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Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart Stores said July sales at its US stores open at least a year are rising within its forecast range as general merchandise outpaced food sales.
- US gas prices slid 1 cent in the past two weeks to an average of $2.30/gallon.
- Lance Armstrong made his final move as a professional cyclist yesterday, stepping onto the winner's podium after his record seventh straight Tour de France victory.
- The death toll in yesterday's homicide bombings in the Egyptian Red Sea resort of Sharm el-Sheikh rose to at least 88 people, two hundred people were wounded.

Wall Street Journal:
- Ford Motor's Hertz, which is planning an IPO, may receive bids from private-equity groups including Carlyle Group and Texas Pacific Group.

New York Times:
- Hewlett-Packard CEO Mark Hurd is under increasing pressure from analysts to academics and others to divide the company in two or sell off units.
- US Democratic Party leaders say that their electoral prospects may be hurt if several labor unions leave the AFL-CIO.

New York Post:
- Cox Communications will meet this week with private equity firms interested in purchasing about $3 billion in subscriber accounts.

Washington Post:
- A highway bill before the US Congress has a potential windfall for data brokers such as Acxiom Corp., ChoicePoint and LexisNexis.
- Medicare often reimburses hospitals and doctors more for poor care and unnecessary tests because it pays for each time a patient is treated.

LA Times:
- President Bush is targeting companies such as Wal-Mart and Microsoft for a coalition to support letting some illegal immigrants already in the US to be legally employed.

San Jose Mercury News:
- California's Silicon Valley added jobs in June for a fifth straight month and may show annual growth by year-end.

Financial Times:
- People's Bank of China Governor Zhou Ziaochuan said the yuan revaluation last week is an "initial" step, fuelling speculation the country will strengthen the currency further.
- Microsoft is using cars and aircraft to travel around US cities and track signals emitted by short-range home and office-based wireless networks to create a ground-based location system and attract more Internet users.
- US retail investors have put more money into international equity funds than in US funds for the first time since 1990, citing Lipper.

Reuters:
- Pakistan pledged more coordination and cooperation with Afghanistan in the war against terrorism.

Daily Telegraph:
- Almost a quarter of British Muslims sympathize with the motives of those who carried out bomb attacks on London this month, citing a survey for the newspaper by YouGov Plc.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on FFH, NTRT, BSX, VRNT, CMVT, MKL and mixed on DNA, AAPL, MSTR.

Forbes on Fox:
- Had guests that were positive on IWM, INTC, DQX and mixed on F, RTSX, STO.

Cashin' In:
- Had guests that were positive on CHU and mixed on SHE.

Cavuto on Business:
- Had guests that were positive on BM, IBM, MEE and mixed on PFE, WMT, HPQ.

Barron's:
- Had positive comments on MOT, FMC, LECO, MIL, SYNA, AMSC, WLP and SIRI.
- Had negative comments on IBM.

Goldman Sachs:
- Reiterated Outperform on GE, SLB and OXY.
- Reiterated Underperform on ALB.

Night Trading
Asian indices are +.50% to +.75% on average.
S&P 500 indicated +.16%.
NASDAQ 100 indicated +.22%.

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Earnings of Note
Company/Estimate
ALTR/.18
AXP/.78
CD/.35
HGSI/-.47
LNCR/.46
FLSH/.17
DGX/.72
TXN/.29

Upcoming Splits
None of note

Economic Releases
10:00 am EST
- Existing Home Sales for June are estimated to rise to 7.15M from 7.13M in May.

BOTTOM LINE: Asian Indices are mostly higher on optimism over recent US economic reports. I expect US stocks to open modestly higher after gains in Asia. The Portfolio is 100% net long heading into the week.

