Stocks Finish Near Session Highs, Led by Energy and Retail

Indices
S&P 500 1,204.99 +.88%
DJIA 10,371.80 +.66%
NASDAQ 2,078.75 +1.04%
Russell 2000 653.23 +1.58%
DJ Wilshire 5000 12,006.90 +.93%
S&P Barra Growth 574.51 +.95%
S&P Barra Value 626.36 +.82%
Morgan Stanley Consumer 572.82 +.43%
Morgan Stanley Cyclical 720.74 +.83%
Morgan Stanley Technology 476.10 +.73%
Transports 3,534.81 +.75%
Utilities 390.33 -.01%
Put/Call .67 -32.32%
NYSE Arms .81 -21.0%
Volatility(VIX) 11.68 +2.46%
ISE Sentiment 124.00 -41.23%
US Dollar 90.40 -.07%
CRB 309.76 +1.94%

Futures Spot Prices
Crude Oil 59.78 +.32%
Unleaded Gasoline 168.80 +.37%
Natural Gas 7.53 +.74%
Heating Oil 173.80 +.32%
Gold 424.90 +.24%
Base Metals 118.88 +.47%
Copper 151.40 +.33%
10-year US Treasury Yield 4.10% +1.72%

Leading Sectors
Oil Service +3.37%
Energy +3.05%
Retail +2.23%

Lagging Sectors
Tobacco -.23%
Airlines -1.04%
Gold & Silver -2.62%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on AMR and UTX.

Afternoon/Evening Headlines
Bloomberg:
- US investors should put all of their money into stocks, according to Prudential Equity Group’s Ed Keon, the most bullish call since Bloomberg News began surveying strategists in 1996.
- US 10-year T-notes tumbled for a second day in NY as the government said factory orders in May increased by the most in a year, reinforcing views the economy is withstanding higher Federal Reserve interest rates.
- Ford Motor matched GM in offering all buyers the same discounts to employees after the incentives helped GM record its best sales month in 18 years in June.

Wall Street Journal:
- American International Group hired former SEC Chairman Arthur Levitt as a board adviser.

Washington Post:
- The Chinese Foreign Ministry criticized the US Congress for demanding a government review of CNOOC’s $18.5 billion bid for Unocal Corp.

Financial Times:
- Small US mutual fund companies are seeking sales or mergers due to increased regulatory and compliance costs and a slowdown in industry growth.
- Maytag Corp. may cut short takeover talks with a group led by China’s Haier Group, a move that may ease concern that a rival bidder Ripplewood Holdings may withdraw its offer and seek a break-up fee.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet, Retail, Networking and Medical longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector rose and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was positive. Small-caps outperformed throughout the day, and the Russell 2000 is five points away from an all-time high. I expect the ISM Non-Manufacturing Index to exceed expectations tomorrow. The energy inventory data release was postponed until Thursday due to the holiday.

Stocks Higher Mid-day, Led by Small-Caps

Indices
S&P 500 1,203.61 +.77%
DJIA 10,361.36 +.56%
NASDAQ 2,076.20 +.91%
Russell 2000 650.48 +1.16%
DJ Wilshire 5000 11,991.01 +.79%
S&P Barra Growth 573.81 +.83%
S&P Barra Value 625.85 +.74%
Morgan Stanley Consumer 572.65 +.41%
Morgan Stanley Cyclical 719.23 +.62%
Morgan Stanley Technology 475.85 +.68%
Transports 3,533.98 +.72%
Utilities 391.35 +.26%
Put/Call .68 -31.31%
NYSE Arms .77 -25.72%
Volatility(VIX) 11.68 +2.46%
ISE Sentiment 103.00 -51.18%
US Dollar 90.49 +.03%
CRB 310.08 +2.05%

Futures Spot Prices
Crude Oil 59.65 +1.53%
Unleaded Gasoline 170.00 +3.12%
Natural Gas 7.41 +3.33%
Heating Oil 175.30 +2.45%
Gold 423.60 -1.33%
Base Metals 118.88 +.47%
Copper 150.90 +2.34%
10-year US Treasury Yield 4.09% +1.34%

Leading Sectors
Oil Service +2.52%
Energy +2.27%
Retail +1.95%

Lagging Sectors
Tobacco -.50%
Airlines -1.12%
Gold & Silver -2.63%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet, Retail and Medical longs. I trimmed existing shorts today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is very light. Measures of investor anxiety are mixed. Today’s overall market action is positive as small-caps are once again outperforming on US dollar strength and healthy economic data. I expect US stocks to trade mixed-to-higher into the close as short-covering and bargain hunting more than offsets higher energy prices.

Today's Headlines

Bloomberg:
- Boston Scientific shares are rising today as analysts said the company gained legal bargaining power in patent disputes with Johnson & Johnson after a jury’s verdict on competing heart stents.
- Iraq’s Constitutional Drafting Committee today formally increased the number of Sunnis in the organization from two to 15, ending months of political infighting which threatened to delay the drafting process.
- GM extended its “employee-discount” promotion after the program led to the biggest sales month in 18 years, putting pressure on Ford Motor to match the incentive or risk losing more market share.
- US Treasuries are falling as a government report showed factory orders in May increased by the most in a year.
- Crude oil is rising, approaching $60/bbl., as Tropical Storm Cindy in the Gulf of Mexico disrupted the arrival of shipments to the US.

CNBC:
- The European Commission is considering whether to open an in-depth, four-month probe into plans by Procter & Gamble to buy Gillette.

