Wednesday Watch

Late-Night Headlines
Bloomberg:
- US stocks had their biggest monthly gain of the year with the S&P 500 rising 3.2% in October, a typically weak month for equities, on strong corporate profits, falling interest rates and declining energy prices.
- President Bush accused Massachusetts Democratic Senator John Kerry of insulting US troops in Iraq and called on him to apologize. While campaigning in California yesterday for gubernatorial candidate Phil Angelides, Kerry said: “Education, if you make the most of it, you study hard, you do your homework and you make an effort to be smart, you can do well. And if you don’t, you get stuck in Iraq.” House Republican Majority Leader John Boehner of Ohio and Republican Senator John McCain of Arizona were among those who also criticized Kerry’s comments on the troops. Senator Kerry refused to apologize, saying it was “a botched joke.”
- The US needs to re-examine the Sarbanes-Oxley Act that tightened regulation of US companies, Democratic Senator Charles Schumer and NYC Republican Mayor Michael Bloomberg said in a joint editorial in the Wall Street Journal to be published tomorrow.
- Altria Group’s(MO) Philip Morris and other US cigarette makers won a delay of a court-imposed ban on the marketing of “light” cigarettes the industry claimed would cost it hundreds of millions of dollars.
- Jack Welch, former CEO of GE(GE) said he’s interested in buying the Boston Globe from the New York Times(NYT).
- China’s new sense of urgency about thwarting North Korea’s nuclear ambitions was decisive in pressuring Kim Jong Il’s government to return to multinational talks, experts and US officials said.
- R.R. Donnelley & Sons(RRD), North America’s largest printer, agreed to acquire Banta Corp. for about $1.3 billion in cash to gain sales to publishing, catalog and direct-marketing customers.
- Hedge funds are turning to a new outpost in the drive to boost sagging returns: Mongolia. Rapid economic growth, driven by copper and gold mining, is attracting investors willing to tolerate corruption and unpredictable regulation. Fund managers are taking on greater risk in small emerging markets once considered exotic as returns lag behind those of stock indices.
- The NYSE(NYX) plans to close one of its trading floor’s five rooms over the next 18 months as more shares change hands electronically.
- Romanian stocks may already be done rising in anticipation of the country’s entry into the European Union, and Bulgarian shares may be next.

Efe:
- Venezuelan trade with Cuba is expected to almost double this year to about $2.3 billion, citing an interview with Venezuela’s Integration and Foreign Trade Minister.

South China Morning Post:
- Aluminum Corp. of China(ACH) plans to cut the spot price of alumina by 15.3% effective today.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CBG), raised target to $37.
- Upgraded (CHTR) to Buy, target $3.25.
- Reiterated Buy on (MOS), raised target to $23.

Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.07%.

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
- (ASF)/.39
- (AGN)/.94
- (DOX)/.49
- (BEC)/.66
- (CI)/2.17
- (CNO)/.41
- (COCO)/.03
- (DVN)/1.52
- (D)/1.56
- (EDS)/.20
- (FIC)/.57
- (GRMN)/.50
- (GES)/.72
- (INSP)/-.08
- (IN)/.03
- (LVS)/.29
- (LAZ)/.46
- (MMC)/.35
- (MA)/1.07
- (MXIM)/.33
- (MYL)/.32
- (NEM)/.43
- (NBL)/1.25
- (PMTC)/.36
- (PTEN)/1.08
- (PRU)/1.48
- (REY)/.41
- (COL)/.76
- (RUTH)/.13
- (SPW)/.84
- (SUN)/2.19
- (TK)/.98
- (VCLK)/.14
- (TWX)/.20
- (TWP)/.36
- (WYN)/.54
- (ZBRA)/.33
- (WCG)/.95

Upcoming Splits
- (ACAP) 3-for-2

Economic Releases
8:15 am EST
- The ADP Employment Change for October is estimated at 108K versus 78K in September.

