US Economic Growth Streak Best Since 1986

- Final 3Q GDP rose 4.1% versus estimates of a 4.3% gain and prior estimates of a 4.3% increase.
- Final 3Q Personal Consumption rose 4.1% versus estimates of a 4.2% gain and prior estimates of a 4.2% increase.
- Final 3Q GDP Price Index rose 3.3% versus estimates of a 3.0% increase and prior estimates of a 3.0% gain.

BOTTOM LINE: The US economy grew at a 4.1% annual rate in the third quarter, substantially higher than the 20-year average of 3.1%, Bloomberg reported. The economy has now grown by 3% or more for 10 straight quarters, the best streak since 1986. I expect US growth to slow to average levels next year, which will be viewed positively by equity investors.

Links of Interest

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Market Internals
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IBD New America
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I-Watch Sector Overview
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Real-time Intraday Chart/Quote

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Chevron said hurricanes in the Gulf of Mexico that shut oil wells and the company’s biggest refinery probably cut fourth-quarter profit by more than $600 million.
- Crude oil in NY is little changed, after rising yesterday for the first day in five, on expectations a US government report will show supplies dropped.
- Billionaire investor Kirk Kerkorian, GM’s third-biggest shareholder, sold almost a fifth of his 9.9% stake in the company after the investment lost one-third of its value.
- Time Warner agreed to sell Google a stake in AOL to help revive the Web unit’s sales.
- Calpine, the US power plant owner saddled with more than $17 billion in debt, filed for bankruptcy protection after soaring natural gas prices left it unable to make loan and bond payments.
- Citigroup is leading a bid of at least $2.7 billion for 85% of Guangdong Development Bank, the first state-owned Chinese lender to offer investors a majority stake.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on TYC and GOOG.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.18%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
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Before the Bell CNBC Video(bottom right)
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Earnings of Note
Company/EPS Estimate
BBBY/.45
BMET/.43
KMX/.212
CMC/1.18
FDO/.31
FDX/1.40
MLHR/.39
JOYG/.45
MU/.11
PAYX/.29
RHAT/.09

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 3Q GDP is estimated at 4.3% versus prior estimates of 4.3%.
- Final 3Q Personal Consumption is estimated at 4.2% versus prior estimates of 4.2%.
- The Final GDP Price Index is estimated at 3.0% versus prior estimates of 3.0%.

BOTTOM LINE: Asian indices are higher, boosted by exporters in the region after the US dollar rose. I expect US equities to open mixed and to trade modestly higher into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Finish Slightly Lower on GM Worries and a Bounce in Energy Prices

Indices
S&P 500 1,259.62 -.02%
DJIA 10,805.55 -.29%
NASDAQ 2,222.42 -.01%
Russell 2000 672.78 +.08%
DJ Wilshire 5000 12,580.03 +.02%
S&P Barra Growth 603.35 -.09%
S&P Barra Value 651.84 +.05%
Morgan Stanley Consumer 599.25 -.21%
Morgan Stanley Cyclical 778.43 -.23%
Morgan Stanley Technology 524.81 -.20%
Transports 4,103.12 -.12%
Utilities 413.22 +.26%
Put/Call 1.14 +22.58%
NYSE Arms 1.13 +25.54%
Volatility(VIX) 11.19 -1.67%
ISE Sentiment 247.00 +6.01%
US Dollar 90.79 +1.02%
CRB 325.81 -.09%

Futures Spot Prices
Crude Oil 58.18 +.15%
Unleaded Gasoline 151.32 +.29%
Natural Gas 14.12 +.30%
Heating Oil 172.20 +.10%
Gold 494.90 -.42%
Base Metals 151.09 -.68%
Copper 202.00 unch.
10-year US Treasury Yield 4.46% +.49%

Leading Sectors
Oil Service +2.07%
Gaming +1.75%
HMOs +1.37%

Lagging Sectors
Disk Drives -.79%
Networking -1.19%
Gold & Silver -1.39%

Evening Review
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Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
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GuruFocus.com
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After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on S.

Afternoon/Evening Headlines
Bloomberg:
- The Transport Workers Union may try to take over its striking NY Local 100 and seek a settlement with the Metropolitan Transport Authority.
- Richard McCabe is retiring as chief market analyst at Merrill Lynch after 43 years with the NY-based company. Mary Ann Bartels, Merrill’s equity-trading strategist, will succeed him.
- Electronic Arts cut its sales and profit forecasts for this quarter and next.
- Gold fell to $495 an ounce, down $50 in just over a week, after US producer prices tumbled in November by the most since April 2003, reducing the appeal of the precious metal as a hedge against inflation.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Energy-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished lower, sector performance was mixed and volume was average. Measures of investor anxiety were mixed into the close. Overall, today's action was mildly bearish. Investors likely need to see GM stabilize, natural gas fall further, some more positive holiday shopping data points and a quick end to the NY transit strike before a meaningful push higher in stocks can occur.

