BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Semi longs, Medical longs and Retail longs are being offset by losses in my Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is slightly below average. Bloomberg just reported that commodity hedge funds plunged 11.8% in July. This was the third consecutive monthly loss and the worst monthly loss since tracking began in 2001, according to the Center of International Securities and Derivatives Markets. Commodity funds are now down 13.1% from year-ago levels despite a historical run-up in commodity prices. There are now 500 commodity funds in the U.S. compared to 180 at the start of October 2004. I suspect redemptions from many commodity-related funds over the coming months will further pressure prices for commodities. I continue to believe the unwinding of a speculative mania in commodities does not mean the global economy is slowing substantially. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, more economic optimism and lower long-term rates.
Thursday, August 31, 2006
Stocks Slightly Higher into Final Hour on Economic Optimism
Today's Headlines
Bloomberg:
- Scientists genetically altered cells in the body’s immune system to carry a receptor that recognizes melanoma cancer at the molecular level and marks it for destruction, a study says.
- A late surge in back-to-school spending helped many US retailers post August sales gains that topped analysts’ estimates.
- Downtown Manhattan’s office vacancy rate is poised to fall below 10% for the first time since the 9/11 terrorist attacks, according to a forecast by Jones Lang LaSalle, the largest US commercial real estate broker.
- Federal Reserve Chairman Ben S. Bernanke said “strong” growth in US productivity will probably go on for “some time” as companies and industries make better use of computers to raise workers’ per-hour output.
- Goldcorp Inc., Canada’s third-largest producer of the metal, agreed to buy Glamis Gold for about $8.6 billion as a four-year rally spurs mining companies to consolidate.
- Iran has continued uranium enrichment in the past month, a signal the Islamic Republic will ignore today’s UN Security Council deadline to suspend the nuclear work and trigger a debate on sanctions.
Wall Street Journal:
- Kellogg(K), Tyson Foods(TSN) and scores of other companies are adapting snacks to boost sales of school breakfast foods under federally funded programs for children from low-income families.
- Novatel’s(NVTL) new laptop ExpressCard versions for cellular broadband networks are easy to use and work well though they provide different access to high-speed networks.
NY Times:
- A new US National Park Service policy will emphasize conservation of cultural and natural resources in favor of recreational pursuits.
NY Post:
- NY traffic will be as congested as it is in LA in coming decades, citing a study by the Reason Foundation.
AP:
- BP Plc(BP) may be able to resume full production of oil from Prudhoe Bay, Alaska, sooner than expected by diverting the oil around 16 miles of corroded pipelines, citing an executive.
- The new superintendent of the US Military Academy at West Point says applications for the next school year are rising after several years of decline since September 11.
Facts magazine:
- UBS AG(UBS), Europe’s largest bank by assets, dropped business in Iran and Syria this year due to business risks and “economic considerations.”
- Scientists genetically altered cells in the body’s immune system to carry a receptor that recognizes melanoma cancer at the molecular level and marks it for destruction, a study says.
- A late surge in back-to-school spending helped many US retailers post August sales gains that topped analysts’ estimates.
- Downtown Manhattan’s office vacancy rate is poised to fall below 10% for the first time since the 9/11 terrorist attacks, according to a forecast by Jones Lang LaSalle, the largest US commercial real estate broker.
- Federal Reserve Chairman Ben S. Bernanke said “strong” growth in US productivity will probably go on for “some time” as companies and industries make better use of computers to raise workers’ per-hour output.
- Goldcorp Inc., Canada’s third-largest producer of the metal, agreed to buy Glamis Gold for about $8.6 billion as a four-year rally spurs mining companies to consolidate.
- Iran has continued uranium enrichment in the past month, a signal the Islamic Republic will ignore today’s UN Security Council deadline to suspend the nuclear work and trigger a debate on sanctions.
Wall Street Journal:
- Kellogg(K), Tyson Foods(TSN) and scores of other companies are adapting snacks to boost sales of school breakfast foods under federally funded programs for children from low-income families.
- Novatel’s(NVTL) new laptop ExpressCard versions for cellular broadband networks are easy to use and work well though they provide different access to high-speed networks.
NY Times:
- A new US National Park Service policy will emphasize conservation of cultural and natural resources in favor of recreational pursuits.
