Stocks Finish at Session Highs, Led by Tech and Energy Shares

Indices
S&P 500 1,244.12 +.71%
DJIA 10,683.74 +.57%
NASDAQ 2,218.15 +1.04%
Russell 2000 688.51 +.84%
DJ Wilshire 5000 12,441.73 +.73%
S&P Barra Growth 597.31 +.79%
S&P Barra Value 642.34 +.63%
Morgan Stanley Consumer 592.19 +.46%
Morgan Stanley Cyclical 765.07 +.55%
Morgan Stanley Technology 507.36 +1.12%
Transports 3,817.16 +.24%
Utilities 402.41 +2.51%
Put/Call .94 +3.30%
NYSE Arms .93 +8.69%
Volatility(VIX) 11.75 -2.73%
ISE Sentiment 168.00 -21.50%
US Dollar 88.76 -.15%
CRB 317.57 +.91%

Futures Spot Prices
Crude Oil 61.89 -.02%
Unleaded Gasoline 178.05 -.06%
Natural Gas 8.37 -.04%
Heating Oil 172.75 +.14%
Gold 437.70 unch.
Base Metals 128.13 +.76%
Copper 166.10 -.09%
10-year US Treasury Yield 4.33% +.56%

Leading Sectors
Steel +3.06%
Utilities +2.51%
Semiconductors +2.49%

Lagging Sectors
Homebuilders -.21%
Oil Tankers -.31%
Airlines -1.34%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on TAP and CEM.
- Reiterated Underperform on MMC and BMC.

Afternoon/Evening Headlines
Bloomberg:
- Drugmakers mad a voluntary pledge today to comply with federal advertising rules as the industry faces threats by Congress to curb their annual $4.01 billion consumer marketing campaigns.
- An Air France jet trying to land at Toronto Pearson International Airport skidded off the runway into a ravine and caught fire.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical, Medical Information Systems and Retail 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 about average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was positive. I continue to believe that we are in the early stages of a reversal in several major trends. Massive amounts of capital have flowed into market neutral and negatively correlated market strategies over the last five years. Individuals have shown relatively little interest in stocks since the bursting of the bubble. Overseas investments have been garnering a disproportionate amount of new capital. I believe these three trends are in the early stages of reversing. While I can't argue that in the short-term the major averages are extended and due for a period of consolidation, the emerging trend of getting long U.S. stocks is still in the early stages.

Stocks Higher Mid-day, Led Again by Tech

Indices
S&P 500 1,242.40 +.57%
DJIA 10,674.49 +.48%
NASDAQ 2,213.10 +.81%
Russell 2000 686.14 +.49%
DJ Wilshire 5000 12,420.97 +.56%
S&P Barra Growth 596.32 +.63%
S&P Barra Value 641.57 +.51%
Morgan Stanley Consumer 591.75 +.39%
Morgan Stanley Cyclical 764.84 +.52%
Morgan Stanley Technology 506.52 +.95%
Transports 3,518.05 +.19%
Utilities 402.07 +2.43%
Put/Call 1.0 +9.89%
NYSE Arms .88 +3.43%
Volatility(VIX) 11.82 -2.15%
ISE Sentiment 156.00 -27.10%
US Dollar 88.72 -.19%
CRB 317.31 +.82%

Futures Spot Prices
Crude Oil 61.35 -.36%
Unleaded Gasoline 175.85 +.65%
Natural Gas 8.37 +2.65%
Heating Oil 171.50 -.11%
Gold 437.70 unch.
Base Metals 128.13 +.76%
Copper 166.10 -.12%
10-year US Treasury Yield 4.32% +.23%

Leading Sectors
Steel +3.21%
Utilities +2.40%
Semis +2.20%

Lagging Sectors
Oil Tankers -.15%
Homebuilders -.44%
Airlines -1.38%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Medical Information Systems and Semiconductor longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, most sectors are higher and volume is about average. Measures of investor anxiety are mostly higher. Today’s overall market action is positive considering recent gains and stubbornly high energy prices. The Johnson Redbook same store sales index rose 4.4% year over year last week vs. a 4.3% rise the prior week. The last time weekly sales exceeded 4.0% for five consecutive weeks was May/June 2004. This week's gain is also up from a 1.5% increase in late April and the 13th week in a row the index has exceeded 3%. I expect stocks to trade mixed from current levels into the close as earnings optimism offsets higher energy prices.

Today's Headlines

Bloomberg:
- General Motors will extend a program that gives employee discounts on cars and trucks to all customers.
- Ford Motor and DaimlerChrysler AG posted US sales increases of more than 25% in July.
- US scientists said this year’s Atlantic hurricane season will be stormier than previously forecast, producing as many as 21 tropical storms and 11 hurricanes.

