Monday Watch

Earnings of Note
Company/Estimate
BRCD/.06
CPB/.52
KKD/.13
TIVO/-.43
TOY/-.15

Splits
None of note.

Economic Data
None of note.

Weekend Recommendations
Louis Rukeyser's Wall Street had guests that were positive on MMM, CSCO, WFMI, GE, SAP, INTC, MSFT, DISH and AIG. Forbes on Fox had guests that were positive on JWN, COH, GM and mixed on FD, MAY, ACE. Cashin' In had guests that were positive on GWR, MEE, CWT, PNX, PKZ, ELN, FRO, negative on AIG, KKD and mixed on EV. Barron's had positive comments on JNJ, PFE, MRK, NOC, HL, HZO, NEM and SAP. Goldman Sachs reiterated Outperform on BBY, CAL, EBAY and Underperform on BA.

Weekend News
The Paris Club group of creditor governments agreed to write off about 80% of Iraqi debt, Agence France-Presse reported. Rofin-Sinar Technologies, a laser maker trading in Germany and the U.S., may make acquisitions as it adds products and expands in markets including Asia, CEO Wirth told the Boersen-Zeitung. Television production in the LA-area has risen 29% this year from the year-earlier period, helped by an increase in reality and cable-tv shows, the LA Times reported. European leaders have appeared optimistic to news Condoleezza Rice will replace Colin Powell as U.S. secretary of state, the NY Times reported. Coal production is increasing amid U.S. concern supplies of natural gas, electricity's other main fuel source, won't keep pace with demand, the NY Times reported. U.S. casino companies, such as Las Vegas Sands Inc., boosted by strong results in their Las Vegas markets, will likely perform even better as more ventures open in Macau and draw gamblers from Asia, Barron's reported. Mobile phone companies' revenue from carrying voice calls will fall 70% to 80% by 2010 as customers switch to using cheaper voice over Internet technology, the Sunday Times newspaper reported. State governments are seeking to cut the costs of purchasing drugs for Medicaid patients through a variety of initiatives, setting the stage for a showdown with the pharmaceutical industry, the NY Times reported. Ford sold 5,500 of its new model Focus car in Germany in the first seven days it was for sale, Automobilwoche said. The Port of Seattle's cargo volume is soaring this year and may set a record because of traffic congestion at Southern California waterway entries and the nation's trade with China, the Seattle Times said. More than 700 union officials representing New Jersey and Pennsylvania workers were paid more than $100,000 last year, the Philadelphia Inquirer said. NTT DoCoMo is focused on reviving its flagging stock price with a new pricing plan and technological innovations, Barron's reported. Foreigners have been taking advantage of a weaker dollar to buy up NYC real estate, reported Crain's New York Business. A slowdown in China's economy may benefit steelmakers because it would make over-investment in new projects less likely, the Financial Times reported. China, which has more mobile phone subscribers than the U.S. population, may fuel growth in the telecom industry as the country upgrades its networks, Bloomberg reported. President Bush said he is committed to a "strong dollar" and cutting the U.S. budget deficit, Bloomberg said. China, the world's largest coal producer and user, plans to spend $10 billion over the next decade on plants that turn coal into motor fuel, Bloomberg reported. Oil inventories should begin to rise soon, as refinery capacity comes back online, resulting in falling crude prices, the EIA said. General Electric won a contract valued at $200 million over eight years to provide digital imaging systems to more than 70 U.K. National Health Service hospitals and clinics, the Wall Street Journal reported.

Late-Night Trading
Asian indices are lower, -2.25% to -.50% on average.
S&P 500 indicated -.28%.
NASDAQ 100 indicated -.51%.

BOTTOM LINE: I expect U.S. stocks to open modestly lower in the morning on continued profit taking, losses in Asia and rising energy prices. The Portfolio is 75% net long heading into tomorrow.

Chart of the Week

CPI/PPI

Bottom Line: While some measures of inflation have spiked recently, due mainly to the effects of the hurricanes, they are not even to levels seen in 2000. As well, it is highly unlikely the CRB index, the broadest measure of commodity prices, will continue to rise near recent rates. The rise in commodity prices has been the main source of inflation thus far. Unit labor costs, which account for more than 70% of inflation, have remained well-contained.

