Stocks Modestly Lower Mid-day on Terrorism Fears

Indices
S&P 500 1,192.72 -.19%
DJIA 10,257.86 -.13%
NASDAQ 2,070.10 +.07%
Russell 2000 648.19 -.01%
DJ Wilshire 5000 11,893.86 -.17%
S&P Barra Growth 568.55 -.17%
S&P Barra Value 619.81 -.25%
Morgan Stanley Consumer 565.14 -.43%
Morgan Stanley Cyclical 713.65 -.42%
Morgan Stanley Technology 475.49 -.06%
Transports 3,500.67 -.58%
Utilities 384.15 +.26%
Put/Call 1.18 +22.92%
NYSE Arms 1.41 -6.66%
Volatility(VIX) 12.98 +5.87%
ISE Sentiment 153.00 -34.05%
US Dollar 90.30 -.09%
CRB 312.57 +.90%

Futures Spot Prices
Crude Oil 59.40 -3.07%
Unleaded Gasoline 177.00 -1.11%
Natural Gas 7.28 -5.31%
Heating Oil 172.95 -3.72%
Gold 424.30 -.05%
Base Metals 120.60 -.43%
Copper 153.55 +.36%
10-year US Treasury Yield 4.03% -.86%

Leading Sectors
Homebuilders +1.95%
Biotech +1.15%
HMOs +.50%

Lagging Sectors
Airlines -.82%
Oil Service -.92%
Tobacco -1.04%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet, Retail and Homebuilding longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is neutral as the advance/decline line is slightly lower, sector performance is mixed and volume is above average. Measures of investor anxiety are mostly higher. Today’s overall market action is positive considering the largest attacks on British soil since WWII. European economies, already stagnate, will likely move more quickly towards negative growth as a result of the attacks. This will further damp demand for commodities during the next few quarters. I expect US stocks to trade mixed-to-higher into the close on short-covering, bargain hunting and lower energy prices.

Today's Headlines

Bloomberg:
- Terrorists set off bombs in morning rush hour on London’s subway system and a bus, killing at least 33 people and injuring more than 345 others in the deadliest attack on the city since Word War II.
- Abu Musab al-Zarqawi’s al-Qaeda-linked cell said that it killed Egypt’s ambassador-designate to Iraq, who was kidnapped in Baghdad on July 2.
- US retailers from Wal-Mart Stores to Nordstrom posted better-than-expected sales gains in June as rising temperatures and increased hiring spurred purchases of air conditioners and warm-weather clothing.
- Omnicare, the biggest provider of drugs and pharmacy services to US nursing homes, agreed to buy NeighborCare for about $1.5 billion to expand its customer base and cut costs by increasing efficiency.
- The impact on the US stock market from terrorist attacks may not last long if historical trends are any guide, according to strategists Abby Joseph Cohen of Goldman Sachs and Tobias Levkovich of Smith Barney.
- The US Department of Homeland Security will raise the terror threat level for public transit systems while keeping the national threat level unchanged.
- Crude oil reached a record $62.10 a barrel in NY and then plunged as terrorist bombs that killed at least 33 people in London raised the possibility of an economic slowdown. It was the largest price swing in 14 years.

Wall Street Journal:
- A breakup of the European Monetary Union is now possible, following the French and Dutch voters’ rejection of the European Union constitution, Joachim Fels, chief global fixed-income economist at Morgan Stanley in London wrote.
- US amputees, aided by advances in medical treatment, are requesting to return to combat in Iraq.
- Mitsubishi Motors, Ford Motor’s Volvo unit and DaimlerChrysler’s Mercedes-Benz and other automakers are ending their free-maintenance programs in the US to cut costs.
- Countries such as Australia, South Africa and Colombia are struggling to expand ports, rail yards and airports to meet demand for coal and other commodities, creating a bottleneck that keeps prices high.

NY Times:
- Since McDonald’s was sued in 2002 for allegedly making two NY teenagers fat, 20 US states adopted laws preventing lawsuits claiming obesity-related personal injury, while laws in 11 states are pending.

Financial Times:
- Al-Qaeda said it carried out attacks on London today in a statement posted on an Islamist Web site.

Jobless Claims Remain Subdued, Energy Inventories Mixed

- Initial Jobless Claims rose to 319K last week versus estimates of 320K and 312K the prior week.
- Continuing Claims fell to 2581K versus estimates of 2582K and 2597K prior.
- Summary of Weekly Petroleum Data for the Week Ending July 1, 2005.
- The EIA said crude inventories fell 3.61M barrels last week versus estimates of a 1.5M barrel fall. Gas inventories fell 974,000 barrels versus estimates of a 270,000 barrel decline. Distillate inventories rose 4.07M barrels versus estimates of a 1.5M barrel rise.

BOTTOM LINE: The four-week moving-average fell by 3,500 to 320,500, the lowest level since the week ended March 4. The four-week moving-average of continuing claims was mostly unchanged at 2.603 million. The insured unemployment rate was unchanged from the prior week at 1.9%. A four-week moving-average of jobless claims between 325,000 and 330,000 signals the creation of about 225,000 new jobs a month, according to most economists. Moreover, Monster Worldwide said its index of online help-wanted advertising rose in June to a sixth straight record, reflecting a jump in the number of companies seeking workers in construction, accounting and transportation.

