Consumer Confidence Improves

- Preliminary Univ. of Mich. Consumer Confidence for May rose to 88.7 versus estimates of 86.2 and a reading of 87.1 in April.

BOTTOM LINE: Confidence among US consumers unexpectedly rose in May as strength in the labor and stock markets helped overcome high gasoline prices. The Expectations component of the index rose to 79 this month from 75.9 the prior month. The Current Conditions component fell slightly to 103.8 from 104.6 the prior month. The average price of gas rose to $3.13/gallon yesterday, about .30/gallon more than the average the prior month. I continue to believe consumer confidence readings will head back towards cycle highs later this year as stocks rise further, housing sales stabilize at relatively high levels, interest rates remain low, inflation decelerates further, gas prices fall substantially and the job market remains healthy.

Links of Interest

Market Snapshot
Detailed Market Summary
Quick Summary
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
Intraday Chart/Quote

Friday Watch

Late-Night Headlines
Bloomberg:
- Precision Castparts Corp.(PCP), a maker of metal forgings used in jet engines, may replace MedImmune Inc.(MEDI) in the S&P 500 Index, according to an analyst at Wachovia Capital Markets LLC.
- Bill Gross, manager of the world’s biggest bond fund, is sticking to his call that the Federal Reserve will cut interest rates this year.
- The yen headed for a fourth weekly decline against the US dollar as signs of weakening growth in Japan are likely to keep the Bank of Japan from lifting borrowing costs anytime soon.
- Copper prices fell to their lowest in eight weeks in Shanghai on concern that rising production and inventories in China, the world’s biggest consumer of the metal, may signal a glut in the market. The world’s copper surplus will rise to 520,000 metric tons next year from 280,000 tons this year, the Lisbon-based International Copper Study Group said.
- Crude oil was little changed near a three-week high in NY after rising more than $2 a barrel yesterday on speculation refiners won’t restore below-average US gasoline stockpiles before the summer demand peaks.

Wall Street Journal:
- General Electric(GE) is close to selling its plastics unit for about $11 billion. Saudi Basic Industries, known as Sabic, and Basell, a unit of Access Industries, are the remaining suitors after a long auction process.

Business Week:
- Current and former employees at Wall Street firms including Bear Stearns(BSC), Morgan Stanley(MS), Goldman Sachs(GS) and Merrill Lynch(MER) are being investigated over alleged kickbacks involving short sellers.

Financial Times:
- Britons bought goods worth $6.9 over the Internet last month, an increase of 55% compared with April 2006, citing Interactive Media in Retail Group. Interactive Media had expected UK internet sales to increase 39% this year.

Financial Express:
- The Tata Group is in talks with JC Penney(JCP) and Woolworths Ltd. for its retail business. Infiniti Retail, a fully owned unit of Tata Sons Ltd., may seek a technical alliance with JC Penney for its apparel segment and with Woolworths for its supermarket division.

Late Buy/Sell Recommendations
Citigroup:
- Rated (GET) Buy, target $68.
- Raised (RVBD) to Buy, target raised to $52.
- Raised (VZ) to Buy from Sell, target raised to $48.
- Reiterated Buy on (KYPH), target $54.
- Reiterated Buy on (AKAM), target $68.

CSFB:
- Investors should use options to bet the US dollar will extend gains against the British currency as US economic growth accelerates.

Business Week:
- Morton’s Restaurant Group(MRT), a steakhouse chain, is benefiting from boardroom business. The chain receives about 20% of sales from private rooms tailored to function as ad hoc boardrooms.
- VeriChip Corp.(CHIP) shares may almost triple to $12 in a year as more hospitals and doctors use the company’s product, citing William Woodward of Anthem Venture Partners.
- OfficeMax(OMX) could be acquired by Staples(SPLS) or Office Deport(ODP). The top two competitors only have a 20% share of the office supply market, and buying OfficeMax would add to either company’s earnings with a buyout price in the mid-$50 range, citing Jack Cunningham, CIO at J&W Seligman.

Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.01%.

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
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- None

Upcoming Splits
- (IEX) 3-for-2

Economic Releases
10:00 am EST
- The Preliminary Univ. of Mich. Consumer Confidence reading for May is estimated to fall to 86.2 versus 87.1 in April.

