Stocks Finish Lower on Economic Data, Profit-Taking

Indices
S&P 500 1,472.29 -1.15%
DJIA 13,305.47 -1.07%
NASDAQ 2,605.95 -.92%
Russell 2000 790.46 -1.28%
Wilshire 5000 14,804.23 -1.09%
Russell 1000 Growth 595.33 -.91%
Russell 1000 Value 822.43 -1.30%
Morgan Stanley Consumer 709.66 -1.10%
Morgan Stanley Cyclical 1,020.41 -1.47%
Morgan Stanley Technology 642.45 -.75%
Transports 4831.05 -1.80%
Utilities 488.14 -1.16%
MSCI Emerging Markets 133.84 -1.06%

Sentiment/Internals
Total Put/Call 1.15 +11.65%
NYSE Arms 1.60 +153.37%
Volatility(VIX) 24.58 +7.90%
ISE Sentiment 104.0 -26.76%

Futures Spot Prices
Crude Oil 75.85 +1.03%
Reformulated Gasoline 199.99 +.45%
Natural Gas 5.83 +3.59%
Heating Oil 210.50 +1.23%
Gold 691.50 unch.
Base Metals 232.96 +.72%
Copper 326.15 -1.35%

Economy
10-year US Treasury Yield 4.47% -8 basis points
US Dollar 80.61 -.33%
CRB Index 310.92 -.09%

Leading Sectors
Energy -.12%
Networking -.16%
Internet -.17%

Lagging Sectors
I-Banks -2.32%
Retail -2.35%
Homebuilders -2.94%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
Deutsche Bank:
- Rated (MSFT) Buy, target $33.

Oppenheimer:
- Rated (BFF) Buy.

Afternoon/Evening Headlines
Bloomberg:
- Citigroup Inc.(C) will close its $2.4 billion Tribeca hedge fund and return money to clients five months after it agreed to buy investment manager Old Lane LP, which uses a similar strategy.
- Orange juice rebounded as investors scooped up cheap supplies and closed bets that prices will fall further after futures touched a 22-month low.
- Nickel fell the most in almost three weeks on the London Metal Exchange as stainless-steel makers, the biggest consumers of the metal, cut prices because of weaker demand. Copper and aluminum also fell.
- Sugar fell to a two-week low on expectations that a global glut will widen and speculation demand is slowing for ethanol, a fuel made from cane and corn, as the US summer driving season wanes.
- Salix Pharmaceuticals(SLXP) had its biggest gain in 3 ½ years in Nasdaq trading after reporting successes in two drug trials.
- ADC Telecom(ADCT), the maker of telecom equipment, said third-quarter profit more than tripled. The stock rose 5.3% in after hours trading.
- JCPenney August same-store-sales fell 4% and the company reaffirmed its sales forecast for Sept./Oct. The stock rose 2.3% in extended trading.
- The J.Crew Group(JCG), the retailer whose shares have doubled since it sold stock to the public last June, fell as much as 11% in extended trading after it posted second-quarter sales below analysts’ estimates. The stock fell 8.7% in after-hours trading.

BOTTOM LINE: The Portfolio finished lower today on losses in my Retail longs, Computer longs and Semi longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, every sector fell and volume was below average. Measures of investor anxiety were elevated into the close. Today's overall market action was bearish. However, growth stocks, while lower, substantially outperformed value stocks again across all market caps. Apple (AAPL) did experience a sell-the-news reaction to today's announcements, which wasn't surprising after the recent run-up and general market weakness. I think the iPhone price cut is a net positive for the stock and sets the stage for a 3G version, which is likely by year-end, according to Oppenheimer. I will continue to use any meaningful weakness in the stock to add to my long position. Google (GOOG) finished up $2.65, near session highs. I didn't hear any new news this afternoon to account for its relative strength. Johnson Redbook weekly retail sales rose 2.4% this week vs. a 2.3% gain the prior week. This is also up from a 1.4% gain in early July. Over the last month, weekly retail sales have averaged a 2.3% gain, as well. While this is modestly below the long-term average of 2.8%, it does not suggest meaningfully broad-based retail weakness. The fact that sales have improved slightly into the recent credit turmoil is also noteworthy. Here is a summary of the Fed’s Beige Book report that was released this afternoon:

1. The U.S. economy has continued to expand.

2. Most banks say that housing weakness deepened after the market rout.

3. Outside housing, the market impact on the economy is limited.

4. Five Fed banks reported moderate or modest growth.

5. Four Fed banks reported that the pace of activity has slowed.

6. The New York Fed reported continued expansion.

7. Boston and Atlanta Fed banks say that activity is mixed.

8. Most banks cite tighter lending standards for mortgages.

9. Some Fed banks say that credit is available for most consumers, firms.

10. Several Fed banks say tighter credit clouds the housing outlook.

11. Retail sales were generally positive.

Overall, I would classify this report as mixed. However, the tone was slightly more positive than I had expected. I still expect a 25-basis-point fed funds rate cut at the upcoming meeting. I expect the Fed to begin to make more dovish commentary over the near-term before the meeting later this month.

Stocks Lower into Final Hour on Economic Data, Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Semi longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, almost every sector is declining and volume is about average. My intraday gauge of investor angst is at elevated levels. The 10-year yield is falling 8 basis points, to 4.47%, on today’s economic reports. Below 4.5% is the level I pointed out several months ago that would likely have to be breached to dramatically increase the odds of a Fed rate cut. This, combined with today's economic data, and Friday's likely weaker-than-expected employment report should give the Fed the freedom to cut the Fed Funds rate 25 basis points at the upcoming meeting. The OECD said today that U.S., European and Japanese economic growth is less buoyant and more uncertain. I continue to believe global economic growth is in the process of decelerating from booming levels to more average rates, which will continue to spur growth stock outperformance for several years, in my opinion. Apple's stock is selling off on today’s news of new iPods and a price cut for the iPhone. However, everything is falling into place for the stock to move substantially higher during fourth quarter as earnings exceed even optimistic estimates and growth stock multiple expansion gains steam. I still see $180/share as likely before year-end. Goldman Sachs is also defending the shares, saying to buy on weakness. I expect US stocks to trade mixed into the close from current levels as short-covering offsets profit-taking.

Today's Headlines

Bloomberg:
- BHP Billiton Ltd.(BHP) may spend $80 billion on expansion over the next decade, citing Marius Kloppers, who becomes the company’s CEO next month.
- Global Advisors LP, the commodities hedge fund firm co-founded by former JPMorgan Chase(JPM) energy trader Daniel Masters, is shutting two of its three funds after losses in all commodity markets this year.
- The Federal Reserve found the effects of the August credit-market rout on the broader economy to be “limited” beyond the housing industry, according to its regional business survey.
- Apple Inc.(AAPL) unveiled new versions of its best-selling iPod media player with touch screens and video games, giving CEO Jobs new gadgets to entice buyers during the holiday shopping season.
- Apple today announced that it is on track to sell its one millionth iPhone before the end of September, and to make iPhone affordable for even more customers this holiday season, it is lowering the price of the most popular iPhone model with 8GB of storage from $599 to just $399.
- Police arrested three men suspected of planning “massive” terrorist attacks on US and other targets in Germany, preventing the deaths of “many, many people,” Chief Federal Prosecutor Monika Harms said.

Wall Street Journal:
- Scholars Link Success of Firms To Lives of CEOs.
- Citigroup Inc.(C) is refitting its vast portfolio of buildings so they use energy more efficiently.

USA Today:
- State and local governments are in the middle of a building boom that has helped keep the economy afloat and offset job losses from the decline in home construction.

AP:
- Democratic fundraiser Norman Hsu failed to appear for a bail hearing today in Redwood City, California, and his lawyer said he doesn’t know where Hsu is.

Interfax:
- China’s sugar production may rise 17% to a record 14 million tons next season, citing the country’s Ministry of Agriculture Web Site.

Pending Home Sales Fall

- Pending Home Sales for July fell 12.2% versus estimates of a 2.2% decline and a 5.0% increase in June.

BOTTOM LINE: The number of Americans signing contracts to buy previously owned homes fell in July, Bloomberg reported. Lawrence Yun, a senior economist with the Realtors’ group said there were signs the market had been “stabilizing somewhat” since mid August and that there were no serious problems for the majority of buyers who qualify for conventional financing. Pending resales fell 21% in the West, 13% in the Midwest, 12% in the Northeast and 6.6% in the South. I expect August to be somewhat better, but still lower. Pending resales should see a sharp bounce higher this month.

