Market Week in Review

S&P 500 1,216.96 +1.57%



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was positive. It was especially impressive considering the steep gains in commodity prices. The advance/decline line rose, most sectors gained and volume was average on the week. Measures of investor anxiety were mostly lower. The AAII % Bulls rose and is slightly above average levels. Mortgage rates rose for the first time in a month and are now 41 basis points away from all-time lows set in June 2003. Long-term Treasury yields were about unchanged for the week as much better inflation readings offset optimism for an acceleration of US economic activity. This optimism also led to outperformance by cyclical and commodity-related stocks. Homebuilders continued to shine on the strength of exceptional earnings from KB Home and strong housing data. I expect the recent rally in cyclicals and commodities to peak soon, while homebuilders should outperform through year-end. The US dollar fell on the week as traders took profits and the current account gap widened. I expect bit more short-term weakness in the currency before a resumption of the recent uptrend.

Weekly Scoreboard*

Indices
S&P 500 1,216.96 +1.57%
DJIA 10,623.07 +.42%
NASDAQ 2,090.11 +1.31%
Russell 2000 644.19 +2.85%
DJ Wilshire 5000 12,067.83 +1.70%
S&P Equity Long/Short Index 1,022.34 +.60%
S&P Barra Growth 583.18 +1.11%
S&P Barra Value 629.48 +2.03%
Morgan Stanley Consumer 584.69 +.46%
Morgan Stanley Cyclical 743.80 +3.23%
Morgan Stanley Technology 481.99 +.61%
Transports 3,591.95 +2.0%
Utilities 377.69 +1.21%
S&P 500 Cum A/D Line 7,849.0 +6.2%
Bloomberg Crude Oil % Bulls 51.0% +18.11%
Put/Call 1.03 +45.07%
NYSE Arms .78 -12.36%
Volatility(VIX) 11.48 -4.01%
ISE Sentiment 107.00 -34.36%
AAII % Bulls 48.05 +4.50%
US Dollar 87.65 -1.17%
CRB 310.98 +2.81%

Futures Spot Prices
Crude Oil 58.47 +9.19%
Unleaded Gasoline 164.71 +6.96%
Natural Gas 7.69 +11.05%
Heating Oil 165.18 +2.66%
Gold 439.50 +2.02%
Base Metals 127.23 +2.79%
Copper 160.35 +4.46%
10-year US Treasury Yield 4.07% +.47%
Average 30-year Mortgage Rate 5.63% +1.26%

Leading Sectors
Steel +7.14%
Homebuilders +6.57%
Energy +5.26%

Lagging Sectors
Restaurants -.79%
Oil Tankers -2.37%
Airlines -4.85%

*5-Day % Change

Stocks Modestly Higher Mid-day on Strength in Housing

Indices
S&P 500 1,217.39 +.53%
DJIA 10,634.58 +.52%
NASDAQ 2,092.34 +.15%
Russell 2000 645.00 +.15%
DJ Wilshire 5000 12,074.20 +.47%
S&P Barra Growth 583.71 +.45%
S&P Barra Value 629.42 +.61%
Morgan Stanley Consumer 585.16 +.27%
Morgan Stanley Cyclical 743.15 +.27%
Morgan Stanley Technology 482.42 +.26%
Transports 3,587.59 +.59%
Utilities 377.23 +1.11%
Put/Call 1.02 +6.25%
NYSE Arms .80 -7.38%
Volatility(VIX) 11.21 +.54%
ISE Sentiment 104.00 -39.88%
US Dollar 87.94 -.79%
CRB 310.61%

Futures Spot Prices
Crude Oil 57.85 +2.24%
Unleaded Gasoline 163.50 +2.08%
Natural Gas 7.66 +.62%
Heating Oil 164.50 +1.20%
Gold 440.00 +.48%
Base Metals 127.23 +1.74%
Copper 160.40 +2.20%
10-year US Treasury Yield 4.07% +.09%

Leading Sectors
Homebuilders +2.08%
Oil Tankers +2.0%
HMOs +1.13%

Lagging Sectors
Software -.47%
Disk Drives -.80%
Airlines -1.89%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Homebuilding and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is nearly even, most sectors are higher and volume is above average. Measures of investor anxiety are mostly higher. Today’s overall market action is neutral, considering another move higher in energy and a positive consumer confidence report. The average 30-year mortgage rate rose to 5.63% this week from 5.56% last week. This is the first weekly increase since mid-May and the largest gain since the week of March 18. I expect this to have little to no impact on housing as rates are still historically low. If anything, it could boost activity. I expect US stocks to trade modestly higher into the close as crude short-covering subsides.

Today's Headlines

Bloomberg:
- Thomas H. Lee, the billionaire investor who plans to raise at least $7.5 billion for a new buyout fund, said the industry has entered a “golden age” of rising profits and transaction values.
- Crude oil in NY surged above $58 a barrel for the first time since reaching a record in April on signs that producers will struggle to meet growing fuel demand during the second half of the year.
- US 10-year T-notes are headed for their first back-to-back weekly drop in three months on stronger economic data.

Wall Street Journal:
- Independent stock-research firms are seeing a boost in business as fund managers and institutional investors buy their services with so-called soft dollars.
- The announcement that Morgan Stanley CEO Philip Purcell will step down after months of strife at the investment banking company may not provide a lasting gain in the stock.
- BellSouth plans to hire nearly 1,500 more workers as it expands its US broadband network in its region of nine southeastern states.
- Fund managers are increasing bets on emerging-market bonds denominated in local currencies to aim for higher returns.

NY Times:
- Inquiries into living wills, which allow people to specify medical measures at the end of their lives, have jumped since the death of Terri Schiavo.
- Guidant will pay the cost for a new defibrillator if both a patient and doctor decide the older device needs to come out.

San Francisco Chronicle:
- Intel will today announce the development of a chip that can access various so-called wireless fidelity, or Wi-Fi, networks to make it easier to use the Web.

Washington Post:
- US Democratic Senator Dick Durbin was rebuked by the White House for comparing treatment of detainees at the US naval prison in Guantanamo Bay, Cuba, to interrogations by Nazis and practices in Soviet gulags.

Lusa:
- Portugal will delay its referendum on the European Union’s constitution, which it planned to hold in October, citing Prime Minister Jose Socrates.

Consumer Expectations Jump, Current Account Gap Widens

- The 1Q Current Account Deficit rose to -$195.1B versus estimates of -$190.0B and -$188.4B in 4Q.
- Preliminary Univ. of Mich. Consumer Confidence for June rose to 94.8 versus estimates of 88.8 and 86.9 in May.

BOTTOM LINE: Higher-priced oil and strong demand for goods from US consumers propelled the current account deficit higher. The US economy is significantly stronger than that of Europe and Japan, which is the main reason for the widening deficit. I expect declining energy prices and a rising US dollar to help during the second half of the year.

US consumer sentiment rose more than expected in June as the job market improved and gasoline prices eased in recent months. The index is the highest in five months and showed the biggest improvement since January 2004. The unemployment rate fell to 5.1% last month, the best level since September 2001. As well, the average price for a gallon of gasoline at the pump fell to $2.17 for the week ended June 13 from a record $2.32 in the week ended April 11. The current conditions component of the index, which reflects Americans’ perception of their financial situation and whether it’s a good time to buy big-ticket items, rose to 110.4 from 104.9 in May. The expectations component of the index jumped to 84.8 from 75.3 last month. This was the largest gain since the US economy began a significant acceleration in the first half of 2003. I continue to believe consumer spending will remain vigorous through year-end on modest labor market improvements, low interest rates, a strong housing market, a rising stock market and lower energy prices.

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