10:00 am EST
- Construction Spending for September is estimated to remain unchanged versus a .3% rise in August.
- The ISM Manufacturing Index for October is estimated to rise to 53.0 versus a reading of 52.9 in September.
- The ISM Prices Paid Index for October is estimated to fall to 58.0 versus a reading of 61.0 in September.
- Pending Home Sales for September are estimated to fall .9% versus a 4.3% gain in August.

10:30 am EST:
- Bloomberg consensus estimates call for a weekly crude oil build of 2,600,000 barrels versus a 3,205,000 barrel drawdown the prior week. Gasoline supplies are expected to fall 925,000 barrels versus a 2,759,000 decline the prior week. Distillate inventories are estimated to fall by 1,175,000 barrels versus a 1,418,000 decline the prior week. Finally, Refinery Utilization is expected to rise .73% versus a .10% decline the prior week.

Afternoon:
- Total Vehicle Sales for October are estimated to fall to 16.2M versus 16.6M in September.
- Domestic Vehicle Sales for October are estimated to fall to 12.6M versus 12.9M in September.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technology shares in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Near Session Highs on Short-Covering and Lower Interest Rates

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

BOTTOM LINE: The Portfolio finished about even today as gains in my Semi longs and Computer longs offset losses in my Telecom longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was neutral today as the advance/decline line finished slightly lower, most sectors rose and volume was slightly above average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was modestly bullish. The bears again failed to gain downside traction in the face of potential downside catalysts. The 10-year yield finished at session lows, falling almost 7 basis points to 4.6%. Oil is .37 higher, recouping this morning's losses, but still trades very poorly considering numerous bullish catalysts. Today's action was very good for the bulls. It allows the market to work off its overbought state and bears to reload without resulting in any technical damage. The market continues to trade exceptionally well ahead of significant uncertainty regarding the election outcome next week. The S&P 500 has risen about 17% over the last year due mainly to historically strong earnings growth. The forward P/E on the S&P 500 has barely risen. It now stands at a very reasonable 15.7. A few months ago many believed earnings growth this quarter would plunge. Instead, with much of the S&P 500 reporting, earnings are coming in 17.2% higher. This marks the 17th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. I still believe P/E multiple expansion will continue, and likely accelerate, over the intermediate term, pushing stocks substantially higher from current levels.

Stocks Slightly Lower into Final Hour on Political Concerns and Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Telecom longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is modestly lower, most sectors are declining and volume is slightly above average. The Johnson Redbook same-store sales index rose 3.4% year-over-year this week vs. a 3.4% rise the prior week. The long-term average is a gain of about 2.9%. There is still no evidence, in my opinion, that a meaningful slowdown in consumer spending is underway, even as this remains a focal point for the many bears. Housing sales and net home equity extractions have been falling substantially for over a year. The Case-Shiller housing futures are still projecting about a 5% decline in the average home price over the next seven months. Considering that the median house has appreciated over 50% during the last few years, with record high U.S. home ownership, this would be considered a "soft landing." Home values are more important than stock prices to the average American. However, the median home has barely declined in value after a record run-up, as the S&P 500 has soared 17% over the last year. I continue to believe the overall negative effects of housing on the U.S. economy are currently being exaggerated by the bears. I still expect holiday shopping sales to exceed estimates. I continue to believe a healthy labor market, falling energy prices, relatively low long-term interest rates, decelerating inflation, a rising stock market and less irrational pessimism will keep boosting consumer spending over the intermediate term as housing stabilizes at relatively high levels. The Morgan Stanley Retail Index (MVRX) has soared 22.2% in about 14 weeks vs. a 11.5% gain in the S&P 500 over the same timeframe. I still expect continued out-performance by the sector through year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on falling long-term rates and short-covering.

Today's Headlines

Bloomberg:
- Heating oil futures fell to a 15-month low on above-average inventories and temperatures that are forecast to rise in the US Northeast.
- Crude oil is dropping a second day on forecast that warmer weather in the US will curb fuel demand in the biggest energy consumer and bolster above-average stockpiles.
-CB Richard Ellis Group, the world’s largest commercial real estate broker, agreed to buy rival Trammell Crow for $1.8 billion in cash to more than double its property management business.
- Air America Radio, the bankrupt liberal talk and news radio network, is negotiating with possible buyers of most of its assets, a company lawyer said.