Weekly Outlook

There are a few economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include Existing Home Sales(Tues.), Durable Goods Orders(Wed.), Initial Jobless Claims(Wed.), Final Univ. of Mich. Consumer Confidence(Wed.), New Home Sales(Wed.) and the Help Wanted Index(Wed.). Home Sales and Consumer Confidence have market-moving potential.

Campbell Soup(CPB-Mon.), Analog Devices(ADI-Tues.), Deere & Co.(DE-Tues.) and H&R Block(HRB-Tues.) are some of the more important companies that release quarterly earnings this week. Finally, the bond market will close at 2 p.m. ET on Wednesday and Friday, and the stock market will be open for a half day on Friday.

Bottom Line: I expect U.S. stocks to finish the week modestly higher on seasonal strength, better economic reports, declining energy prices, short-covering and bargain-hunting. New inflows into equity funds should also continue to boost shares. I still believe 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 inflows are put to work on the long side. As I forecasted a few months ago, technology shares have substantially outperformed the market since August lows. I expect their outperformance to continue over the intermediate-term. My short-term trading indicators are still giving Buy signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,170.34 -1.2%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: U.S. stocks declined last week for the first time in a month on concerns over rising energy prices, higher inflation readings and a falling US dollar. The decline in the S&P 500 snapped the biggest three-week rally for the index in two years. Market action, while mildly negative, was healthy given recent gains. From their respective lows on 8/12/04, the S&P has returned 10.6% and the NASDAQ has soared 18.4%. I continue to expect oil to head towards $40/bbl. within the next few months. As I stated in the previous post, inflation readings should show deceleration in the near future. Almost all of spike in the latest PPI/CPI was a result of the hurricanes. Even with these spikes, readings are still very close to the historical averages for inflation. As far as the decline in the US dollar, I believe this is a positive as long as it stays orderly and doesn't go too far. Even gloomy Morgan Stanley economist Stephen Roach said, "Provided the currency shift doesn't get out of hand, a sustained but managed weakening of the dollar is good news for the global economy and world financial markets." Moreover, the most recent 20% decline in the dollar was accompanied by a 48.2% increase in the S&P 500.

Economic Week in Review

ECRI Weekly Leading Index 132.70 +.38%

Empire Manufacturing for November was 19.76 versus estimates of 20.60 and a reading of 17.43 in October. Readings above zero indicate expansion. Shipments of goods accelerated this month, while new orders and hiring slowed in the region. "For the moment, we're looking at an economy that is likely to achieve 3.5% growth next year, which is perfectly acceptable," said Joseph Abate, an economist at Lehman Brothers.

The Producer Price Index for October rose 1.7% versus expectations of a .6% increase and a .1% gain in September. The PPI Ex Food & Energy rose .3% in October versus estimates of a .1% increase and a .3% gain in September. Energy costs rose 6.8%, the most since February 2003. However, the increases may not stick because crude oil prices have retreated 15% since peaking Oct. 25, Bloomberg reported. As well, the 1.6% surge in food prices and 2.7% surge in costs for construction equipment also may have been temporary, after September's hurricanes in Florida, Bloomberg said. "Publicly the Fed is in a position of saying that inflation remains well-contained, and I don't think this report will change their stance," said John Ryding, chief U.S. economist at Bear Stearns.

The NAHB Housing Market Index for November was 71 versus estimates of 70 and a reading of 71 in October. The last time the group's index was higher was in October 2003. The index "indicated that housing activity is holding at high levels, supported by better labor markets and still low mortgage rates," said Robert Mellman, an economist at JP Morgan.

The Consumer Price Index for October rose .6% versus estimates of a .4% increase and a .2% gain in September. CPI Ex Food & Energy for October rose .2% versus estimates of a .1% gain and a .3% increase in September. Consumer prices for all goods and services were up 3.2% for the 12 months that ended in October, slightly higher than the long-term average of 3.0%, Bloomberg reported. As a result of the hurricanes, last month's increase in food costs was led by the biggest gain in prices for fruits since June 1984 and the biggest for vegetables since February 1997, Bloomberg reported.

