Jobless Claims Fall Again, Wholesale Inventories Rise on Increased Confidence

- Initial Jobless Claims for last week rose to 277K versus estimates of 285K and 273K the prior week.
- Continuing Claims rose to 2557K versus estimates of 2518K and 2497K prior.
- Wholesale Inventories for December rose 1.0% versus estimates of a .5% gain and a .5% rise in November.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits rose less than forecast last week, more evidence of strength in the labor market, Bloomberg reported. The four-week moving average of 276,500 is the lowest since right after the stock market bubble burst in April 2000. The unemployment rate among those available to receive benefits, which tracks the US unemployment rate, rose to 2% from 1.9% the prior week. The labor market, while very healthy, is likely not quite as strong as recent data suggest. I continue to believe it will remain healthy over the intermediate-term without generating substantial unit labor costs increases.

Inventories at US wholesalers increased more than forecast in December as companies geared up for improving sales, Bloomberg said. Sales rose 1.0%, the most since September. The inventory-to-sales ratio remained at 1.15 months. I continue to believe inventory rebuilding will boost economic growth over the intermediate-term as executives gain more confidence in the durability of the current expansion and demand remains healthy.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Yahoo!(YHOO) helped Chinese authorities convict a “cyber-dissident” for allegedly criticizing local officials over the Internet, human-rights group Reporters Without Borders said.
- The Bank of Japan will keep pumping cash into the economy and hold interest rates at almost zero as policy makers gather more evidence that deflation has ended.
- A “suspicious substance” found in the US Senate’s Russell Office Building in Washington late today was determined to be non-threatening, and workers were allowed to return to their non-threatening, and workers were allowed to return to their offices, Capitol Police said.
- SanDisk Corp.(SNDK) today announced that it intends to accelerate the expansion of the 300-millimeter wafer fabrication facility in Yokkaichi, Japan.

London-based Times:
- GlaxoSmithKline Plc(GSK) may receive a combined US tax bill of over $12 billion.

South China Morning Post:
- At least six Chinese Internet companies will hold IPOs overseas this year, raising as much as $1 billion.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (UDR), (CRL), (LAD), (ACLS) and (IMCL).
- Reiterated Underperform on (RAI), (MAXY) and (EAT).

Night Trading
Asian Indices are unch. to +1.0% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated unch.

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Earnings of Note
Company/EPS Estimate
(AET)/1.23
(AG)/.34
(AYE)/.20
(AMLN)/-.59
(AN)/.33
(BWA)/1.19
(BYD)/.61
(BCO)/.75
(BG)/.86
(CCE)/.14
(CVH)/.80
(MAR)/.98
(MLM)/.90
(MBI)/1.38
(MET)/1.01
(PNRA)/.51
(SKYW)/.63
(TBL)/.62

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 285K versus 273K the prior week.
- Continuing Claims are estimated to rise to 2518K versus 2509K prior.

10:00 am EST
- Wholesale Inventories for December are estimated to rise .5% versus a .4% increase in November.

BOTTOM LINE: Asian indices are higher, led by technology and financial stocks in the region. I expect US equities to open modestly higher and to build on gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Led by Strong Gains in the Tech Sector

Indices
S&P 500 1,265.65 +.87%
DJIA 10,858.62 +1.01%
NASDAQ 2,266.98 +.98%
Russell 2000 721.16 +.55%
S&P Barra Growth 606.23 +.98%
S&P Barra Value 659.48 +.75%
Morgan Stanley Consumer 593.00 +.72%
Morgan Stanley Cyclical 781.84 +.94%
Morgan Stanley Technology 533.67 +1.48%
Transports 4,278.81 +1.16%
Utilities 403.27 -.30%
Put/Call .78 -17.02%
NYSE Arms .76 -46.17%
Volatility(VIX) 12.83 -5.59%
ISE Sentiment 184.00 +20.26%
US Dollar 90.43 +.21%
CRB 336.07 -.11%

Futures Spot Prices
Crude Oil 62.54 -.02%
Unleaded Gasoline 154.75 -.04%
Natural Gas 7.73 unch.
Heating Oil 166.56 unch.
Gold 553.00 -.14%
Base Metals 172.34 -.36%
Copper 227.30 -.07%
10-year US Treasury Yield 4.58% +.44%

Leading Sectors
Networking +3.38%
Wireless +2.23%
Airlines +2.19%

Lagging Sectors
Broadcasting -.46%
Steel -.60%
Coal -1.18%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (UVN), (BAC), (ENH), (RNR) and (QSFT).
- Reiterated Underperform on (UNH).

