Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- Finance ministers from the G-8 focused on how to lower oil prices and ensure their access to energy supplies as ways to insulate the world economy from high fuel costs.
- Nigeria was promised $25 million in aid from the US to combat Africa’s first reported outbreak of avian influenza in poultry.
- Israeli Prime Minister Sharon was taken into surgery after doctors discovered a life-threatening deterioration of his digestive tract.
- The US Northeast’s first major snowstorm descended on the region today, causing flight cancellations and power outages from Virginia to Massachusetts.
- US Secretary of State Condoleezza Rice said the outrage in Muslim nations over cartoons depicting the prophet Muhammad might “spin out of control” unless the governments of those countries take steps to halt the violence.
- The US dollar may rise for a sixth straight week against the euro, the longest stretch since August 2000, as traders speculate on relative strength in the US versus other industrialized economies.
- Australia’s central bank lowered its forecast for underlying inflation and said rising exports and investment will fuel growth in the Asia-Pacific region’s fifth largest economy.
- Iran called on US Secretary of State Condoleezza Rice and Denmark’s government to apologize for accusing Iran and Syria of fomenting Muslim anger over the publications of cartoons depicting the Prophet Muhammad.
- Crude oil is falling for a second day in NY on signs production will rise faster than demand this year, bolstering stockpiles.

Wall Street Journal:
- Merrill Lynch(MER) is in advanced talks to buy a “large” stake in BlackRock Inc. for $8 billion.

Washington Post:
- Vice President Cheney said a new tax analysis division in the Treasury Department will provide more evidence that tax cuts increase US revenue.

NY Times:
- US officials said Mexican criminal gangs have increased attacks on American border patrol agents who have steeped up attempts to check the flow of illegal immigrants and drugs.
- The US Justice Dept. has expanded its probe into whether any laws were broken when information about the government’s classified wiretapping program was leaked to the NY Times.

Corpus Christi Caller-Times:
- Vice President Cheney accidentally shot and injured his 78-year-old hunting partner while quail hunting in Texas yesterday.

AP:
- Lynn Swann, a former All-Pro wide receiver for the NFL’s Pittsburgh Steelers, was endorsed by Pennsylvania’s Republican Party as its candidate for governor.

Time Magazine:
- Google’s(GOOG) founders say they worry about rival Microsoft(MSFT) and prefer to seem “confused” rather than discuss the Internet search engine’s strategy.

Nielsen/Netratings:
- The internet search market grew 55% last year. Google’s(GOOG) share of that market rose to 48.8%, up 5.7 percentage points, while Yahoo’s(YHOO) fell .3 percentage points to 21.4%. MSN’s share declined to 10.9%, down 3.1 percentage points.

Financial Times:
- Amazon.com(AMZN) and Google(GOOG) are planning to challenge Apple Computer by offering a music-download service.
- BT Group Plc, Microsoft(MSFT) and Virgin Mobile Holdings Plc are set to start Europe’s first digital television service for mobile phones.
- Home Depot(HD) is in talks to buy a stake in Orient Home, which would market its entry into China’s $50 billion home-improvement market.
- Microsoft(MSFT) is to start its legal defense against the European Commission’s latest antitrust charges this week.
- Yahoo! has called Internet, media and communication companies to work together with the US government to combat Chinese censorship on the Internet, citing Michael Callahan, Yahoo’s General Consul.

Sunday Times:
- Exxon Mobil(XOM) plans to start drilling for natural gas off the west coast of Ireland.

AFP:
- The United Iraqi Alliance, the group that won the most seats in the December elections in Iraq, voted for incumbent Prime Minister Ibrahim al-Jaafari as their candidate for the same post in the new government.

Efe:
- Acciona SA, a Spanish construction company, plans to invest $262 million in a solar energy plant in Nevada.

Neuen Ruhr Zeitung:
- Libyan leader Colonel Muammar al-Qaddafi criticized Europe for spreading “hate” with cartoons of the prophet Muhammad.

Middle East Economic Digest:
- Saudi Arabia wants to begin exploration work in the Red Sea this year.
- Caterpillar Corp.(CAT) and Siemens AG are among companies bidding for a $30 million contract to help restart oil exports from northern Iraq to Syria.
- Saudi Arabia and Kuwait are seeking bids for a contract worth $400 million to further increase oil production from wells located in an area bordering the two Gulf states.

