Market Week in Review

S&P 500 1,473.99 -.36%*

Click here for the Weekly Wrap by Briefing.com.

*5-day Change

Weekly Scoreboard*

Indices
S&P 500 1,473.99 -.36%
DJIA 13,357.74 -.16%
NASDAQ 2,596.36 +.76%
Russell 2000 792.86 -.76%
Wilshire 5000 14,807.65 -.32%
Russell 1000 Growth 594.19 +.46%
Russell 1000 Value 824.45 -1.04%
Morgan Stanley Consumer 714.29 -.67%
Morgan Stanley Cyclical 1,027.35 -.44%
Morgan Stanley Technology 636.04 +1.0%
Transports 4,878.75 -.76%
Utilities 484.79 -2.81%
MSCI Emerging Markets 134.35 +3.65%

Sentiment/Internals
NYSE Cumulative A/D Line 65,004 -.58%
Bloomberg New Highs-Lows Index -137 +5.52%
Bloomberg Crude Oil % Bulls n/a
CFTC Oil Large Speculative Longs 202,843 -2.0%
Total Put/Call 1.03 -3.74%
NYSE Arms .59 -4.83%
Volatility(VIX) 23.38 +12.83%
ISE Sentiment 122.0 +6.1%
AAII % Bulls 40.30 -2.37%
AAII % Bears 46.27 +7.31%

Futures Spot Prices
Crude Oil 73.88 +4.12%
Reformulated Gasoline 196.55 +3.15%
Natural Gas 5.43 -4.42%
Heating Oil 205.70 +2.20%
Gold 682.0 +.69%
Base Metals 242.78 +3.77%
Copper 340.20 +.98%

Economy
10-year US Treasury Yield 4.53% -9 basis points
4-Wk MA of Jobless Claims 324,500 +1.9%
Average 30-year Mortgage Rate 6.45% -7 basis points
Weekly Mortgage Applications 615.20 -4.0%
Weekly Retail Sales +2.3%
Nationwide Gas $2.77/gallon -.01/gallon
US Cooling Demand Next 7 Days 17.0% above normal
ECRI Weekly Leading Economic Index 139.20 -.36%
US Dollar Index 80.81 +.15%
CRB Index 308.76 +1.02%

Best Performing Style
Large-cap Growth +.46%

Worst Performing Style
Large-cap Value -1.04%

Leading Sectors
Computer Hardware +2.45%
Engineering & Construction +2.02%
Wireless +1.99%
Computer Services +1.87%
Disk Drives +1.79%

Lagging Sectors
Coal -1.71%
Insurance -2.46%
Banks -2.79%
Utilities -2.81%
Homebuilders -3.28%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Sharply Higher into Final Hour on Diminishing Credit Fears, More Economic Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Semi longs and Medical longs. I was stopped out of a short, covered some of my (EEM) short and exited my remaining (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive today as the advance/decline line is substantially higher, every sector is rising and volume is light. My intraday gauge of investor angst is at above-average levels, despite gains. There was a significant -$2.1 billion in outflows from the iShares Russell 1000 Value Index fund this week, which corresponds with meaningful “value” stock underperformance this year relative to “growth.” I expect global growth to move back toward more average rates from current booming levels over the intermediate term, which will likely result in even greater growth stock outperformance. It is also noteworthy, considering recent substantial outflows, that taxable bond funds saw inflows of $132 million this week. Bernanke's speech today basically reiterated what he has already said of late. I still think a 25-basis-point cut is likely at the next meeting if economic data for August shows more weakness. ISM reports, auto sales, retail sales and the employment report next week will provide much more color on the Fed's upcoming actions. I still believe the market is in a win-win situation. If data continue to show economic resiliency and the Fed doesn't cut, I believe stocks will rally from current levels. If the Fed does cut, I think stocks will rally in anticipation of faster growth in the future. Personal income/spending, PCE core, Chicago PMI, factory orders and consumer confidence were all encouraging today. As well, the average 30-year fixed rate mortgage fell another 7 basis points this week, to 6.45%. It has now declined 33 basis points from June 14 highs. It is also a positive that the three-month T-bill yield has risen 53 basis points from yesterday's lows. The Baltic Dry Index also hit another all-time high this week. Finally, Bloomberg is reporting that the ABX-HE-BBB-07-1 subprime index is rising 9.5% on today's news. While it is still too early to tell if this index has bottomed, its rate of decline has slowed dramatically over the last three weeks. The stabilization of this index in March preceded the stock market's strong advance that began shortly thereafter. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit fears, more economic optimism and bargain hunting.

