Market Week in Review

S&P 500 1,195.90 -2.68%



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was negative considering the substantial fall in energy prices, better-than-expected economic data and stable long-term rates. The advance/decline line fell, almost every sector declined and volume was above average on the week. Measures of investor anxiety were mostly higher. However, the AAII % Bulls rose sharply for the week and is now slightly above average levels. In my opinion, while measures of investor fear are elevated from an intermediate-term standpoint, they are still registering too much complacency in the short-term for a sustainable rally to occur. While stocks may have put in a bottom this week, another short period of weakness is likely which should set the stage for a strong year-end rally. The average 30-year mortgage rate rose to 5.98%, but is still only 77 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 2 basis points on the week as economic data surprised on the upside and multiple Fed members spoke of the need to stop inflation before it becomes a problem. In my opinion, it is very reckless for the Fed to speak incessantly about inflation considering it is only near average levels by historic standards and a large component of inflation is expectations. The US dollar fell after European central bankers spoke of the need to raise rates for the first time this cycle. Gold rose on strong demand from China, a weaker dollar and inflation worries. Unleaded Gas futures have now plunged almost 40% since September highs even as refinery utilization remains at only 69.8%. Moreover, natural gas saw another inventory build this week even as 64% of daily Gulf of Mexico production remains shut-in. I continue to believe global energy demand destruction, which began a number of months ago, has accelerated meaningfully over the last few weeks and will send energy prices substantially lower over the intermediate-term.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,195.90 -2.68%
DJIA 10,292.31 -2.61%
NASDAQ 2,090.35 -2.85%
Russell 2000 644.33 -3.51%
DJ Wilshire 5000 11,941.59 -2.78%
S&P Equity Long/Short Index 1,072.91 +.09%
S&P Barra Growth 572.42 -2.50%
S&P Barra Value 619.33 -2.85%
Morgan Stanley Consumer 578.48 -1.50%
Morgan Stanley Cyclical 705.80 -3.37%
Morgan Stanley Technology 495.10 -2.26%
Transports 3,678.75 -1.65%
Utilities 413.82 -4.29%
S&P 500 Cum A/D Line 6,799.00 -9.46%
Bloomberg Crude Oil % Bulls 27.0% -23.27%
Put/Call .93 +13.41%
NYSE Arms .88 +3.53%
Volatility(VIX) 14.59 +22.4%
ISE Sentiment 160.00 -5.89%
AAII % Bulls 50.0 +56.84%
US Dollar 89.17 -.30%
CRB 325.21 -2.33%

Futures Spot Prices
Crude Oil 61.84 -6.59%
Unleaded Gasoline 182.92 -13.72%
Natural Gas 13.23 -5.19%
Heating Oil 196.01 -7.76%
Gold 477.80 +1.83%
Base Metals 133.61 +3.17%
Copper 180.90 +2.78%
10-year US Treasury Yield 4.35% +.46%
Average 30-year Mortgage Rate 5.98% +1.18%

Leading Sectors
Airlines +6.36%
Gold & Silver -.05%
Restaurants -.38%

Lagging Sectors
Energy -7.63%
Oil Service -7.79%
Steel -8.20%

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

*5-Day % Change

Stocks Modestly Higher Mid-day as Long-term Rates Move Lower

Indices
S&P 500 1,194.40 +.24%
DJIA 10,295.27 +.07%
NASDAQ 2,090.16 +.29%
Russell 2000 644.24 +.75%
DJ Wilshire 5000 11,927.21 +.30%
S&P Barra Growth 571.89 +.22%
S&P Barra Value 618.25 +.25%
Morgan Stanley Consumer 578.93 -.21%
Morgan Stanley Cyclical 704.35 +.85%
Morgan Stanley Technology 494.89 +.50%
Transports 3,674.61 +.68%
Utilities 411.88 +.79%
Put/Call .87 -18.69%
NYSE Arms .79 -28.68%
Volatility(VIX) 14.58 -2.54%
ISE Sentiment 149.00 -9.70%
US Dollar 89.09 +.48%
CRB 324.35 +.15%

Futures Spot Prices
Crude Oil 61.25 -.18%
Unleaded Gasoline 180.50 -1.93%
Natural Gas 13.32 -.41%
Heating Oil 194.00 -.55%
Gold 477.30 +.48%
Base Metals 133.61 +.64%
Copper 180.90 +1.46%
10-year US Treasury Yield 4.34% -.95%

