Weekly Outlook

Click here for The Week Ahead by Reuters

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

Economic reports for the week include:

Mon. - New Home Sales
Tues. - Preliminary 4Q GDP, Preliminary 4Q Personal Consumption, Preliminary 4Q GDP Price Index, Chicago Purchasing Manager, Richmond Fed Index, Consumer Confidence, Existing Home Sales
Wed. - Personal Income, Personal Spending, PCE Core, Construction Spending, ISM Manufacturing, ISM Prices Paid, Total Vehicle Sales
Thur. - Initial Jobless Claims
Fri. - Univ. of Mich. Consumer Confidence, ISM Non-Manufacturing

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

Mon. - Cablevision Systems(CVC), Conseco Inc.(CNO), Hormel Foods(HRL), Lowe’s(LOW), Newmont Mining(NEM), Universal Health(UHS), Warnaco Group(WRNC)
Tues. - Autodesk(ADSK), BJ’s Wholesale(BJ), Cal Dive(CDIS), Ceradyne(CRDN), CommScope(CTV), Crown Castle(CCI), Deckers Outdoor(DECK), Eaton Vance(EV), Evergreen Solar(ESLR), HJ Heinz(HNZ), O’Reilly Automotive(ORLY), Payless ShoeSource(PSS), Scientific Games(SGMS), Staples(SPLS), Telephone & Data(TDS), Vornado Realty(VNO), Williams Cos(WMB)
Wed. - ADC Telecom(ADCT), American Eagle(AEOS), Autozone(AZ), Chico’s FAS(CHS), Copart(CPRT), Flour Corp.(FLR), Foot Locker(FL), Hovnanian Enterprises(HOV), Iron Mountain(IRM), Kroger(KR), Liz Claiborne(LIZ), McDermott Intl.(MDR), Medco Health(MHS), Omnivision Tech(OVTI), Pacific Sunwear(PSUN), Pall Corp.(PLL), Papa John’s(PZZA), Petsmart(PETM), Rowan Cos(RDC), Saks Inc.(SKS), SPX Corp.(SPW)
Thur. - Checkpoint Systems(CKP), Costco Wholesale(COST), Del Monte Foods(DLM), Novell Inc.(NOVL), Univision Communiciations(UVN)
Fri. - Serono SA(SRA), Tekelec(TKLC), Terex Corp.(TEX)

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

Mon. - CIBC Israeli Tech Conference, Citigroup Global Healthcare Conference, Bear Stearns Media Conference, Goldman Sachs Tech Symposium
Tue. - Citigroup Global Healthcare Conference, CSFB Networking Conference, Wachovia Homebuilding Conference, Goldman Tech Symposium, Jeffries Internet Conference, Bear Stearns Media Conference, Merrill Lynch Internet Conference, Merrill Lynch Global Communications Forum
Wed. - Goldman Tech Symposium, CIBC Gaming Conference, CSFB Networking Conference, Citigroup Global Healthcare Conference, Merrill Global Communications Forum, Bear Stearns Media Conference, Jeffries Wireless Broadband Conference, Merrill Lynch Internet Conference, Wachovia Homebuilders Conference
Thur. - CSFB Networking Conference, CSFB Truck Builders Conference, Merrill Lynch Internet Conference, Citigroup Utilities Conference, CIBC Gaming Conference
Fri. - Citigroup Utilities Conference, UBS Defense IT Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on mostly positive economic data, good earnings reports, lower energy prices and short-covering. My trading indicators are still giving mixed signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,289.43 unch.*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was slightly bullish considering the mostly positive economic data, above-expectations CPI, modest rise in long-term rates and increase in energy prices. The advance/decline line was about even, most sectors rose and volume was below average on the week. Measures of investor anxiety were mostly higher. However, the AAII % Bulls rose to 43.21%, but is still only around average levels, which is a positive. The average 30-year mortgage rate fell to 6.26% which is only 105 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield rose 3 basis points on the week as the CPI rose above estimates and economic data was mostly positive.

Unleaded Gasoline futures bounced for the week, but have collapsed 47% 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/Nigerian production disruptions persist. Natural gas inventories fell slightly more than expected this week. However, supplies are now 48.0% above the 5-year average, approaching an all-time record high for this time of year, even as 15% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 55% in 10 weeks. Many oil bulls point to the potential for a supply disruption as the main reason oil prices remain extremely elevated while fundamentals for the commodity deteriorate. I would point out that natural gas bulls used the same rationale before the historic supply disruptions related to the hurricanes. This did not prevent a collapse in the price of natural gas. I expect deteriorating fundamentals for oil to trump fear over the intermediate-term, thus sending prices substantially lower. Gold rose modestly on the CPI report and increase in energy prices.

Small-caps continue to outperform as the Russell 2000 has already gained almost 10% for the year. Technology stocks underperformed for the week on worries over slowing growth at Intel(INTC) and Dell(DELL). However, more signs of increased corporate spending on tech were evident in this week’s economic data. S&P 500 earnings growth for the fourth quarter was up about 15.0% year-over-year, more than double the long-term average. This is 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. I continue to believe the S&P 500’s forward p/e multiple will expand back to around 19 by year-end, thus helping to push the index about 15% higher for the year. The ECRI Weekly Leading Index rose and is still forecasting healthy, but decelerating, US economic activity. I expect US GDP growth to peak for the year this quarter, rising a brisk 4-4.5%. Growth should moderate to more average levels of around 3% the remainder of the year.

*5-day % Change

Chart of Interest

BOTTOM LINE: The CPI should realign itself with the Core CPI as commodity prices fall from current elevated levels. I expect the secular trend of disinflation to reassert itself over the intermediate-term.

Weekly Scoreboard*

Indices
S&P 500 1,289.43 unch.
DJIA 11,061.85 -.53%
NASDAQ 2,287.04 -.33%
Russell 2000 736.60 +.64%
Wilshire 5000 12,990.60 +.17%
S&P Equity Long/Short Index 1,157.04 +.72%
S&P Barra Growth 609.82 -.21%
S&P Barra Value 676.08 +.22%
Morgan Stanley Consumer 604.78 +.09%
Morgan Stanley Cyclical 792.81 -.98%
Morgan Stanley Technology 532.03 -1.74%
Transports 4,435.59 +.48%
Utilities 411.98 +1.38%
S&P 500 Cum A/D Line 8,526 unch.
Bloomberg Crude Oil % Bulls 32.65 +14.28%
Put/Call .89 +25.35%
NYSE Arms 1.06 +76.66%
Volatility(VIX) 11.46 -.17%
ISE Sentiment 179.00 -10.50%
AAII % Bulls 43.21 +7.54%
AAII % Bears 28.40 -20.47%
US Dollar 90.61 -.01%
CRB 328.90 +1.95%
ECRI Weekly Leading Index 137.40 +.44%

Futures Spot Prices
Crude Oil 62.91 +3.98%
Unleaded Gasoline 155.06 +9.58%
Natural Gas 7.31 -.50%
Heating Oil 172.67 +5.61%
Gold 561.00 +1.06%
Base Metals 166.11 +3.06%
Copper 221.20 +1.42%
10-year US Treasury Yield 4.57 +.66%
Average 30-year Mortgage Rate 6.26 % -.32%

Leading Sectors
Gold & Silver +2.28%
Steel +2.28%
Defense +2.09%
Oil Service +2.06%
I-Banks +1.71%

Lagging Sectors
Telecom -1.32%
Retail -1.35%
Computer Hardware -2.29%
Disk Drives -2.56%
Semis -3.92%

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

*5-Day % Change

Stocks at Session Highs into Final Hour as Bears Fail Again to Capitalize on Morning Weakness

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Semi longs and Networking longs. I exited my IWM and QQQQ shorts, thus leaving the Portfolio 100% 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 below average. Natural gas closed floor trading at session lows, down about 5% to $7.05. Recently, oil bulls have been saying to ignore supply/demand fundamentals and focus on potential production disruptions. Natural gas bulls said the same thing before last year's hurricanes. Not only did we get disruptions, they were historic in magnitude. Meanwhile, natural gas supplies are 48% above the five-year average with 16% of production still shut-in. Natural gas has collapsed 55% from highs. Deteriorating oil fundamentals will trump fear over the intermediate-term. I expect US stocks to trade modestly higher into the close from current levels on short-covering.

Today's Headlines

Bloomberg:
- NBC Universal’s Olympics television coverage isn’t only losing out to “American Idol” and “Desperate Housewives.” The No. 3 US network, owned by GE(GE), is getting beaten by its own Web site.
- The UK has placed a $58 million order with Baxter International(BAX) and Chiron Corp.(CHIR) for 3.5 million doses of avian influenza vaccine.
- New Jersey may become the second US state to allow gay marriage, and the first to allow homosexuals living outside the state to wed, because of a case heard this month by the state’s highest court.
- Time Warner(TWX) said Ted Turner and Carla Hills will step down from the board of directors after the company’s annual shareholders meeting.
- The IRS found a “disturbing” amount of political activity before the 2004 elections among non-profit organizations in violation of rules on tax-exempt entities.
- Chicago had the biggest surge in hotel acquisitions among US cities last year, pushing it ahead of Washington and Miami as investors headed for a market where demand outpaced construction.
- Crude oil is jumping more than $2/bbl. after Saudi Arabian forces repelled a suicide attack on the Abqaiq processing center, which handles about 7% of world supply.
- A judge considering a halt in US BlackBerry e-mail service criticized both sides in the case for not settling their patent dispute and said he will rule later on a shutdown.

Wall Street Journal:
- National Grid Plc has offered to acquire NY utility and natural-gas distributor KeySpan Corp.(KSE) for about $7.3 billion in an effort to increase business in the northeastern part of the US.
- Hard Rock Hotel’s $1.2 billion plan to add condominiums and hotel rooms to its Las Vegas property has been postponed because of offers to buy the site.
- Chicago Mercantile Holdings is seeking to start trading of products in the credit derivatives field.
- Goldman Sachs(GS), Bank of America(BAC) and Bear Stearns(BSC) may buy a minority stake in the Chicago Stock Exchange.
- More and more mutual funds classified as US stocks funds are investing in companies abroad, which complicates portfolio planning for investors.

Business Week:
- Advance Publications’ GQ magazine plans to encourage readers of the mean’s monthly to subscribe to a text messaging service that may transmit notes about events, private sales and giveaways to cell phones.

LA Times:
- The Univ. of Southern California announced yesterday it received a $25 million donation from billionaire Eli Broad’s Broad Foundation to construct a stem cell research facility.

NY Times:
- The US’s largest companies expect a $4 billion subsidy for their retiree health plans over the next four years under Medicare’s new prescription drug benefit, citing a study by Credit Suisse First Boston.