Other Potential Market Movers
- The BMO Capital North American REIT Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by metal stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Slightly Lower on Profit Taking and Higher Energy Prices

Indices
S&P 500 1,512.75 -.09%
DJIA 13,476.72 -.08%
NASDAQ 2,539.38 -.32%
Russell 2000 815.64 -.56%
Wilshire 5000 15,186.72 -.11%
Russell 1000 Growth 593.33 -.15%
Russell 1000 Value 873.28 -.03%
Morgan Stanley Consumer 741.16 -.37%
Morgan Stanley Cyclical 1,060.54 +.20%
Morgan Stanley Technology 604.22 -.61%
Transports 5,222.38 +.14%
Utilities 529.95 -.67%
MSCI Emerging Markets 125.88 -.20%

Sentiment/Internals
Total Put/Call .80 -21.57%
NYSE Arms .71 +6.96%
Volatility(VIX) 13.51 +.07%
ISE Sentiment 137.0 +31.73%

Futures Spot Prices
Crude Oil 65.01 +3.92%
Reformulated Gasoline 243.70 +4.28%
Natural Gas 8.08 +2.52%
Heating Oil 193.70 +3.75%
Gold 657.60 -.59%
Base Metals 266.57 -2.87%
Copper 330.05 -3.56%

Economy
10-year US Treasury Yield 4.75% +4 basis points
US Dollar 82.31 +.21%
CRB Index 313.15 +.98%

Leading Sectors
Oil Service +2.29%
Road & Rail +1.67%
Homebuilders +1.07%

Lagging Sectors
Semis -.71%
Biotech -1.16%
REITs -1.85%

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
Morgan Keegan:
- Rated (UNP), (NSC), (KSU) and (BNI) Outperform.

Bank of America:
- Rated (HWAY) Buy, target $50.

Afternoon/Evening Headlines
Bloomberg:
- US Treasury two-year note yields climbed to the highest since February as evidence of a strengthening economy reduced speculation the Fed will cut rates.
- Nordstrom Inc.(JWN) said profit rose 19% on increased sales of women’s clothes and handbags. The company boosted its annual earnings forecast and the stock is rising $.79 to $53.95 in after-hours trading.
- Department stores JC Penney(JCP), Kohl’s(KSS) and Nordstrom(JWN) reported first-quarter profits that exceeded analysts’ estimates and raised their full-year earnings forecasts.
- Intuit Inc.(INTU) said third-quarter net income climbed 23% on increased sales of the company QuickBooks product for small businesses. The shares are surging 10% in after-hours trading.
- Marvell Tech(MRVL) lowered its 2Q revenue estimate to $645 million from $680.17 million. However, the stock is rising $.36 to $17.36 on the report.

Reuters:
- BP Plc(BP) will idle the fluid catalytic cracking unit at its refinery in Texas City, Texas, for “repairs." The “routine repairs” will take 11 days. The plant is capable of processing 460,000 barrels of oil a day.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Computer longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished lower, sector performance was mixed and volume was above average. Measures of investor anxiety were around average into the close. Today's overall market action was mildly bearish. Considering recent gains and today's jump in oil and move higher in long rates, today's action wasn't too bad. I think it would take a move in the 10-year yield above 5% and a move above $70 per barrel to meaningfully impact equities in a negative fashion. I don't expect either. While breadth was negative today, I had an unusual number of stocks that I monitor moving higher on decent volume. Very few stocks fell on volume today. Gold fell another $3 per ounce on U.S. dollar strength and is very close to breaking it intermediate-term uptrend. Especially noteworthy today were gains in retailers, airlines and homebuilders, considering oil and Bernanke's housing comments. I suspect that, after a modestly weaker market open, we will finish the week on a positive note.

Stocks Mixed into Final Hour as More Economic Optimism is Offsetting Higher Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Computer longs and I-Banking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly lower, most sectors are gaining and volume is above average. Oil has moved to session highs, rising $2.34 per barrel. The 10-year yield is grinding higher at 4.75%, right where I projected it to average for the year, yet stocks are modestly improving. This is likely leading to some short-covering as the many bears are unable once again to gain any meaningful downside traction. Moreover, retail and airlines are outperforming substantially. Homebuilders and brokers are at session highs. An Apple (AAPL) spokeswoman just confirmed that Apple will ship the iPhone in late June. The stock is surging to session highs. Most pundits and analysts continue to say almost reflexively that the economy is worsening. However, almost all the data I see point to an economic acceleration this quarter from a sluggish first quarter. This is the main reason for the recent mild rise in long-term rates, not rising inflation worries. The bears' thesis revolves around the housing downturn leading to an imminent collapse in the consumer as unemployment soars. Even as the economic data are improving, it seems the bears see every move higher in the market as unjustified and continue to see a market crash right around the corner. I continue to believe the many bears remain stunningly complacent. I expect US stocks to trade modestly higher into the close from current levels on short-covering, buyout speculation and more economic optimism.