Wall Street Journal:
- US satellite operator PanAmSat Holding aims to sign joint ventures and acquire spacecraft launched by smaller rivals to expand its capabilities in orbit.
- Dell is shaking up sales of computers in China by selling directly to consumers over the Internet.
- Career Launcher India Ltd. and a handful of other Indian companies are starting to offer online coaching in math and other subjects to US residents.
- Private-equity firms are raising billions of dollars to invest in Asia, but some investors say too much cash is chasing too few transactions.
- European Union ethics and disclosure laws are weak enough to let legislators influence debate without their connections to the companies involved being disclosed.
- IBM said it has started an industry organization to develop a plan for better ways of protecting data from hackers and mistakes.

NY Times:
- US airlines, whose domestic profit has been cut by fare competition and high oil prices, are benefiting from high demand and ticket prices for international flights.

Denver Post:
- Qwest Communications has introduced a Web site in Spanish as part of an effort to cater to the 5 million Hispanic consumers in its territory.

AdAge.com:
- McDonald’s may introduce more fashionable uniforms to build pride among its younger workers.

Factory Orders Rise on Commercial Aircraft Demand

- Factory Orders for May rose 2.9% versus estimates of a 3.0% gain and a downwardly revised .7% increase in April.

BOTTOM LINE: US factory orders rose by the largest amount in a year, due mainly to a surge in commercial aircraft orders. However, demand for business equipment declined for a third month in four. As well, orders for non-defense capital goods excluding aircraft, a measure of future business investment, fell 2.5% in May after gaining 1.7% in April. I continue to believe manufacturing will remain mixed-to-weaker over the near-term. However, strong consumer spending boost acitivity over the intermediate-term.

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Tuesday Watch

Weekend Headlines
Bloomberg:
- The Iraqi government could begin taking over security efforts from the US-led troops within a year, UK Defense Secretary John Reid said.
- Wal-Mart Stores said sales rose about 4.5% in June, their biggest gain since March, as warmer weather spurred sales of general merchandise such as seasonal apparel.
- The dollar rose to the highest since May 2004 versus the euro in Asia on expectations a report tomorrow will show factory orders gained by the most in 14 months.
- US Treasuries, after underperforming benchmark European bond markets for three quarters, are drawing international investors seeking better returns.
- Growth in European service industries, which account for about a third of the economy of the dozen euro nations, slowed more than expected in June as concern about high unemployment and record oil prices tempered consumer spending.
- The US dollar traded near a 14-month high against the euro in Asia on expectations reports this week will show US economic growth outpacing that of Europe.
- Crude oil is rising in NY on speculation US refiners may increase purchases to meet higher gasoline demand during the summer holidays and stockpile heating oil for the winter.

New York Times:
- Las Vegas casinos are exploring the use of hand-held wireless devices to enable gamblers to play slot machines, video poker and blackjack from the swimming pool and restaurants.
- Bill Gross, manager of PIMCO's Total Return bond fund, said corporate debt may become less attractive as inflation declines.
- Eli Lilly is developing drugs with smaller projected patient numbers and sales to increase its marketable products and save on research costs.
- CNOOC's competing $18.5 billion bid to buy Unocal Corp. has created a dilemma for Chevron Corp. because CNOOC is Chevron's largest partner in China.

LA Times:
- An active ingredient in NitroMed's BilDil, a heart failure medication targeted to treat African-Americans, can trigger a painful immune system disease called lupus.

Washington Post:
- Rapid economic growth in the US is yielding higher tax revenue, which could push the 2005 budget deficit as much as $100 billion below government estimates.
- US and international agents are targeting terrorists from a new Paris-based center funded primarily by the CIA.
- A group of Sunni Muslim clerics are calling on Iraqis in the Sunni Arab religious minority to vote in elections later this year and help write a new constitution.

Financial Times:
- The maximum losses from a large-scale, single terrorist attack involving nuclear, chemical or biological incident could be between $50 billion and $250 billion, citing the OECD.

Sunday Telegraph:
- Electronic Arts is preparing a bid for the UK's Superscape Group Plc, a maker of three-dimensional games for mobile phones.

International Herald Tribune:
- The US and South Korea will jointly offer security and economic incentives to persuade North Korea to abandon its nuclear weapons program.

The Observer:
- Vodafone Group Plc may bid for the US arm of T-Mobile International AG.

AFP:
- Thousands of farmers in the southern Chinese province of Guangdong demonstrated against a government-backed eviction, citing a rights group.

Xinhua News Agency:
- China and Russia agreed to strengthen military cooperation and accelerate efforts to fight terror after Chinese President Hu Jintao met Russian President Vladimir Putin in Moscow.
- China wants to accelerate implementation of measures aimed at reducing energy consumption to ease growth of the country's crude oil imports, citing Premier Wen Jiabao.

China Daily:
- China may soon make a major discovery of its energy and mineral resources after the country accelerated exploration and production to meet demand.

Oriental Morning Post:
- General Motors surpassed Volkswagen AG as the top car seller in China in the first half of the year.

Securities Times:
- China inflation probably slowed to 1.5% in June compare with 1.8% in May, citing a research report from Shenyin Wanguo Research & Consulting in Shanghai.
- China's urban fixed-asset investment growth may slow to about 15% in the second half from 25% in the first half, partly because rising costs and lower demand may prompt companies to spend less.

Weekend Recommendations
Goldman Sachs:
- Reiterated Outperform on D, BSX and EPD.

Night Trading
Asian indices are -.50% to unch. on average.
S&P 500 indicated -.13%.
NASDAQ 100 indicated -.10%.

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Economic Releases
10:00 EST
- Factory Orders for May are estimated to rise 3.0% versus a .9% increase in April.

BOTTOM LINE: Asian Indices are mostly lower on worries over slowing growth in the region. I expect US stocks to open mixed. The Portfolio is 75% net long heading into the week.