Today's Headlines

Bloomberg:
- President Bush today pledged to help people who’ve fallen behind in their mortgages keep their homes and to tighten safeguards against predatory lending, while rejecting a bailout for “speculators.”
- Senator Charles Schumer said Treasury Secretary Henry Paulson expressed interest in allowing Fannie Mae(FNM) and Freddie Mac(FRE) to exceed limits on their combined $1.4 trillion mortgage portfolios in order to help distressed borrowers refinance their home loans.
- The Brazilian real gained as a pledge by President Bush to help delinquent US mortgage holders keep their homes eased concern that the housing slump will throttle global economic growth.
- The risk of owning corporate bonds fell 3.5 basis points today to 69 basis points, according to traders of credit-default swaps.
- A benchmark subprime mortgage ABX index tied to risky home loans made in last year’s second half is rising 9.5% today.
- Federal Reserve Chairman Ben Bernanke, in his first public remarks in six weeks, said the central bank will do what’s needed to prevent this month’s credit market rout from undoing the six-year expansion.
- Investors added $83 million to high-yield bond funds, the first infusion in 12 weeks, seeking to capitalize on gains in high-risk debt, JPMorgan Chase(JPM) said, citing AMG Data Services.
- Norman Hsu, a Democratic fundraiser wanted for fraud, turned himself in to California authorities, according to a statement by his lawyer.
- Cree Inc.(CREE) shares jumped the most since June and options trading surged on speculation that the maker of semiconductors that light dashboards and cellular phones may be acquired by General Electric(GE).
- Intel Corp.(INTC) rose to its highest in six weeks after Dell Inc.(DELL) profit beat estimates and a Caris & Co. analyst said Intel’s memory chip venture will probably be approved by regulators.

Wall Street Journal:
- Russian officials are pleased that the country’s capital markets seem to have withstood a $10 billion net outflow in the past three weeks without negative consequences.
- Vulture Funds Start Circling Credit Markets.

Washington Post:
- US Senate Majority Leader Harry Reid is willing to compromise with Republicans opposed to the Iraq war on limiting troop deployments in the country. Reid will back away from his demand to withdraw from Iraq by the US spring, a position that has impeded his ability to negotiate with Republicans who want to end the war but not to set a timeline.

NY Post:
- Apple Inc.(AAPL) is working with record labels to offer ringtones on iPhones from its iTunes online music service.

Times Online:
- Speculation today hit fever pitch over the possible shape of Google’s(GOOG) next foray into telecoms as a host of blogs carried pictures of what claimed to be a low-cost, internet enabled handset – the “Gphone.”

Le Monde:
- French President Nicolas Sarkozy is increasingly willing to join the US and Britain in imposing sanctions on Iran, without waiting for a UN resolution.

Personal Incomes Surge More Than Estimates, Spending Accelerates, Inflation Decelerates, Chicago PMI Rises, Factory Orders Healthy, Confidence Down

- Personal Income for July rose .5% versus estimates of a .3% gain and a .4% rise in June.

- Personal Spending for July rose .4% versus estimates of a .3% increase and an upwardly revised .2% gain in June.

- The PCE Core for July rose .1% versus estimates of a .2% increase and an upwardly revised .2% increase in June.

- The Chicago PMI for August rose to 53.8 versus estimate of 53.0 and 53.4 in July.

- Factory Orders for July rose 3.7% versus estimates of a 3.3% gain and an upwardly revised 1.0% increase in June.

- Final Univ. of Mich. Consumer Confidence for August came in at 83.4 versus estimates of 82.5 and an 83.3 prior estimate.

BOTTOM LINE: Consumer spending in the US rose more than forecast in July and inflation cooled, a signal the economy was expanding at the start of the third quarter, Bloomberg reported. Incomes rose .5% in July, the most in four months, versus a .4% gain in June. The PCE core, the Fed’s favorite inflation gauge, rose less than expected in July and is within the Fed’s comfort zone at 1.9% year-over-year. The savings rate rose to .7% versus .5% the prior month. The better-than-expected PCE core gives the Fed more leeway. I still think a 25 basis point cut is likely at the upcoming meeting.

US business activity unexpectedly rose in August, suggesting that companies continue to expand amid the sell-off in credit markets, Bloomberg said. The new orders component of the index rose to 58.4 from 53.4 the prior month. Many companies still have the ability to increase spending without new borrowing, due to the historical string of profit growth increases over the last few years, according to economists. The inventories component fell to 44.6 from 55.1 in July. The order backlog component rose to 38.8 from 37.4 the prior month. The prices paid component fell to 71.8 in August from 73.1 prior. I continue to believe manufacturing will help boost US growth over the intermediate-term as companies rebuild depleted inventories on rising confidence in the sustainability of the current expansion.

Orders placed with US factories rose more than forecast in July as customers bought more aircraft, machinery and electronics, Bloomberg reported. Orders for durable goods, which make up over half of factory demand, surged a revised 6% in July versus a 1.8% gain the prior month. This gain was paced by a 7% gain in orders for computer and electronic equipment. July orders for capital goods excluding aircraft and military equipment, a gauge of future business investment, gained 1.7% after falling .2% the prior month. Orders for automobiles surged 11%, the most since January 2003. At July’s sales pace, the amount of goods on hand is 1.21 months’ worth versus 1.24 months worth in June. Factory Orders should remain healthy over the intermediate-term.

Confidence among US consumers fell less than economists had previously expected in August. The expectations component of the index came in at 73.7 versus 81.5 in July. The current conditions component came in at 98.4 versus 104.5 prior. Consumers now expect inflation to rise 3.2% in one year versus expectations in July of a 3.4% gain. The average price of regular gasoline fell to $2.75/gallon in August versus $2.86/gallon in July. I continue to believe consumer confidence will rebound back to cycle highs over the intermediate-term as housing fears subside, the job market remains healthy, wages continue to substantially outpace inflation, interest rates remain historically low, inflation decelerates further and stocks resume their major uptrend.

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