Weekend Recommendations
Barron's:
- Had positive comments on (TYC).
- Had negative comments on (GOOG).

Goldman Sachs:
- Reiterated Outperform on (GILD), (DNA), (CEM), (CAL), (PFE), (ECL) and (SGMS).
- Reiterated Underperform on (UAUA).

Smith Barney:
- Reiterated Buy on (GOOG), target $490.

Night Trading
Asian indices are -1.25% to -.50% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.12%.

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Earnings of Note
Company/Estimate
(A)/.30
(BBBB)/.26
(BOBE)/.25
(BRO)/.24
(CD)/.23
(FWRD)/.42
(HOC)/1.38
(MCY)/1.06
(SVM)/.10
(ELOS)/.46
(BER)/1.04

Upcoming Splits
- (EME) 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian Indices are lower, dragged down by commodity shares in the region. I expect US stocks to open modestly lower and to rise later in the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

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

Economic reports for the week include:

Mon. - None of note
Tues. - Advance Retail Sales, Business Inventories
Wed. - Empire Manufacturing, Net Foreign Security Purchases, Industrial Production, Bernanke Report on Economy & Policy, NAHB Housing Market Index
Thur. - Import Price Index, Housing Starts, Initial Jobless Claims, Philly Fed.
Fri. - Producer Price Index, Univ. of Mich. Consumer Sentiment

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

Mon. - Agilent Technologies(A), Bob Evans Farms(BOBE), Brown & Brown(BRO), Cendant Corp.(CD), SeviceMaster(SVM)
Tues. - Abercrombie & Fitch(ANF), BISYS Group(BSG), Cephalon Inc.(CEPH), Deere & Co.(DE), Expeditors Intl.(EXBD), First American Corp.(FAF), Itron Inc.(ITRI), Jarden Corp.(JAH), Las Vegas Sands(LVS), Marsh & McLennan(MMC), Masco Corp.(MAS), Transocean Inc.(RIG), Waste Management(WMI)
Wed. - Applied Materials(AMAT), Biogen Idec(BIIB), Career Education(CECO), Caremark Rx(CMX), Expedia Inc.(EXPE), Genzyme Corp.(GENZ), Hewlett-Packard(HPQ), Jones Apparel(JNY), Mohawk Industries(MHK), Network Appliance(NTAP), Office Depot(ODP), Outback Steakhouse(OSI), Penn National Gaming(PENN), PF Chang’s(PFCB), Synopsys(SNPS)
Thur. - Baker Hughes(BHI), Cleveland-Cliffs(CLF), CNA Financial(CNA), Dell Inc.(DELL), Dillard’s Inc.(DDS), Intuit(INTU), JC Penney(JCP), Laboratory Corp.(LH), Loews Corp.(LTR), Nvidia(NVDA), Priceline.com(PCLN), Target Corp.(TGT), Teekay Shipping(TK), Watson Pharmaceuticals(WPI), Weight Watchers(WTW), XM Satellite Radio(XMSR)
Fri. - Beckman Coulter(BEC), Campbell Soup(CPB), CBRL Group(CBRL), PG & E Corp.(PCG), Psychiatric Solutions(PSYS), RadioShack Corp.(RSH), Sirius Satellite(SIRI), Terex Corp.(TEX), Zale Corp.(ZLC)

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

Mon. - UBS Global Healthcare Services Conference
Tue. - Lehman Brothers Industrial Select Conference, UBS Global Healthcare Services Conference
Wed. - Lehman Brothers Industrial Select Conference, Prudential Automotive Meetings, JP Morgan Small-cap Conference, UBS Global Healthcare Services Conference, UBS Natural Gas & Utilities Conference, Merrill Lynch Insurance Conference
Thur. - Merrill Lynch Insurance Conference, UBS Natural Gas & Utilities Conference, Lehman Brothers Industrial Select Conference, CIBC Institutional Conference
Fri. - CIBC Institutional Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on falling inflation worries, healthy consumer-related data, better housing data, less irrational earnings pessimism and positive Bernanke comments. My trading indicators are now giving bearish signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,266.99 +.23%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was slightly negative considering the positive economic data, a strengthening tech sector, a stronger dollar and falling commodity prices. The advance/decline line was about even, sector performance was mixed and volume was above average on the week. Measures of investor anxiety were lower. However, the AAII % Bulls fell to 40.19% and is now at below average levels, which is a positive. The average 30-year mortgage rate rose to 6.24% which is still only 103 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield increased 6 basis points on the week on positive economic data and subsiding fears over the Iranian nuclear situation.