Weekly Outlook

There are several important economic reports and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Existing Home Sales
Tues. - Consumer Confidence
Wed. - Durable Goods Orders, New Home Sales, Fed's Beige Book
Thur. - Initial Jobless Claims
Fri. - Advance 2Q GDP, Advance 2Q Personal Consumption, Advance 2Q GDP Price Index, 2Q Employment Cost Index, Final Univ. of Mich. Consumer Confidence, Chicago Purchasing Manager

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Altera Corp.(ALTR), American Express(AXP), Cendant Corp.(CD), Lincare Holdings(LNCR), Texas Instruments(TXN)
Tues. - ADP(ADP), Aflac Inc.(AFL), Amazon.com(AMZN), Biogen Idec(BIIB), BJ Services(BJS), Burlington Northern(BNI), Centex(CTX), Chicago Merc(CME), Corning(GLW), Electronic Arts(ERTS), Imclone(IMCL), Infospace(INSP), Lexmark Intl.(LXK), Lockheed Martin(LMT), Medco Health(MHS), Omnicom Group(OMC), Starwood Hotels(HOT), Valero Energy(VLO), Verizon Communications(VZ)
Wed. - Amerada Hess(AHC), Anheuser-Busch(BUD), Boeing(BA), Chiron(CHIR), Computer Assoc.(CA), ConocoPhillips(COP), Diamond Offshore(DO), HCA Inc.(HCA), Newmont Mining(NEM), Pulte Homes(PHM), Sprint Corp.(FON), Starbucks(SBUX), Zimmer Holdinga(ZMH)
Thur. - Aetna Inc.(AET), Apache Corp.(APA), Beazer Homes(BZH), Dow Chemical(DOW), Exxon Mobil(XOM), McAfee(MFE), Nabors Industries(NBR), Phelps Dodge(PD), Symantec(SYMC), Whole Foods Market(WFMI), XM Satellite Radio(XMSR)
Fri. - Archer-Daniels(ADM), Baker Hughes(BHI), Chevron(CVX), Gillette(G)

Other events that have market-moving potential this week include:

Mon. - None of note
Tue. - MOT Analyst Meeting, XLNX Analyst Meeting
Wed. - BofA Specialty Pharmaceuticals Conference
Thur. - MSFT Analyst Meeting, BofA Specialty Pharmaceuticals Conference
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on good earnings reports, short covering and mostly positive economic data. However, stocks are still extended near-term, thus a healthy consolidation period remains likely. I continue to believe US stocks will mount a significant rally sometime over the next several months and finish the year 10%+ higher from current levels, giving the S&P a 13-15% gain for the year. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

Economic Week in Review

ECRI Weekly Leading Index 134.70 +.90%

Net Foreign Security Purchases for May rose to $60.0B versus estimates of $60.0B and $47.8B in April. International investors increased their holdings of US assets in May by the most since February as the world’s largest economy outperformed rivals in Europe and Asia, Bloomberg reported. The US economy expanded 3.7% in the first quarter, the most of any Group of Seven industrialized country. Caribbean holdings, which analysts link to hedge funds located in the region, only increased by $1.3 billion. Japan accounts for $685.7 billion of Treasuries held by overseas investors, followed by China with $243.5 billion and the UK with $132.5 billion. "There is renewed foreign interest in the US," said Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto. "The US is not having any trouble financing its current-account deficit," Gregory said.

Housing Starts for June were 2004K versus estimates of 2050K and 2004K in May. Building Permits for June rose to 2111K versus estimates of 2085K and 2062K in May. US housing starts were unchanged in June, suggesting builders may have paused to finish homes already under construction, Bloomberg reported. Backlogs jumped to a 26-year high, while permits rose. Backlogs rose 7.8% to 241,000 units at an annual rate, up 19% from June 2004.

The US economy is in a "sustained" expansion that will require the central bank to continue raising interest rates at a "measured" pace, Federal Reserve Chairman Greenspan told the House Financial Services Committee. "Our baseline outlook for the US economy is one of sustained economic growth and contained inflation pressures," Greenspan said.

Initial Jobless Claims for last week fell to 303K versus estimates of 325K and 337K the prior week. Continuing Claims fell to 2577K versus estimates of 2589K and 2618K prior. The number of US workers filing first-time applications for state jobless benefits fell to 303,000 last week, the lowest level since April, as automakers completed factory retooling more quickly than government statisticians expected, Bloomberg reported. The decline was the largest since December 2002. The four-week moving-average of claims fell to 318,000 from 321,250. The insured employment rate, which tracks the US unemployment rate, fell to 2.0% from 2.1%.

Leading Indicators for June rose .9% versus estimates of a .5% increase and an upwardly revised 0.0% change in May. The Leading Indicators report shows the first major revision in how the index is compiled since 1996. Higher consumer confidence, building permits and stock prices spurred gains in the index.