So far, oil isn’t reacting much to the inventory data. The terrible events this morning in London will likely further curtail demand for energy over the intermediate-term. In my opinion, oil is trading on emotion and not fundamentals. Thus, the mania in the energy markets will keep prices elevated until we get closer to the fourth quarter. I still expect a substantial decline in crude beginning sometime over the next few months.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- The number of US broadband subscribers grew 34% last year to 38 million, the most of any country in the world, according to FCC Chairman Kevin J. Martin.
- Australia's government will consider sending more troops to Afghanistan, Prime Minister John Howard said.
- Oil is rising to another record of $61.62/bbl. in NY on speculation Hurricane Dennis may disrupt shipments along the US Gulf coast.
- Australian employers hired extra workers in June, unexpectedly cutting the jobless rate to the lowest in almost 29 years.
- The US dollar traded close to an 11-month high against the yen on expectations a US government report on Friday will show job growth more than doubled in June.

Wall Street Journal:
- China has started a new purchasing managers' index that is expected to become a leading economic barometer for the country. The index, which has data from January, shows a June reading of 51.7 points, representing a slide for the third consecutive month since March's 57.9. A reading above 50 indicates expansion in manufacturing, a reading below 50 a contraction.

Washington Post:
- CNOOC Ltd. Chairman and CEO Fu Chengyu said China's biggest offshore oil company may raise its $18.5 billion bid for Unocal Corp. to beat Chevron.

Financial Times:
- China does not meet the criteria to be considered a market economy, citing an interview with European Union Trade Commissioner Peter Mandelson.

Economic Times:
- Wipro Ltd., India's third-largest software maker, plans to buy for as much as $1 billion the information technology division of a US company after its split from the parent.

Harretz:
- The Hamas movement said its "lost faith" in Palestinian leader Mahmoud Abbas and may continue attacking Israel with mortars and rockets after the disengagement from Gaza is completed.

The Standard:
- China Mobile will seek to raise its share of non-voice services revenue to 30% from 15%.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on AMGN, DNA, GILD, AMLN, ARO, SBUX and IDIX.

Banc of America:
- Upgraded BLL to Buy.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.03%.

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Earnings of Note
Company/EPS Estimate
ACN/.43
AA/.45
LI/.36

Upcoming Splits
ISSC 3-for-2

Economic Releases
8:30 am EST:
- Initial Jobless Claims for last week are estimated to rise to 320K versus 310K the prior week.
- Continuing Claims are estimated to fall to 2582K versus 2600K prior.

BOTTOM LINE: Asian indices are mostly lower as rising energy prices spur further growth worries in the region. I expect US equities to open modestly lower on apprehension ahead of Hurricane Dennis and Friday's employment report. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower as Energy Prices Rise

Indices
S&P 500 1,194.94 -.83%
DJIA 10,270.68 -.97%
NASDAQ 2,068.65 -.49%
Russell 2000 648.27 -.76%
DJ Wilshire 5000 11,915.84 -.76%
S&P Barra Growth 569.49 -.87%
S&P Barra Value 621.38 -.80%
Morgan Stanley Consumer 567.58 -.91%
Morgan Stanley Cyclical 716.66 -.57%
Morgan Stanley Technology 475.76 -.07%
Transports 3,521.21 -.38%
Utilities 383.17 -1.83%
Put/Call .96 +43.28%
NYSE Arms 1.51 +84.95%
Volatility(VIX) 12.27 +5.05%
ISE Sentiment 232.00 +87.10%
US Dollar 90.38 -.07%
CRB 313.32 +1.15%

Futures Spot Prices
Crude Oil 61.30 +.03%
Unleaded Gasoline 178.70 -.25%
Natural Gas 7.70 +.16%
Heating Oil 179.80 +.18%
Gold 424.80 +.07%
Base Metals 121.12 +1.88%
Copper 153.00 unch.
10-year US Treasury Yield 4.06 -.90%

Leading Sectors
HMOs +1.63%
Steel +1.25%
Semis +1.05%

Lagging Sectors
Oil Service -1.25%
Restaurants -1.55%
Energy -1.75%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on PVH.
- Rated DE Underperform.

Afternoon/Evening Headlines
Bloomberg:
- Yahoo! is hiring engineers and adding services to carve out a bigger piece of the expanding market for Internet-based calling.
- US 10-year Treasuries rose for the first day in three in NY on speculation yields that reached a two-week high failed to reflect expectations for tame inflation.
- President Bush selected former Senator Fred Thompson, a lawyer in real life and on tv, to advise the eventual nominee in the anticipated Senate confirmation fight to replace Justice Sandra Day O’Connor on the US Supreme Court.
- Crude oil surged to a record $61.35 a barrel in NY on speculation that Tropical Storm Dennis may disrupt shipments along the US Gulf coast.

Financial Times:
- The selection of London to host the 2012 Olympic Games will generate $3.5 billion for the UK’s tourism industry.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Internet and Homebuilding longs. I trimmed some existing longs in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished at session lows, most sectors fell and volume was around average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was modestly negative. Tech stocks outperformed throughout the day, finishing around breakeven. Stocks will likely remain under modest pressure until energy prices stabilize.