Wall Street Journal:
- JPMorgan Chase executives are laying the groundwork for possible future acquisitions and some investors are uncomfortable.
- The FDA’s ban on an antibiotic used in poultry production, combined with moves by some companies to market antibiotic-free meat, have dented the market for animal growth drugs.
- Vonage Holdings, the largest Internet-phone company, will work with TowerStream, a wireless-broadband service, to provide businesses with voice and high-speed Internet services.
- The FDA may announce today a review of rules governing the way drugmakers advertise their products, potentially leading to tougher regulation.
- US families sent by their companies to more isolated cities in China are experiencing profound culture shock adjusting to local conditions.
- Time Warner, Cablevision Systems, Comcast and other cable-tv stocks may get a boost as the companies start reporting growth in their digital-telephone services.
- Some US private-equity funds are giving investors the chance to invest as little as $25,000, compared with as much as $10 million demanded by others.

NY Times:
- The US ambassador to Iraq outlined a plan for a gradual withdrawal of American troops.

CNBC:
- Bill Gross, chief investment officer at PIMCO, said he expects the Fed to raise rates to 3.75% or 4.0%.

Reuters:
- Iran’s decision to resume activities at a nuclear plant in the central city of Isfahan is “irreversible.”

Moscow Times:
- Google may open a center in St. Petersburg, Russia, and hire 3,000 workers.

Personal Incomes Rising, Spending Strong, Inflation Contained, Factories Heating Back Up

- Personal Income for June rose .5% versus estimates of a .4% increase and a .2% gain in May.
- Personal Spending for June rose .8% versus estimates of a .8% increase and an unchanged reading in May.
- PCE Core(MOM) for June was unchanged versus estimates of a .1% increase and a .2% gain in May.
- Factory Orders for June rose 1.0% versus estimates of a 1.0% increase and an upwardly revised 3.6% increase in May.

BOTTOM LINE: Incomes are now up 6.6% over the last year, significantly higher than the rate of consumer inflation which is currently around the long-term average of 3.0%. This is one of the most underappreciated aspects of the current economic environment.

The .8% gain in Personal Spending was the largest rise since July 2004. Spending on long-lasting items such as autos and furniture rose 3.3%, the most since May 2004. This is a big positive considering record energy prices.

The fact that the PCE Core, the Fed’s favorite inflation gauge, was unchanged in June is also a big positive. I continue to believe the Fed is raising rates to have ammunition for a future emergency and quell worries over housing froth, not because they are overly worried about inflation.

The increase in factory orders is further evidence of an improving manufacturing sector. The current streak of factory gains is the longest since the November 1998 to February 1999 period. Orders for non-defense capital goods excluding aircraft, a measure of future corporate investment, rose 3.9% in June which was the largest gain since January.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- A New York state assemblyman said he will introduce a bill that would permit New York police to use racial profiling when deciding who to stop for anti-terrorism searches in the largest US transit system.
- Londoners are contending with the tightest security ever as measures implemented since last month’s bombings surpass those that followed the IRA attacks on the city in the 1970s and 1980s.
- Chevron’s $17.3 billion bid for Unocal is likely to win approval from a majority of shareholders next week amid doubt that a higher, all-cash offer from China’s Cnooc can overcome opposition by US lawmakers.
- Federal Reserve Chairman Greenspan’s policy of signaling his intentions for interest rates has helped drive down volatility in the bond market to a seven-year low, hurting earnings for trading firms.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY, UTX and EMC.
- Reiterated Underperform on PFG and AEP.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.09%.

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Earnings of Note
Company/EPS Estimate
BMC/.13
CEPH/.59
COH/.24
CMCSA/.15
EMR/.95
IACI/.25
MBI/1.39
RDC/.31
SIRI/-.15
RIG/.33
TYC/.49

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Personal Income for June is estimated to rise .4% versus a .2% gain in May.
- Personal Spending for June is estimated to rise .8% versus a 0.0% change in May.
- PCE Deflator for June is estimated to rise 2.0% versus a 2.2% gain in May.

10:00 am EST
- Factory Orders for June are estimated to rise 1.0% versus a 2.9% increase in May.

Afternoon
- Total Vehicle Sales for July are estimated to rise to 18.3M versus 17.5M in June.
- Domestic Vehicle Sales for July are estimated to rise to 14.5M versus 14.1M in June.

BOTTOM LINE: Asian indices are mostly higher on gains in energy-related shares in the region. I expect US equities to open modestly higher on positive economic reports and stabilizing rates/oil. The Portfolio is 100% net long heading into the day.