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Stocks Finish Near Session Lows on Rise in Long-Term Rates

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Stocks Lower into Final Hour on Rise in Rates

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Computer longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is about average. The major averages and breadth have weakened over the last couple of hours as the 10-year yield hit a session high of 5.14%. As I said yesterday, bonds have become very overbought short term, however, I expect the yield to move back down to 4.75% during the third quarter. The underlying tone of the market remains pretty good despite today’s sell-off. Many stocks are substantially outperforming the major averages once again. As well, the airline, retail, I-banking, wireless, semi, Internet and alternative energy sectors are substantially outperforming. The Investors Intelligence survey is showing more bullishness this week. However, as you can see in these charts, this survey has not been a good contrary indicator since the bottom in 2003. There are many others that have a much better track record in gauging “herd” sentiment. One of my favorites, the AAII, comes out tomorrow. My intraday gauge of investor angst is at an above-average level. I expect US stocks to trade modestly higher into the close from current levels on stabilizing long-term rates, buyout speculation, short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Bank of America(BAC) CEO Kenneth Lewis said private-equity firms will enjoy “unprecedented” access to financing for at least a few more years before a deal “goes bad.”
- The US government should quadruple spending on coal research to $190 million annually to ensure long-term supply and use of the nation’s primary power-plant fuel, said the private, nonprofit National Research Council.
- Transactions in the renewable energy and emissions-reduction industries rose 25% to a record $100 billion in 2006, driven by high oil prices and government support, the UN said.
- Canadian wholesale sales unexpectedly fell 3.1% in April, the biggest decline in almost four years, as car shipments plunged.
- Altinex ASA, a Norwegian oil and gas company, said a test showed the Huntington field in the US North Sea is a “significant” oil discovery. “We will now push for fast-track appraisal and development of this new North Sea find.”
- Crude oil is falling $1.64/bbl. to $67.64/bbl. after a government report showed US oil inventories soared to a nine-year high. However, refinery utilization dropped again substantially on ongoing refinery “problems” and the cancellation of plans earlier in the year to increase production by 500,000 barrels per day due to concerns over weak demand and rising costs.
- Nuveen Investments(JNC), the largest US closed-end fund company, agreed to be acquired by Madison Dearborn Partners for $5.75 billion in the biggest leveraged buyout in the asset-management industry.
- Morgan Stanley raised $8 billion to crate the world’s largest global property fund.
- CarMax(KMX), the biggest US used car retailer, posted a 15% gain in first-quarter profit on rising sales of late-model used vehicles, sending the shares to their biggest increase in more than a year.
- Bristol-Myers Squibb(BMY) won a court ruling upholding the patent on its best-selling drug Plavix, renewing speculation the company may be a takeover target.
- US Treasuries fell for the first time in four days on concern a slowdown in housing may not slow the US economy.
- Microsoft Corp.(MSFT) agreed to change the Vista operating system after Google Inc.(GOOG) complained the software violates a 2001 antitrust settlement.

Wall Street Journal:
- MGM Mirage(MGM) and South African casino operator Sol Kerzner’s Kerzner Intl. will say today they are negotiating to develop a multibillion dollar casino resort on the north end of the Las Vegas Strip.
- Wal-Mart Stores(WMT) plans to announce today that it will sell a Visa debit card under its own name at the company’s retail outlets.
- Acquisitions in the software industry are likely to maintain their rapid pace for the remainder of this year, citing the 451 Group, a technology-industry consulting firm and analysts.
- The pace of acquisitions in the US hotel industry is likely to increase even if purchases of commercial real estate slow, citing data from SNL Financial.
- Verizon Wireless, a unit of Verizon Communications(VZ), may announce an agreement today with Obopay Inc. mobile-payment company to let subscribers transfer funds and make purchases over mobile phones.

CNBC:
- JPMorgan Chase(JPM) and other companies have begun selling assets in a Bear Stearns Cos. hedge fund that’s based on subprime mortgage securities.

NY Times:
- President Bush will issue an executive order today that directs federal health agencies to promote research into making stem cells that don’t require the destruction of an embryo.
- A White House report found that immigration has a positive effect on the US economy and the income of native-born US workers.

GamesIndustry.biz:
- Take-Two Interactive Software’s(TTWO) video game “Manhunt 2” received a preliminary “Adults Only” rating from the US Entertainment Software Rating Board.

USA Today:
- The US military has reached agreements with more than 10 Iraqi tribes around Baghdad to fight the al-Qaeda terrorist organization.

Financial Times:
- Commodity-trading groups plan to lobby against proposals to tighten industry regulation under the oversight of the European Union’s Market in Financial Instruments Directive, or Mifid. Trading groups say stricter rules and increased capital requirements may reduce liquidity.

China Daily:
- The use of embezzled public funds to buy shares has become a “major threat” to China’s stock markets, citing Zou Bihua, a judge with the Shanghai High People’s Court.

Economic Releases

- None of note

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