UBS rated WPSC Reduce, target $29.
-Bank of America cut A to Sell, target $16.75. BofA cut CEC to Sell, target $33. BofA raised TEN to Buy, target $19.
-CSFB cut JNY to Underperform, target $30.
Mid-day News
U.S. stocks are higher mid-day on better-than-expected economic reports and another decline in energy prices. Connecticut Attorney General Blumenthal has subpoenaed 42 insurance companies and brokerages seeking information about fraudulent activity, the Wall Street Journal reported. AOL has started telling customers in nine U.S. Southern sates that they must find a new high-speed Internet access provider by Jan. 17, the AP reported. The Coca-Cola Co. increased its annual spending on advertising by as much as $400 million yesterday, joining several large companies that are spending more to stimulate growth, the NY Times reported. U.S. election officials and a report by two universities said electronic voting machines used on Election Day performed well and didn't produce inaccurate outcomes, the NY Times reported. AOL plans to buy a minority stake in Kayak Software to add online travel services, the AP reported. NY Democratic Attorney General Spitzer will sue Universal Life Resources, a health-benefits consultant based in California, CNBC reported. Palestinian leader Arafat's widow will receive $22 million/year from Palestinian Authority funds while the people live in poverty, the Italian paper Corriere della Sera reported. Junk bond prices are expensive with yields at their lowest in seven years and may be poised to drop as appetite for high-risk, high-yield debt wanes, according to Moody's Investors Service. Dell shares rose after CEO Rollins said demand for computers and printers is "quite healthy," keeping the company ahead of schedule on a plan to reach $60 billion in sales by 2007, Bloomberg reported. FedEx said it will have $48 million in costs in its fiscal second quarter to account for repaying the federal government for payments made after the 2001 terrorist attacks, Bloomberg reported. Sales at U.S. retailers rose .9% in October, excluding auto purchases, the biggest increase in five months, Bloomberg said. U.S. consumer confidence rose more-than-expected in November as President Bush won re-election, stocks rose, energy prices fell and job creation surged, Bloomberg reported.
Bottom Line: The Portfolio is substantially higher mid-day on strength in my steel, homebuilding and internet longs. I have not traded today and the Portfolio is still 125% net long. The underlying tone of the market remains very healthy as many leaders are rising substantially on good volume, notwithstanding small gains in the major indices. I continue to believe oil will fall to around $35-40/bbl. within the next few months, providing further stimulus to the global economy. I also anticipate GDP growth to approach 5% during 4Q, making for a better-than-expected holiday season. I expect U.S. stocks to rise modestly into the close on short-covering, bargain-hunting, falling energy prices and accelerating U.S. economic growth.
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