Weekly Outlook

There are a few important economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - NAHB Housing Market Index
Tues. - Housing Starts, Building Permits, FOMC Rate Decision
Wed. - None of note
Thur. - Initial Jobless Claims, Continuing Claims, Leading Indicators
Fri. - None of note

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

Mon. - AES Corp.(AES), Nike Inc.(NKE)
Tues. - Circuit City(CC), Goldman Sachs(GS)
Wed. - Autozone(AZO), Bed, Bath & Beyond(BBBY), Biomet(BMET), Carmax(KMX), Cintas(CTAS), ConAgra(CAG), FedEx Corp.(FDX), Morgan Stanley(MWD)
Thur. - Darden Restaurants(DRI), General Mills(GIS), KB Home(KBH), Oracle Corp.(ORCL), Palm Inc.(PALM), Solectron(SLR)
Fri. - GTECH Holdings(GTK)

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

Mon. - OPEC Ordinary Meeting, Banc of America Investment Conference
Tue. - JP Morgan Software Forum, Banc of America Investment Conference, Semi Book-to-Bill
Wed. - Goldman Sachs Global Communacopia Conference, Banc of America Investment Conference
Thur. - Banc of America Investment Conference
Fri. - Goldman Sachs Telecommunications Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher. The Fed will likely raise the benchmark Fed Funds rate 25 basis points on Tues. However, the policy statement will probably contain language that overtly states they will “pause” temporarily to allow for further evaluation of data in the aftermath of Katrina. Initial Jobless Claims will take another large jump higher this week as more hurricane victims are able to file. My trading indicators are giving bullish signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,237.91 -.29%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was neutral considering weaker economic data and rising long-term interest rates. The advance/decline line fell, most sectors declined and volume was slightly above average on the week. Measures of investor anxiety were lower. The AAII % Bulls rose for the week and is now at above-average levels. The average 30-year mortgage rate rose to 5.74%, but is still only 53 basis points above all-time lows set in June 2003 and down from 2005 highs of 6.04% set in April. The benchmark 10-year T-note yield rose 15 basis points on the week as investors seem to be factoring in the possibility of stagflation. This also boosted the US dollar and Gold. While Hurricane Katrina may result in a few more weeks of weaker economic data and higher inflation readings, I strongly disagree that inflation or stagflation will be a problem over the intermediate-term. Finally, most commodity prices fell again as more evidence of slowing global demand was evident. Unleaded Gas futures have now plunged almost 40% since their peak during the immediate aftermath of Katrina.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,237.91 -.29%
DJIA 10,641.94 -.34%
NASDAQ 2,160.35 -.70%
Russell 2000 671.98 -.89%
DJ Wilshire 5000 12,354.21 -.43%
S&P Equity Long/Short Index 1,066.32 -.03%
S&P Barra Growth 590.06 -.70%
S&P Barra Value 643.63 +.12%
Morgan Stanley Consumer 588.22 -.66%
Morgan Stanley Cyclical 736.29 -1.46%
Morgan Stanley Technology 504.43 -.35%
Transports 3,633.72 +.31%
Utilities 428.85 +1.85%
S&P 500 Cum A/D Line 7,727.00 -.78%
Bloomberg Crude Oil % Bulls 39.0 -15.77%
Put/Call .81 +6.58%
NYSE Arms .75 +1.35%
Volatility(VIX) 11.22 -6.34%
ISE Sentiment 108.0 -30.77%
AAII % Bulls 51.43 +21.56%
US Dollar 88.06 +1.39%
CRB 315.39 -2.45%

Futures Spot Prices
Crude Oil 63.00 -1.87%
Unleaded Gasoline 178.51 -8.69%
Natural Gas 11.14 -.77%
Heating Oil 183.70 -3.82%
Gold 463.50 +2.16%
Base Metals 124.20 -2.27%
Copper 159.00 -3.28%
10-year US Treasury Yield 4.27% +3.64%
Average 30-year Mortgage Rate 5.74% +.53%

Leading Sectors
Gold & Silver +7.74%
Utilities +1.85%
Computer Hardware +1.75%

Lagging Sectors
Gaming -3.63%
Alternative Energy -4.04%
Airlines -5.87%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

***Alert***

Due to a scheduling conflict I am done blogging for the day. I will post the Weekly Scoreboard this evening.

Chart of Interest

BOTTOM LINE: With all the talk about inflation it is good to keep it in perspective. Moreover, the CRB Index, which has been highly correlated to measures of inflation, has declined about 6% over the last week and a half. Capacity Utilization for August was 79.8% below the long-term average of 80.78%.

Current Account Improves, Foreign Demand for US Assets Soars, Consumer Confidence Plunges on Katrina

- The 2Q Current Account Deficit shrank to -$195.7B versus estimates of -$193.0B and -$198.7B in 1Q.
- Net Foreign Security Purchases for July rose to $87.4B versus estimates of $60.0B and $80.9B in June.
- Preliminary Univ. of Mich. Consumer Confidence for September fell to 76.9 versus estimates of 85.0 and 89.1 in August.

BOTTOM LINE: The US current-account deficit narrowed last quarter for the first time since 2003, Bloomberg reported. The deficit accounted for 6.3% of GDP, down from a record 6.5% in the first quarter. I expect the current-account deficit to improve again during 3Q.

International investors increased their net holding of US assets by $87.4 billion in July, suggesting their optimism for the world’s largest economy. The increase in net holdings of Treasury notes, corporate bonds, stocks and other financial assets was the fourth straight, the first time that’s happened since 1985, Bloomberg reported. I expect foreign demand for US assets to remain strong over the coming months.

US consumer confidence fell to the lowest since 1992 after Hurricane Katrina devastated the Gulf Coast and pushed gasoline prices to a record high, raising concern that Americans may curtail spending, Bloomberg said. The current conditions component of the index fell to 97.7 from 108.2 last month. The expectations component of the index fell to 63.6 from 76.9. The severe decline in confidence should have been expected after Katrina. I expect confidence to remain depressed next month before rebounding into year-end.