NY Post:
- NY traffic will be as congested as it is in LA in coming decades, citing a study by the Reason Foundation.
AP:
- BP Plc(BP) may be able to resume full production of oil from Prudhoe Bay, Alaska, sooner than expected by diverting the oil around 16 miles of corroded pipelines, citing an executive.
- The new superintendent of the US Military Academy at West Point says applications for the next school year are rising after several years of decline since September 11.
Facts magazine:
- UBS AG(UBS), Europe’s largest bank by assets, dropped business in Iran and Syria this year due to business risks and “economic considerations.”
Personal Incomes Surge 7.1%, Spending Healthy, Inflation Decelerates, Jobless Claims Still Low, Manufacturing Slows Modestly
- Personal Income for July rose .5% versus estimates of a .5% gain and a .6% increase in June.
- Personal Spending for July rose .8% versus estimates of a .8% gain and a .4% increase in June.
- The PCE Core for July rose .1% versus estimates of a .2% increase and a .2% gain in June.
- Initial Jobless Claims for last week were 316K versus estimates of 315K and 318K the prior week.
- Continuing Claims rose to 2486K versus estimates of 2478K and 2483K prior.
- The Chicago Purchasing Manager for August fell to 57.1 versus estimates of 57.0 and a reading of 57.9 in July.
- Factory Orders for July fell .6% versus estimates of a .9% fall and an upwardly revised 1.5% gain in June.
- Personal Spending for July rose .8% versus estimates of a .8% gain and a .4% increase in June.
- The PCE Core for July rose .1% versus estimates of a .2% increase and a .2% gain in June.
- Initial Jobless Claims for last week were 316K versus estimates of 315K and 318K the prior week.
- Continuing Claims rose to 2486K versus estimates of 2478K and 2483K prior.
- The Chicago Purchasing Manager for August fell to 57.1 versus estimates of 57.0 and a reading of 57.9 in July.
- Factory Orders for July fell .6% versus estimates of a .9% fall and an upwardly revised 1.5% gain in June.
BOTTOM LINE: US consumer spending rose the most since January and a measure of inflation increased less than expected, suggesting a prolonged economic expansion that will let the Fed keep interest rates steady through year-end, Bloomberg said. The report showed Americans’ incomes rose 7.1%, more than twice most inflation measures. Disposable income, the money consumers have after taxes, rose a healthy 6% from year-ago levels. Spending on long-lasting items such as autos and furniture surged 1.6%, the most since January. The PCE Core, the Fed’s favorite inflation gauge, rose a smaller-than-expected .1% in July. I expect income and spending growth to stay around average long-term rates over the intermediate-term. I continue to believe inflation concerns have peaked for this cycle.
The number of US workers filing first-time applications for state jobless benefits fell last week, Bloomberg reported. The four-week moving-average rose to 317,500 from 316,500 the prior week. The unemployment rate among those able to receive benefits, which tracks the US unemployment rate, held steady at 1.9%. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.
Manufacturing growth in the Chicago area slowed this month as automakers curbed production and some businesses were wary of investing in new equipment and machinery, Bloomberg said. The prices paid index fell to 75.2 from 86.8 the prior month. The new orders component of the index fell to 59.6 from 60.0 the prior month. The employment component of the index rose to 55.1 from 50.5 the prior month. I continue to believe manufacturing will remain around average levels as companies rebuild depleted inventories.
Slower demand for aircraft and automobiles pushed down US factory orders in July for the first time in three months, Bloomberg said. Orders gained 1.1%, excluding volatile transportation equipment orders, spurred by corporate spending on computers and machinery. Bookings for autos fell 7% as carmakers have responded to declining demand for gas-guzzling SUVs. Orders for capital goods excluding aircraft and defense, a gauge of future business spending, rose a healthy 1.6% versus a .9% gain in June. The inventory-to-shipments ratio rose to 1.17 months versus an all-time low of 1.15 months in May. Factory order should remain relatively healthy over the intermediate-term.
Wednesday, August 30, 2006
Thursday Watch
Late-Night Headlines
Bloomberg:
- The yuan may fall for the first day this week after China ordered lenders to hold more foreign currency at the central bank for the first time since 2004, limiting investment and easing pressure on the currency to rise.
- Japan’s industrial production unexpectedly fell .9%.
- A UN deadline for Iran to halt uranium enrichment expires today with the country’s president expressing confidence that the Security Council won’t be able to force it into line.
Economic Daily News:
- Taiwan’s new car sales may drop to a 50-year low in 2006 on rising bad debt levels and oil prices, citing industry officials.
Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (EBAY).
Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.14%.
NASDAQ 100 indicated +.19%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (BF/A)/.71
- (CAKE)/.28
- (CIEN)/.00
- (DLM)/.04
- (DG)/.15
- (ESL)/.42
- (HRB)/-.29
- (HNZ)/.54
- (JOYG)/.58
- (KWD)/.28
- (NVDA)/.29
- (OVTI)/.40
- (TIF)/.32
- (PAY)/.26
- (WIND)/.05
- (ZLC)/.02
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Personal Income for July is estimated to rise .5% versus a .6% gain in June.
- Personal Spending for July is estimated to rise .8% versus a .4% increase in June.
- The PCE Core for July is estimated to rise .2% versus a .2% gain in June.
- Initial Jobless Claims for last week are estimated to rise to 315K versus 313K the prior week.
- Continuing Claims are estimated to fall to 2478K versus 2492K prior.
10:00 am EST
- Chicago Purchasing Manager for August is estimated to fall to 57.0 versus 57.9 in July.
- Factory Orders for July are estimated to fall .9% versus a 1.2% increase in June.
Bloomberg:
- The yuan may fall for the first day this week after China ordered lenders to hold more foreign currency at the central bank for the first time since 2004, limiting investment and easing pressure on the currency to rise.
- Japan’s industrial production unexpectedly fell .9%.
- A UN deadline for Iran to halt uranium enrichment expires today with the country’s president expressing confidence that the Security Council won’t be able to force it into line.
Economic Daily News:
- Taiwan’s new car sales may drop to a 50-year low in 2006 on rising bad debt levels and oil prices, citing industry officials.
Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (EBAY).
Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.14%.
NASDAQ 100 indicated +.19%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (BF/A)/.71
- (CAKE)/.28
- (CIEN)/.00
- (DLM)/.04
- (DG)/.15
- (ESL)/.42
- (HRB)/-.29
- (HNZ)/.54
- (JOYG)/.58
- (KWD)/.28
- (NVDA)/.29
- (OVTI)/.40
- (TIF)/.32
- (PAY)/.26
- (WIND)/.05
- (ZLC)/.02
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Personal Income for July is estimated to rise .5% versus a .6% gain in June.
- Personal Spending for July is estimated to rise .8% versus a .4% increase in June.
- The PCE Core for July is estimated to rise .2% versus a .2% gain in June.
- Initial Jobless Claims for last week are estimated to rise to 315K versus 313K the prior week.
- Continuing Claims are estimated to fall to 2478K versus 2492K prior.
10:00 am EST
- Chicago Purchasing Manager for August is estimated to fall to 57.0 versus 57.9 in July.
- Factory Orders for July are estimated to fall .9% versus a 1.2% increase in June.
BOTTOM LINE: Asian indices are higher, boosted by technology stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.
Stocks Finish Higher on Diminishing Inflation Concerns and Lower Long-term Rates
Indices
S&P 1,304.27 unch.
DJIA 11,382.91 +.11%
NASDAQ 2,185.73 +.62%
Russell 2000 720.58 +.80%
Wilshire 5000 13,044.81 +.09%
S&P Barra Growth 606.37 +.12%
S&P Barra Value 695.74 -.12%
Morgan Stanley Consumer 640.81 +.04%
Morgan Stanley Cyclical 797.09 +.07%
Morgan Stanley Technology 510.51 +1.01%
Transports 4,270.68 -.42%
Utilities 437.17 -1.13%
Put/Call 1.03 +6.19%
NYSE Arms 1.22 +30.91%
Volatility(VIX) 12.22 -.49%
ISE Sentiment 95.00 -34.48%
US Dollar 84.97 +.01%
CRB 327.09 -.20%
Futures Spot Prices
Crude Oil 70.31 +.86%
Unleaded Gasoline 181.50 +1.44%
Natural Gas 6.25 -9.03%
Heating Oil 196.00 +.86%
Gold 626.80 +.11%
Base Metals 227.00 -.52%
Copper 334.00 -.37%
10-year US Treasury Yield 4.75% -.46%
Leading Sectors
Disk Drives +2.14%
Semis +1.80%
Networking +1.36%
Lagging Sectors
Energy -1.62%
Oil Service -2.12%
Oil Tankers -2.17%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
- None of note
Afternoon/Evening Headlines
Bloomberg:
- Merck(MRK) won the first reversal of a damage award over its Vioxx painkiller when a judge said a $51 million verdict was “grossly excessive.”