Leading Sectors %
Steel +2.34%
Gold & Silver +1.77%
Energy +1.73%

Lagging Sectors
Restaurants -.74%
REITs -1.04%
Broadcasting -1.24%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Retail longs and Medical longs are offsetting losses in my Steel shorts and Energy-related shorts. I have not traded this morning, thus leaving the Portfolio 50% net long. The tone of the market is positive as the advance/decline line is substantially higher, most sectors are rising and volume is about average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral given the decline in long-term rates and natural gas prices and recent market losses. The average 30-year mortgage rate rose to 5.98% this week. This is still slightly down from 6.04% on April 1 and only 77 basis points away from record lows set in June 2003. The Homebuilding Index is down 12.3% from its all-time high set July 29. The yield on the 10-year Treasury note is falling to 4.34% today, even with the much better-than-expected jobs report. It appears to me that the 10-year will rally from here, at least short-term. I expect US stocks to trade mixed-to-lower from current levels into the close as worries over earnings offset lower rates.

Today's Headlines

Bloomberg:
- Energy stocks are headed for their biggest weekly losses in more than three years as falling demand sent crude-oil prices tumbling.
- Warren Buffett’s Berkshire Hathaway said Ronald Ferguson, former CEO of its General Re reinsurance unit, may be sued by the Securities and Exchange Commission.
- The International Atomic Energy Agency and its director general, Egyptian Mohamed ElBaradei, won this year’s Nobel Peace prize for their work to prevent the military use of nuclear energy even as Iran and North Korea threaten to destabilize the world with recent advances in their nuclear capabilities.
- US 10-year Treasuries are rising after yields exceeded 4.4%, the highest since April and a level some traders said represented a buying opportunity.
- Delphi stock and bonds plunged to record lows on speculation that the biggest US maker of auto parts will file for bankruptcy as soon as today and as prospects dimmed for concessions from the United Auto Workers union.
- A US appeals court rejected a bid by Research in Motion for another chance to challenge a patent infringement ruling that may block the Canadian company from selling its BlackBerry e-mail device in the US.
- The US dollar is rising for the first day in three after the US economy’s job losses last month were less than a quarter of the number forecast by economists.

Wall Street Journal:
- Time Warner and Microsoft restarted talks from earlier this year about a partnership between Internet units AOL and MSN.
- New Orleans may have to destroy as many as 50,000 homes as a result of damage caused by Hurricane Katrina.

Washington Post:
- Former FBI Director Louis Freeh said he didn’t trust President Clinton when he was in office and stayed in his post as long as he did so Clinton couldn’t name his successor, citing a forthcoming book and appearance on CBS’ “60 minutes” by Freeh.

NY Times:
- Al-Qaeda deputy leader Ayman al-Zawahiri has warned Abu Musab al-Zarqawi, the group’s self-described leader in Iraq, that videotaped beheadings posted on the Internet and attacks on Iraqi civilians may undermine their cause.

Chicago Tribune:
- Real estate prices for retailers on Chicago’s State Street, a major downtown shopping area, have risen in the past year as construction approaches for two new projects.

San Francisco Chronicle:
- San Francisco’s vacancy rate for commercial real estate fell to 13.1% in the third quarter, the eighth straight quarterly decline since the beginning of 2003.

Handelsblatt:
- Hewlett-Packard plans acquisitions in areas including enterprise storage systems, printers and services.

Hurricanes' Effects on Job Creation Less-than-expected, Inventories Rise

- The Change in Non-farm Payrolls for September was -35K versus estimates of -150K and an upwardly revised 211K in August.
- The Change in Manufacturing Payrolls for September was -27K versus estimates of -33K and an upwardly revised -9K in August.
- The Unemployment Rate for September rose to 5.1% versus estimates of 5.0% and 4.9% in August.
- Average Hourly Earnings for September rose .2% versus estimates of a .2% increase and a .1% gain in August.
- Wholesale Inventories for August rose .5% versus estimates of a .4% increase and a .1% rise in July.

BOTTOM LINE: Hurricane Katrina pushed the US unemployment rate up to 5.1% in September as the economy lost 35,000 jobs, fewer than expected and evidence that the storm wasn’t strong enough to derail the expansion, Bloomberg reported. The hurricanes Katrina and Rita may have eliminated up to 480,000 jobs temporarily, according to the latest estimates from the Congressional Budget Office. I expect job growth to rebound sharply over the coming months, but not back to recent highs.

Stockpiles at US wholesalers rose in August by the most in four months as companies rebuilt inventories to meet growing demand before the two hurricanes ripped into the Gulf Coast, Bloomberg reported. The inventory-to-sales ratio fell to 1.17 months. I expect inventory rebuilding to add to GDP growth through year-end.

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