Philly Fed for July rose to 9.6 versus estimates of 10.0 and a reading of -2.2 in June. Manufacturing in the Philadelphia region rebounded this month after a first-quarter inventory build prompted companies to place fewer orders, Bloomberg reported. Manufacturing is gaining traction after slowing in March and April as companies such as GM reduced inventories that swelled earlier in the year, Bloomberg reported. "The soft readings on the economy are over," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi. "The survey snapped back smartly and this bodes well for economic activity in coming months," said Rupkey.

BOTTOM LINE: Overall, last week's economic data were positive. I expect foreign demand for US assets to continue increasing as the dollar remains firm, US economic growth stays healthy and global growth slows. Housing starts will likely increase near-term as builders try to work off the record backlog amid an all-time high home sales pace in the first half. I continue to believe housing will remain strong by historic standards with price appreciation moderating but not plunging. The Fed will likely continue to raise rates at a "measured" pace as the economy has accelerated modestly from its recent "soft patch." I do not believe they are overly concerned with inflation anymore, however worries over the housing market and the desire for more ammunition in case of an emergency will prompt further hikes. The labor market appears to accelerating, however it is hard to gauge at this particular time. The sharp gain in the leading indicators bodes well for future economic readings. As I stated last week, manufacturing is improving after an inventory adjustment period and should begin adding to growth again over the coming months. Finally, the ECRI Weekly Leading Index rose .90% to 134.70 and is forecasting moderately accelerating healthy growth.

Market Week in Review

S&P 500 1,233.68 +.47%*

BOTTOM LINE: Overall, last week's market performance was positive as stocks built on recent gains even with more terrorism in London, mildly hawkish commentary from Alan Greenspan and China's yuan revaluation. With 40% of the S&P 500 reporting, 72% of companies have beaten estimates versus a normal average of 59%. The advance/decline line fell slightly, almost every sector gained and volume was slightly above-average on the week. Measures of investor anxiety were mostly higher. The AAII % Bulls fell substantially for the week and is now slightly below average levels. Mortgage rates rose, but are still only 52 basis points away from all-time lows set in June 2003. The benchmark 10-year T-note yield continued to rise on mostly positive economic reports and China's yuan revaluation. As well, small-caps, commodity and cyclical stocks outperformed meaningfully on economic optimism and strong earnings reports. This led to underperformance in defensively-oriented healthcare stocks. Finally, oil declined modestly for the week on more signs that global demand for the commodity is faltering.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,233.68 +.47%
DJIA 10,651.18 +.10%
NASDAQ 2,179.74 +1.06%
Russell 2000 677.78 +2.11%
DJ Wilshire 5000 12,311.03 +.66%
S&P Equity Long/Short Index 1,042.03 +.04%
S&P Barra Growth 591.97 +.78%
S&P Barra Value 637.30 +.16%
Morgan Stanley Consumer 586.54 +.14%
Morgan Stanley Cyclical 758.47 +2.29%
Morgan Stanley Technology 498.75 -.31%
Transports 3,780.03 +3.67%
Utilities 392.92 +.05%
S&P 500 Cum A/D Line 8,217.00 -.94%
Bloomberg Crude Oil % Bulls 20.0 -34.44%
Put/Call .80 +17.65%
NYSE Arms 1.02 -4.67%
Volatility(VIX) 10.52 +1.84%
ISE Sentiment 160.00 -5.33%
AAII % Bulls 41.18 –28.87%
US Dollar 89.64 -.09%
CRB 304.25 -1.72%

Futures Spot Prices
Crude Oil 58.65 -1.10%
Unleaded Gasoline 172.80 +2.0%
Natural Gas 7.38 -5.45%
Heating Oil 158.19 -5.27%
Gold 425.60 +1.04%
Base Metals 124.73 +.87%
Copper 160.10 +2.10%
10-year US Treasury Yield 4.22% +1.34%
Average 30-year Mortgage Rate 5.73% +1.24%

Leading Sectors
Steel +14.21%
Oil Service +8.57%
Energy +4.50%

Lagging Sectors
Telecom -1.26%
Hospitals -1.38%
HMOs -7.73%

*5-Day % Change