Unleaded Gasoline futures fell again and have collapsed 50% from September highs even as refinery utilization remains below normal as a result of the hurricanes last year, 24% of Gulf of Mexico oil production remains shut-in and fears over Iranian production disruptions persist. Natural gas inventories fell less than expected this week. Moreover, supplies are now 38.0% above the 5-year average, approaching an all-time record high for this time of year, even as 16% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 54% in 8 weeks. Gold fell on the week as the US dollar strengthened, Iranian nuclear fears subsided and energy prices declined.

The mania for many commodities waned this week. It appears to me that the CRB Index has made a significant intermediate-term top. I still believe prices for many commodities have been driven higher by fear and record capital inflows into commodity funds, rather than fundamentals. I continue to expect global energy demand destruction, decelerating economic growth, a firm dollar and a significant increase in supplies later in the year to push oil prices substantially lower from current levels. The EIA is currently projecting US oil demand growth of 1.6% for all of 2006, which is highly unlikely given last year’s decline. If in fact commodity prices have peaked, international emerging growth economies will slow, thus leading to a substantial slowdown in the demand for emerging market stocks. While this may cause some more turbulence in US markets in the short-run, it is a huge positive for US stocks longer-term.

Technology stocks outperformed this week, led by networking shares, after Cisco Systems’(CSCO) relatively upbeat report. Best Buy(BBY) boosted forward guidance which also buoyed tech. I expect the technology sector to outperform through year-end. S&P 500 earnings growth for the fourth quarter is now on pace to rise 14.6% year-over-year, more than double the long-term average. This would be the 15th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. Moreover, companies have sufficiently lowered the bar as to allow for better-than-expected 1Q results. As of now, analysts are projecting 9.8% earnings growth for the first quarter, still very good by historic standards. The ECRI Weekly Leading Index fell slightly, but is still forecasting continued healthy US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,266.99 +.23%
DJIA 10,919.05 +1.16%
NASDAQ 2,261.88 -.03%
Russell 2000 717.13 -.98%
S&P Equity Long/Short Index 1,154.87 -.83%
S&P Barra Growth 601.72 -.08%
S&P Barra Value 661.46 +.56%
Morgan Stanley Consumer 593.53 +.72%
Morgan Stanley Cyclical 782.57 +.35%
Morgan Stanley Technology 531.80 +1.01%
Transports 4,322.00 +1.37%
Utilities 405.08 -.07%
S&P 500 Cum A/D Line 7,909 +1.0%
Bloomberg Crude Oil % Bulls 33.92 -14.19%
Put/Call .68 -35.85%
NYSE Arms 1.13 -6.61%
Volatility(VIX) 12.87 -.69%
ISE Sentiment 188.00 +18.24%
AAII % Bulls 40.19 -10.09%
AAII % Bears 34.58 +3.75%
US Dollar 90.55 +.76%
CRB 331.60 -4.13%
ECRI Weekly Leading Index 138.00 -.14%

Futures Spot Prices
Crude Oil 61.84 -5.23%
Unleaded Gasoline 146.21 -12.45%
Natural Gas 7.32 -15.23%
Heating Oil 164.26 -7.59%
Gold 554.20 -3.53%
Base Metals 167.35 -4.82%
Copper 222.90 -4.46%
10-year US Treasury Yield 4.58% +1.33%
Average 30-year Mortgage Rate 6.24% +.16%

Leading Sectors
Networking +2.96%
Telecom +2.41%
Semis +2.20%
Insurance +1.57%
Wireless +1.46%
Banks +1.35%

Lagging Sectors
Steel -4.21%
Oil Service -4.81%
Energy -5.0%
Gold & Silver -6.15%
Coal -6.25%

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

*5-Day % Change