Stocks Mixed Mid-day as Bounce in Energy Prices Offsets More Positive Economic Data

Indices
S&P 500 1,260.17 +.02%
DJIA 10,813.79 -.21%
NASDAQ 2,224.70 +.09%
Russell 2000 675.49 +.48%
DJ Wilshire 5000 12,589.06 +.09%
S&P Barra Growth 603.67 -.04%
S&P Barra Value 652.05 +.08%
Morgan Stanley Consumer 599.76 -.12%
Morgan Stanley Cyclical 780.01 -.03%
Morgan Stanley Technology 524.68 -.23%
Transports 4,117.59 +.24%
Utilities 413.59 +.35%
Put/Call 1.13 +21.51%
NYSE Arms 1.14 +24.91%
Volatility(VIX) 11.15 -1.85%
ISE Sentiment 252.00 +8.15%
US Dollar 90.84 +1.07%
CRB 325.74 -.11%

Futures Spot Prices
Crude Oil 57.90 +.98%
Unleaded Gasoline 151.40 -.84%
Natural Gas 13.98 -.45%
Heating Oil 172.20 +1.10%
Gold 495.80 -2.0%
Base Metals 151.09 -.68%
Copper 202.10 +.40%
10-year US Treasury Yield 4.46% +.53%

Leading Sectors
Oil Service +2.13%
Gaming +1.87%
HMOs +1.68%

Lagging Sectors
Disk Drives -.84%
Telecom -.89%
Gold & Silver -1.94%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Energy-related shorts. I covered some of my IWM and QQQQ shorts this morning and added to my ELOS, ANF and BRCM longs, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is slightly higher, most sectors are higher and volume is about average. Measures of investor anxiety are mixed. Overall, today’s market action is neutral considering more positive economic data and the bears inability to extend yesterday’s sell-off. The Johnson Redbook same-store sales index rose 3.4% year-over-year last week vs. a 3.3% rise the prior week. This week's gain is up from a 1.5% increase in late April, and it's the 33rd week in a row that the index has risen 3% or more. The Morgan Stanley Retail Index (MVRX) has returned 14.3% since late October vs. a 7.6% gain for the S&P 500. I expect US stocks to trade mixed-to-higher into the close on short-covering.

Today's Headlines

Bloomberg:
- Japan’s stock market will be among the world’s “worst performers” in the next three months as a strengthening yen lowers the value of exporters’ overseas sales, according to Goldman Sachs’ Kenneth Courtis.
- New Yorkers woke up to a transit strike and set out to travel to work without public transportation for the first time in a quarter of a century.
- A Pennsylvania school district cannot require the teaching of intelligent design in high school biology classes, a federal judge ruled in a case that may influence other challenges to the theory of evolution.
- Chevron said it discovered oil in the deepest well ever drilled in the Gulf of Mexico in a joint effort with three other companies including Canada’s Nexen, the field operator.
- Shares of GM fell as much as 6.8% to a 23-year low.
- The US dollar climbed the most in six months against the euro and advanced versus the yen as a report showing gains in US housing spurred optimism for US assets.
- Exxon Mobil and BP Plc were sued by a local development agency in Alaska that alleged the companies withheld natural gas from US markets.
- Morgan Stanley increased bets in commodity markets by 53% in the fiscal fourth quarter, faster than in any other market.
- Gold is falling below $500/oz. for the first time since Nov. 30.

Wall Street Journal:
- Ford Motor plans to support efforts by environmental groups to stabilize global carbon dioxide emissions, becoming the first automaker to back such programs.
- Apollo Advisers, a private equity firm, is close to agreeing to buy the plastics and adhesives unit of Tyco International for about $1 billion.
- News Corp.’s Fox Film Entertainment said yesterday it will start a unit making films and other entertainment distributed via the Internet and cell phones for teenagers and young adults.

NY Times:
- Google will experiment with advertisements using logos and graphics on its Web site, a change of policy prompted by talks with Time Warner’s AOL unit.

Reuters:
- US Defense Secretary Donald Rumsfeld ordered a cut in the number of American troops in Afghanistan to about 16,000 from the current 19,000 by next spring.

CNBC:
- Steve Forbes, CEO of Forbes Inc., said the US economy will enter a recession by 2008 if Congress doesn’t extend tax cuts on dividends and capital gains.
- Sprint Nextel agreed to buy Nextel Partners for about $28.50 a share.