Housing Starts for October were 2027K versus estimates of 1960K and 1905K in September. Building Permits for October were 1984K versus estimates of 2000K and 1998K in September. The 6.4% surge in housing starts was a high for the year, suggesting home construction is helping economic growth accelerate. Demand in the northeast was the strongest as starts surged 20%. Toll Brothers, one of the largest U.S. builders, last week said backlogs in its fiscal fourth quarter rose 68% to a record $4.4 billion. "Housing demand continues to remain quite healthy," said Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein. The National Assoc. of Realtors recently raised its estimate of sales on new and existing homes for this year to an all-time record of 6.55 million, Bloomberg reported.

Industrial Production for October rose .7% versus estimates of a .4% increase and a .1% gain in September. Capacity Utilization for October was 77.7% versus estimates of 77.4% and 77.3% in September. Manufacturing, restrained since July, rose with gains by carmakers and the biggest gain in home electronics since March, Bloomberg said. Mining, which includes oil and gas extraction, rebounded after four hurricanes in August and September curtailed production, Bloomberg reported. "It's a surprisingly good report on manufacturing, with broad-based gain in durable goods," said Chris Low, chief economist at FTN Financial.

Initial Jobless Claims for last week were 334K versus estimates of 330K and 337K the prior week. Continuing Claims were 2792K versus estimates of 2800K and 2808K prior. The decline brings the weekly average of claims this year to 344,109 versus 402,000 for all of 2003, a sign businesses are holding on to workers as demand improves. Lower oil prices, reduced terror concerns and the resolution of the presidential election may continue to boost hiring, Bloomberg said. As well, productivity gains slowed in the third quarter from an annualized rate of 3.9% to 1.9%, suggesting additional orders may need to be filled by more workers. "We are seeing more job opportunities," said Jeffrey Taylor, founder and CEO of Monster.com, the biggest Web site for hiring. Openings for finance, accounting, health-care, administrative support, sales and construction positions have increased in the last few months, he said.

Leading Indicators for October fell .3% versus estimates of a .1% decline and a .3% fall in September. The Philadelphia Fed. Index for November was 20.7 versus estimates of 23.1 and 28.5 in October. "The recent declines in the leading index have not been large enough, nor have they persisted for long enough, to signal an end to the current economic expansion," the Conference Board said in a statement. The leading indicators were also affected by record-high oil prices, slumping stocks and bitter political rhetoric in October. "I'm upbeat about the economy in general and the fourth quarter in particular," said Ron Sargent, CEO of Staples. While the Philly Fed declined in November, a measure of expectations for business 6 months from now soared to 52.1 from 27.6 in October. The jump in the outlook suggests the economy should accelerate shortly, economists said. The prices paid measure was 53.9 versus a reading of 57.1 in October. Finally, 90% of Philly Fed. survey respondents said wages and salaries would rise next year, Bloomberg reported.

Bottom Line: Overall, last week's economic data were mildly positive. Measures of manufacturing activity were pretty decent and show strong signs of acceleration. Inflation is currently showing a temporary spike as a result of the record-setting hurricanes. However, I expect inflation to decelerate into next year. The housing market remains exceptionally strong and should stay relatively healthy for the foreseeable future. While some markets still remain exuberant, many have downshifted to more sustainable levels. Signs the job market is continuing to improve are evident, thus I expect better jobs reports through year-end. The weakness in the Leading Indicators for October is not of concern as it was greatly affected by the election. Over the last 3 weeks, the Weekly Leading Index has climbed.

Weekly Scoreboard*

Indices
S&P 500 1,170.34 -1.2%
Dow 10,456.91 -.8%
NASDAQ 2,070.63 -.7%
Russell 2000 613.44 -1.4%
S&P Equity Long/Short Index 1,001.88 +.9%
Put/Call .80 +6.7%
NYSE Arms 1.25 +50.6%
Volatility(VIX) 13.5 +1.3%
AAII % Bulls 64.10 +2.6%
US Dollar 83.31 -.6%
CRB 288.98 +2.0%

Futures Spot Prices
Gold 447.00 +1.9%
Crude Oil 48.89 +2.9%
Unleaded Gasoline 131.09 +4.4%
Natural Gas 7.11 -.6%
Heating Oil 148.26 +8.8%
Base Metals 118.54 +.2%
10-year US Treasury Yield 4.2% +.6%
Average 30-year Mortgage Rate 5.74% -.4%

Leading Sectors
Oil Service +3.2%
Semis +1.9%
Energy +1.3%

Lagging Sectors
Biotech -2.69%
Banks -2.9%
Airlines -3.6%

*% Gain or loss for the week