Afternoon/Evening Headlines
Bloomberg:
- General Motors(GM) and Ford Motor(F) will join with energy companies to promote the use of ethanol as an alternate to gasoline in Illinois and Missouri.
- News Corp.(NWS/A), the media company run by Rupert Murdoch, said second-quarter profit almost tripled, buoyed by asset sales and higher sales at its cable television networks.
- President Bush said that making his first-term tax cuts permanent is critical to keeping the US competitive, especially the 15% rate on dividends and capital gains set to expire in 2008.
- Whole Foods Market(WFMI) said first-quarter profit rose on gains from new store openings and sales of prepared foods.
- Google(GOOG) hired Amazon.com’s(AMZN) top Internet search executive to join its engineering team as competition intensifies with Microsoft Corp.(MSFT) and Yahoo!(YHOO).
- Crude oil traded near a five-week low in NY after a US government report showed the nation’s gasoline supplies rose for a sixth straight week to an 11-month high.

AP:
- NY Democratic Attorney General Spitzer has subpoenaed at least eight radio station companies in his investigation of whether recording companies bribed radio stations to play songs.

Boston Globe:
- About a dozen Harvard Univ. professors yesterday confronted school President Lawrence Summers, and some demanded he resing.

BOTTOM LINE: The Portfolio finished higher today on gains in my Networking longs, Computer longs and Semi longs. I exited the remainder of my (IWM)/(QQQQ) shorts and added to my existing longs in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was heavy. Measures of investor anxiety were lower into the close. Overall, today’s market performance was positive. I would like to see better breadth on a follow-through move higher tomorrow. Technology shares outperformed substantially today, doubling gains in the broad market. This is a big positive, especially with commodity stock underperformance.

Stocks Sharply Higher Into the Final Hour, Led by Gains in Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Networking longs, Computer longs and Semi longs. I covered some of my (IWM)/(QQQQ) shorts this morning, thus leaving the Portfolio 75% 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 heavy. The rotation into tech from commodity stocks is a big positive. It could lead to more short-term weakness, however longer-term it is necessary for strong broad market performance. I expect US stocks to trade mixed-to-higher into the close from current levels on lower commodity prices, short-covering and buying in the technology sector.

Today's Headlines

Bloomberg:
- Protective Life(PL) agreed to buy JPMorgan Chase’s insurance business for about $1.2 billion in cash.
- AU Optronics(AUO), the world’s third-largest maker of liquid-crystal displays for computers and televisions, posted profit in the fourth quarter that beat estimates after demand for flat-panel televisions soared.
- Al Michaels, play-by-play announcer on ABC’s “Monday Night Football” since 1986, won’t be working on the show when it moves to cable-channel ESPN this year.
- Nortel Networks(NT) may pay more than $2.4 billion in cash and stock to end shareholder lawsuits stemming from the company’s accounting fraud.
- Crude oil is little changed and gasoline is falling to a one-month low after the EIA reported that US motor-fuel stockpiles surged to the highest in 11 months.

Wall Street Journal:
- The US Senate Finance Committee is probing whether Fannie Mae(FNM) and Freddie Mac(FRE) might have inappropriately used their charitable foundations and other non-profit entities to dodge campaign-financing laws to lobby Congress.
- Wal-Mart Stores(WMT) plans to revamp some stores to appeal to wealthier customers, citing John Menzer, vice chairman of US stores.
- A US Bankruptcy Court judge ordered an ethics probe into whether lawyer David Boies’ firm should have disclosed partners’ links to companies used by the firm’s client, Adelphia Communications.
- The US is providing drugs to 471,000 AIDS patients in the developing world, marking a big expansion in the country’s aid program.
- Nuance Communications(NUAN), whose speech-recognition software is used by clients including Verizon Wireless(VZ) and Wal-Mart Stores(WMT), agreed to buy Dictaphone(DCTA) for $357 million.
- Democrats in the US Senate plan to use a parliamentary tactic to force Republicans to boost taxes by as much as $30 billion in return for a two-year extension of lower capital-gains and dividend taxes.
- PanAmSat Holding(PA), which is being bought by Intelsat Ltd., will become the first satellite operator to distribute programming it owns in the US.

NY Times:
- Univision Communications(UVN), the no. 5 US television network and the no. 1 US Spanish-language network, may sell itself.

USA Today:
- The Bush administration will announce a new anti-drug initiative that includes urging more US states to set up databases that can track people who get multiple prescriptions of frequently abused medications such as OxyContin.

Tex Report:
- Taiwan’s coal imports fell 35% in January to 3.75 million metric tons from the same month a year ago.

Aviation Week & Space Technology:
- Boeing(BA) will start to build an extended and more fuel-efficient version of its single-aisle 737 aircraft.

Interfax:
- Foreign oil companies in Turkmenistan plan to raise output 30% this year to 3 million tons, citing unidentified officials from the oil and gas ministry.