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Federal Reserve Bank of Richmond President Jeffrey Lacker told Reuters he would support a cut in interest rates if financial turmoil led to a slowing in economic growth and inflation, while cautioning that outcome is “unclear.”
- Credit Suisse Group analyst Susan Roth Katzke lifted her estimates for Goldman Sachs Group’s(GS) third-quarter and full-year profit because she expects gains in fixed-income trading to more than offset losses on loans. She reiterated her Outperform rating and $250-$275 target.
- Asian stocks rose to a four-week high after Deutsche Bank said financial markets are stabilizing and a report showed global chip sales are climbing.
- Hedge funds in the US might leave the country if subjected to burdensome regulation, according to research by the Federal Reserve Bank of New York.
- Mattel Inc.(MAT) recalled about 848,000 Chinese-made Barbie and Fisher-Price products whose paint may contain excessive levels of lead, its third recall in the past five weeks.
- The yen fell for a fourth day against the Australian dollar as a rally in global stocks gave traders confidence to resume buying higher-yielding investments funded by loans in Japan.
- Australia’s central bank kept its benchmark interest rate unchanged at an 11-year high as Governor Glenn Stevens waits to see if an increase last month is enough to curb inflation.
- Palm Inc.(PALM) canceled plans to sell a portable computer as the company refocuses on mobile phones.

Wall Street Journal:
- Microsoft Corp.(MSFT) failed to make its Office software file format an international standard, losing a closely watched vote that reflects the software titan’s broader battles in Europe and around the world.

MarketWatch.com:
- Market-timing editors more bearish, which is a bullish sign.

Financial Times:
- Two competing efforts at creating benchmark futures contracts on Middle East crude oil have attracted limited investor interest, citing traders. Trading volume in the contracts fell in August and may not recover notably after the summer holiday period.

Late Buy/Sell Recommendations
Citigroup:
- Rated (DPZ) Buy, target $22.
- Reiterated Buy on (OI), target $48.
- Small-cap/Mid-cap banks derive 70%-80% of revenue from net interest income, and have low exposure to consumer lending and minimal exposure to non-traditional residential mortgage. With expected Fed rate cuts and wider spreads/fewer refis on CRE loans, plus higher losses in consumer lending, this should result in better credit quality and EPS growth than expected.
- Day 1 of the Tech Conference featured 3 electronics manufacturing services companies. Notebook demand appears strong, distribution inventory levels appear lean and EMS inventory levels are recently better aligned. Wednesday presenting companies include (PLXS), (SANM), (AVT), (FLEX), (CLS), (APH) and (ARW). Thursday presenting companies include (MOLX), (VSH) and (AVX).
- Upgraded (VCLK) to Buy, target $25.

CSFB:
- (ISIL) pre-announced upside to C3Q guidance. This is another data point supporting PC strength. While the company attributed the positive announcement to broad-based growth, we believe that strength is being primarily driven by the computing segment(25% of total sales), specifically new platform roll-outs at Intel(INTC). This is consistent with our view that the current robust PC market will provide a positive tailwind in 2H07 for semiconductor companies with exposure to the computing end market. In addition to (INTC) and (AMD) on the MPU side, analog companies within our coverage universe that will likewise benefit include (TXN), (MXIM), (ONNN), (FCS) and (MCRL).

Night Trading
Asian Indices are +.25% to +.50% on average.
S&P 500 futures -.30%.
NASDAQ 100 futures -.15%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (ABM)/.31
- (ADCT)/.23
- (CASY)/.47
- (DSW)/.30
- (JCG)/.29
- (MATK)/.18
- (SCMR)/.03

Upcoming Splits
- (MTW) 2-for-1
- (MDR) 2-for-1
- (NVDA) 3-for-2

Economic Releases
10:00 am EST
- Pending Home Sales for July are estimated to fall 2.0% versus a 5.0% gain in June.

2:00 pm EST
- The Fed’s Beige Book Report.

Other Potential Market Movers
- The Keefe Bruyette & Woods Insurance Conference, Thomas Weisel Healthcare Conference, CSFB Biotech Conference, Kaufman Brothers Investor Conference, Citigroup Tech Conference, Lehman Brothers Energy Conference, Goldman Sachs Global Retailing Conference, the Lehman Brothers Consumer Conference, weekly retail sales reports, weekly MBA mortgage applications report, Challenger Job Cuts, ADP Employment Change, BOE policy meeting, (DHR) analyst meeting, (USB) investor day, (JAVA) analyst meeting and (CSCO) analyst meeting could also impact trading today.

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