Today's Headlines

Bloomberg:
- China’s production of metals for its power, manufacturing and building industries surged to records in April. Output of copper rose 17% to a record 274,000 metric tons, while production of aluminum surged 38% to a record 974,000 tons, the National Bureau of Statistics said.
- Tudor Investment and Highfields Capital Management bought Motorola(MOT) shares in recent months, betting the mobile-phone maker will return to profit and recoup lost market share.
- Pepco Holdings(POM) said today that it will transform its 2,000-vehicle fleet to more environmentally friendly technologies by using electric hybrids and alternatively fueled vehicles to reduce its fuel bill and curb greenhouse gas emissions.
- Toyota Motor(TM), the biggest seller of gasoline-electric cars, widened its range of hybrid Lexus sedans as it seeks to catch up with BMW and Mercedes-Benz in the luxury car market.
- Crude oil jumped above $64/bbl. in NY on speculation by investment funds that US gas supplies won’t be adequate to meet demand this summer because refiners are unexpectedly shutting units.
- ConocoPhillips(COP) will idle a fluid catalytic cracking unit and a boiler at its refinery in Borger, Texas, for scheduled repairs.
- Gold in NY is falling to the lowest in seven weeks, breaking its intermediate-term uptrend, as a gain in the value of the US dollar is reducing the appeal of the precious metal.
- Copper is dropping the most in 11 months in London on speculation that stockpiles in China will continue to build on record production of the metal.
- President Bush and Prime Minister Tony Blair said the US-UK alliance in Iraq and cooperation on other global issues won’t be diminished once Blair leaves office next month.
- Senate negotiators reached an agreement on immigration legislation aimed at providing a path to citizenship for 12 million illegal aliens, while improving US border security.
- The US House of Representatives by a vote of 397-27, authorized $644 billion for defense spending in fiscal 2008.
- Manufacturing in the Philly region accelerated more than forecast this month as orders and shipments rose, adding to evidence that businesses are growing more optimistic the economy will gather speed.
- US ambassador to Iraq Ryan Crocker will meet an Iranian envoy on May 28 to urge Iran to stop “stoking sectarian violence” in Iraq, State Dept. spokesman Sean McCormack said.
- Li Ka-shing, Asia’s richest man, said China’s stock valuations “must be a bubble” and prices are likely to decline.
- Fed Chairman Ben Bernanke said he sees “no serious” spillover from subprime problems to the rest of the US economy.

Wall Street Journal:
- Clear Channel Communications(CCU) is closer to being sold, as major shareholders moved to back a $19.4 billion bid by Bain Capital and Thomas H. Lee Partners.
- Samsung Electronics has developed a better small, portable personal computer called Q1 Ultra that has a built-in keyboard for e-mail and typing Internet addresses.
- Sun Trust Bank’s(STI) sale of 9% of its stake in Coca-Cola(KO), and its stated intention to decide this year what to do with the rest, may set it up for takeover.
- William Gross, the investment chief at PIMCO, said he made a “big mistake” last year when he took the view that the Federal Reserve would cut interest rates.
- Venezuela’s President Hugo Chavez is taking his policies of socialist transformation into the countryside, with a promise to end big landed estates. Since coming to power, his government has “handed over” 8.8 million acres of land to the poor. 4.5 million acres of this land was seized from private owners.
- Dow Jones’(DJ) board decided yesterday against consideration of Rupert Murdoch’s $5 billion offer for the company as long as there is opposition form the holders of more than 50% of the voting shares.

NY Times:
- A hospital group in central Pennsylvania is experimenting with the equivalent of a health care warranty, a flat fee for treatment that includes 90 days of follow-up care. It’s a radical shift from the traditional arrangement, where hospitals charge for follow up visits and thus have little financial incentive to provide efficient upfront care.

Chronicle of Higher Education:
- Virginia Tech, the site of the recent mass murder spree, is expecting record student enrollment this fall.

Fortune:
- News Corp.(NWS/A) will spend a relatively modestly $100 million to start Fox Business Channel, a figure that could grow substantially should the parent company succeed in its bid for the Wall Street Journal.

USA Today:
- The number of minorities in the US has reached 100 million, or about a third of the total population for the first time, citing Census estimates released today. Hispanics are still the largest minority at 44.3 million, accounting for about 50% of the national gain in population of 2.9 million between July 2005 and July 2006.

Guardian:
- BP Plc(BP) and Rio Tinto Plc(RTP) will probably announce today that they’re setting up a joint venture to offer electricity utilities “clean coal” technology.

Khaleej Times:
- Gold sales in the UAE jumped 23% in the first quarter to $735 million even as prices for the metal rose 17%.