Wall Street Journal:
- Burger King Holdings(BKC) plans to test cooking without trans fats in some restaurants in 90 days.
- DuPont, Syngenta and Monsanto are using selective breeding to make crops better at reproducing and tolerating cold, drought, and insects.
- Goldman Sachs(GS), Lehman Brothers Holdings and other investment banks are building up their capability to finance private-equity buyouts, taking business away from commercial banks.

NY Times:
- Archeus Capital, a hedge fund whose assets have fallen to $700 million from $3 billion a year, ago is closing shop. Gary K. Kilberg and Peter G. Hirsch, two former Salomon Brothers bond traders who started the fund, told investors in a letter yesterday the reason for the fund’s closure was that its administrator hadn’t accurately maintained records.
- China cut off oil exports to North Korea last month amid criticism of North Korea’s nuclear program, citing Chinese trade stats.

NY Post:
- Neiman Marcus Group(NMG/A) has acquired the 44% stake in Kate Spade owned by founders Kate and Andy Spade and two partners.

Reuters:
- Boeing Co.(BA) said it has gotten orders for 100 planes from mainland China so far in 2006.

Atlanta Journal Constitution:
- A Goldman Sachs(GS) team gained four competitors vying for the right to build and operate Georgia’s first private for-profit toll lanes.

Washington Post:
- Some Democrats fear they will be left divided by a rivalry between Representatives Steny Hoyer and John Murtha over who should be House majority leader if Democrats win the House in the mid-term elections.

Xinhua News Agency:
- The six-party talks on North Korea’s weapons program will resume “soon,” citing the Chinese Foreign Ministry.

Wages and Benefits Rise, Confidence Falls Slightly, Chicago PMI Declines, Prices Paid Plunges

- The 3Q Employment Cost Index rose 1.0% versus a .9% gain in 2Q.
- Consumer Confidence for October fell to 105.4 versus estimates of 108.0 and an upwardly revised 105.9 in September.
- The Chicago Purchasing Manager report for October fell to 53.5 versus estimates of 58.0 and a reading of 62.1 in September.

BOTTOM LINE: Wages and benefits paid to American workers last quarter by the most since 2004 as the unemployment rate matched a five-year low, Bloomberg said. Benefit costs rose 3.3% year-over-year in 3Q versus a 3.4% yearly gain in 2Q. A recent Manpower survey showed that almost a third of the businesses surveyed said they would have hired even more people this year if they could find the talent. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

An index of confidence among US consumers fell slightly after a strong rebound the prior month, Bloomberg reported. Optimism about consumers’ present situation declined to a still high 124.7 from 128.3 the prior month. The expectations component of the index, which measures consumer attitudes about the next six months, rose to 92.6 from 91 the prior month. The percentage of people expecting more jobs to be available in the coming months rose to 15.2% versus 14.7% the prior month. The average price of gasoline fell to $2.20/gallon on Oct. 24, the lowest since December and down .53/gallon from Sept. 4 prices, according to the American Automobile Assoc. Rising incomes, stock prices and job growth are also helping boost sentiment. The S&P 500 has surged 17% over the last year. I continue to believe consumer confidence will make new cycle highs over the intermediate-term as stocks rise further, inflation decelerates, interest rates remain low, the job market remains healthy, housing stabilizes at relatively high levels, gas prices fall further and irrational pessimism lifts.

Business activity in the Chicago region slowed to year-ago levels, Bloomberg reported. The New Orders component of the index fell to 59.2 from a high 67.4 the prior month. The Inventory Index rose to 67.21 from 63.5 the prior month. The Employment Component of the index jumped to 57 from 50.8 in September, the highest since April 2005. As well, the Prices Paid component of the index fell to 62.5, the lowest since June 2005 and down 30% from cycle highs, from 69.8 the prior month. I expect manufacturing to begin to rebound next quarter as auto production cutbacks subside.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote