Stocks Finish Mostly Higher on Dovish Fed Comments, Falling Energy Prices and Declining Long-term Rates

Indices
S&P 500 1,309.72 +.33%
DJIA 11,382.51 +.25%
NASDAQ 2,344.95 +.49%
Russell 2000 761.40 -.50%
Wilshire 5000 13,235.29 +.22%
S&P Barra Growth 611.23 +.24%
S&P Barra Value 695.99 +.42%
Morgan Stanley Consumer 610.07 +.66%
Morgan Stanley Cyclical 847.10 -.71%
Morgan Stanley Technology 5550.12 +.89%
Transports 4,670.13 -.65%
Utilities 396.97 +1.17%
Put/Call .75 -30.56%
NYSE Arms 1.0 +9.49%
Volatility(VIX) 11.84 +.68%
ISE Sentiment 159.00 -18.88%
US Dollar 86.63 -.68%
CRB 345.69 -1.95%

Futures Spot Prices
Crude Oil 70.90 -.10%
Unleaded Gasoline 206.50 -.33%
Natural Gas 6.75 -.73%
Heating Oil 198.03 -.27%
Gold 636.50 +.03%
Base Metals 216.12 -3.58%
Copper 320.70 +.82%
10-year US Treasury Yield 5.07% +.82%

Leading Sectors
Banks +1.97%
Software +1.43%
Biotech +1.32%

Lagging Sectors
Gold & Silver -3.55%
Steel -5.46%
HMOs -5.94%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- China, which unexpectedly raised its benchmark lending rate yesterday, may follow with more measures aimed at cooling the world’s fastest-growing major economy.
- Former Enron Corp. Chairman Kenneth Lay acknowledged his son was among short sellers of the company’s stock, a group of investors the executive blamed at his fraud trial for destroying the company.
- Nokia(NOK) agreed to pay $253 million to InterDigital Communications(IDCC) to end a dispute over phone technology.
- More than 1,100 people wanted for sex crimes were arrested in a 27-state sweep of fugitives, US officials said.
- Oil fell for a fourth day on speculation that increased operating rates at US refineries will replenish gasoline supplies before the peak-demand summer driving season.
- President Bush returned to the hurricane-battered Gulf Coast today to thank volunteers helping rebuild the region.
- The Univ. of Penn.’s Wharton School, the US’s oldest business college, has the best undergraduate business program in the nation, a new poll says.
- Nasdaq Stock Market(NDAQ) raised $691.2 million through a stock sale intended to pay for its minority stake in London Stock Exchange Plc.
- President Bush’s administration said it wants authority to raise fuel-economy standards for cars.
- Microsoft(MSFT) said third-quarter profit rose 16% on orders for database programs. Earnings this year and next may miss some analysts’ estimates.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Retail longs, Semi longs and Energy-related shorts. I added to my (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, sector performance was mostly positive and volume was very heavy. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was neutral. Breadth was weak throughout the day and finished negative as cyclicals underperformed. Notwithstanding the low VIX, intraday volatility is increasing. On the positive side, outside of commodities, most sectors rose on heavy volume. Moreover, it appears to me that Bernanke has much better "vision" than Greenspan which should result in some P/E multiple expansion. His comments make a hard landing in housing less likely.

Stocks Higher into Final Hour as Energy Prices Fall and Fed Members Make Dovish Comments

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Semi longs, Computer longs and Energy-related shorts. I covered some of my (IWM) and (QQQQ) shorts today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is about even, sector performance is mostly positive and volume is very heavy. Natural gas is trading down $0.48 to $6.79. I expect it to break its recent low of $6.70 in the near future. There is no sign of a substantial pick-up in industrial demand for the commodity, even as prices have plunged 58% from highs. I expect US stocks to trade mixed-to-higher into the close from current levels on lower long-term rates and declining energy prices.

Today's Headlines

Bloomberg:
- Siemens AG, Europe’s largest engineering company, agreed to buy Diagnostics Products(DP) for about $1.86 billion in cash to bolster its medical division, the manufacturer’s most profitable unit.
- China’s central bank unexpectedly raised its benchmark interest rate for the first time since October 2004 to cool the world’s fastest-growing major economy.
- Zinc and copper tumbled and oil extended declines after China raised its key interest rate, prompting speculation increased borrowing costs will curb demand for commodities in the world’s fastest-growing economy.
- Fed Chairman Bernanke gave his strongest signal yet that the central bank may pause in its cycle of interest rate increases.
- Exxon Mobil(XOM) said first-quarter profit rose 6.9% to $1.37/share, .10 lower than analyst estimates.
- Treasuries due in five years or less jumped after Fed Chairman Bernanke said the central bank may slow the pace of interest-rate increases.

Wall Street Journal:
- IBM(IBM) will offer a smaller version of its mainframe computers, designed for small-to medium-sized businesses.
- Toyota Motor(TM), Honda Motor and Nissan Motor are giving US executives more influence over decision-making in Japan.
- Time Warner(TWX) plans to start television production of reality shows and less costly cable programs at Warner Bros.
- Fiber optic spare capacity is being gradually filled as a result of the growth in Internet traffic though there is still too much excess capacity around.
- Google’s(GOOG) new Web-based shareable calendar is easy to use and avoids the need to reload or switch to a new page every time a change is needed or an appointment has to be added.
- Verizon Wireless(VZ) has adopted strict decency standards for the music, video and games that can be downloaded onto its cell phones.

Legal Week:
- The US’s 50 biggest law firms generated combined revenue of $36 billion last year, an increase of 12% on the previous year, according to a survey.

NY Times:
- Some US companies’ shareholders for the first time are organizing as they seek more say in executive pay practices and director elections.
- Walt Disney(DIS) and CBS Corp.(CBS) have met with Univision Communications(UVN) over a possible buyout offer.
- General Electric(GE) plans to invest $75 million to build the world’s largest solar energy plant with PowerLight Corp. in Serpa, Portugal.

San Francisco Chronicle:
- California’s income tax collections for April are $1.5 billion higher than Republican Governor Schwarzenegger and independent analysts expected, and lawmakers are debating how to use the surplus.

EE Times:
- Samsung Electronics won orders to supply media processors for Apple Computer’s(AAPL) next line of iPod music players at the expense of PortalPlayer(PLAY).

Arab News:
- Saudi Arabian Mining Co. plans to increase its gold production by 20% as prices for the precious metal soar, citing the CEO.

Il Sole 24 Ore:
- UniCredit SpA’s Pioneer division will make more acquisitions in the US after the purchase of Vanderbilt Capital Advisors LLC.

Job Market Remains Healthy

BOTTOM LINE: First-time claims for unemployment benefits in the US rose last week while staying at a level that points to job growth, Bloomberg reported. The four-week moving-average of continuing claims fell to 2.43 million, the lowest in more than five years. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases, which comprises two-thirds of inflation.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- McDonald’s(MCD) plans to sell about 5 million shares in Chipotle Mexican Grill, the fast-food chain that went public in January.

Maeil Business:
- Shares of Reigncom Co., a South Korean maker of portable music players, rose on a report the company is in talks to team up with Microsoft(MSFT) to take on iPod maker Apple Computer(AAPL).

AP:
- A US Senate panel will say tomorrow that the Federal Emergency Management Agency(FEMA) can’t be repaired and should be shut down.

Late Buy/Sell Recommendations
Citigroup:
- Removed (EBAY) from Focus List.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated +.08%.
NASDAQ 100 indicated +.09%.

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Earnings of Note
Company/EPS Estimate
- (AET)/.63
- (ACS)/.86
- (ALTR)/.20
- (APCC)/.12
- (APC)/2.92
- (APA)/2.13
- (BZH)/2.27
- (BEBE)/.14
- (BDK)/1.39
- (BWA)/1.05
- (BMY)/.32
- (CAH)/.86
- (CELG)/.07
- (CHIR)/.31
- (CMCSA)/.14
- (CNX)/1.19
- (CAM)/.41
- (DECK)/.24
- (DPZ)/.37
- (DOW)/1.17
- (XOM)/1.46
- (FII)/.49
- (BEN)/1.20
- (GNW)/.65
- (HET)/.92
- (HIG)/2.11
- (ISRG)/.20
- (K)/.63
- (KLAC)/.56
- (LIZ)/.59
- (MRO)/2.35
- (MBI)/1.39
- (MFE)/.29
- (MGM)/.52
- (MSFT)/.33
- (OMX)/.33
- (PD)/2.58
- (RTN)/.53
- (RAI)/1.87
- (ROK)/.75
- (SPF)/1.28
- (HOT)/.34
- (WEN)/.46
- (WDC)/.38
- (XEL)/.31
- (XMSR)/-.55

Upcoming Splits
- (PDX) 2-for-1
- (BAM) 3-for-2

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 305K versus 303K the prior week.
- Continuing Claims are estimated to rise to 2441K versus 2439K prior.

BOTTOM LINE: Asian indices are mostly higher, boosted by auto stocks in the region. I expect US equities to open modestly higher and to fade into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.