- Verizon Communications(VZ) is dropping plans for a high-speed Internet service surcharge after customers complained and US regulators questioned the fee.
- BHP Billiton(BHP) reached a preliminary agreement in Chile with union leaders at its Escondida copper mine, signaling a possible end to a 24-day strike that disrupted production.
- The ozone layer, the atmospheric shield that protects life on Earth from harmful ultraviolet rays, is on the mend after decades of decline tied to pollution, according to a study to be published in the Sept. 9 Journal of Geophysical Research. At current recovery rates, ozone in the stratosphere could return to 1980 levels by mid-century.
- US Treasuries advanced after the government’s sale of $14 billion of five-year notes met the highest demand in nine years. Yields fell to a five-month low.
- Natural gas plunged 8.5% as lower temperatures cut US power-plant demand for the fuel.
S&P 1,304.27 unch.
DJIA 11,382.91 +.11%
NASDAQ 2,185.73 +.62%
Russell 2000 720.58 +.80%
Wilshire 5000 13,044.81 +.09%
S&P Barra Growth 606.37 +.12%
S&P Barra Value 695.74 -.12%
Morgan Stanley Consumer 640.81 +.04%
Morgan Stanley Cyclical 797.09 +.07%
Morgan Stanley Technology 510.51 +1.01%
Transports 4,270.68 -.42%
Utilities 437.17 -1.13%
Put/Call 1.03 +6.19%
NYSE Arms 1.22 +30.91%
Volatility(VIX) 12.22 -.49%
ISE Sentiment 95.00 -34.48%
US Dollar 84.97 +.01%
CRB 327.09 -.20%
Futures Spot Prices
Crude Oil 70.31 +.86%
Unleaded Gasoline 181.50 +1.44%
Natural Gas 6.25 -9.03%
Heating Oil 196.00 +.86%
Gold 626.80 +.11%
Base Metals 227.00 -.52%
Copper 334.00 -.37%
10-year US Treasury Yield 4.75% -.46%
Leading Sectors
Disk Drives +2.14%
Semis +1.80%
Networking +1.36%
Lagging Sectors
Energy -1.62%
Oil Service -2.12%
Oil Tankers -2.17%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
- None of note
Afternoon/Evening Headlines
Bloomberg:
- Merck(MRK) won the first reversal of a damage award over its Vioxx painkiller when a judge said a $51 million verdict was “grossly excessive.”
- Verizon Communications(VZ) is dropping plans for a high-speed Internet service surcharge after customers complained and US regulators questioned the fee.
- BHP Billiton(BHP) reached a preliminary agreement in Chile with union leaders at its Escondida copper mine, signaling a possible end to a 24-day strike that disrupted production.
- The ozone layer, the atmospheric shield that protects life on Earth from harmful ultraviolet rays, is on the mend after decades of decline tied to pollution, according to a study to be published in the Sept. 9 Journal of Geophysical Research. At current recovery rates, ozone in the stratosphere could return to 1980 levels by mid-century.
- US Treasuries advanced after the government’s sale of $14 billion of five-year notes met the highest demand in nine years. Yields fell to a five-month low.
- Natural gas plunged 8.5% as lower temperatures cut US power-plant demand for the fuel.
BOTTOM LINE: The Portfolio finished higher today on gains in my Networking longs, Semi longs and Commodity shorts. I did not trade 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 below-average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bullish. The 10-year yield finished near session lows at 4.75%. Despite the reversal higher in oil, oil stocks finished about 2.0% lower, which is an interesting development. I suspect oil has one last period of strength during Sept. before an accelerated downward move begins. Tech outperformed again today, with select semis trading especially well. The Morgan Stanley Tech Index has surged 13.4% over the last six weeks. I expect tech stocks to continue to outperform over the intermediate-term. Tomorrow's same-store-sales reports should meet lowered expectations, however forward guidance will likely remain conservative.
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