Initial Jobless Claims Fall, Job Cuts Decline, Factory Orders Surge

- Initial Jobless Claims for this week fell to 336K versus estimates of 345K and 357K the prior week.

- Continuing Claims rose to 2761K versus estimates of 2675K and 2715K prior.

- Factory Orders for November rose 1.5% versus estimates of a .5% gain and an upwardly revised .7% increase in October.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits fell last week, Bloomberg reported. A private survey based on payroll data from ADP showed the US created 40,000 jobs in December, 7,000 more than estimates. The four-week moving average of jobless claims fell to 343,750 from 344,500 the prior week. Moreover, Challenger Job Cuts fell -18.7% in December from year ago levels. The unemployment rate among people eligible to collect benefits, which tracks the US unemployment rate, rose to 2.1% from 2.0% the prior week. Jobless claims would have to move above 370,000 to be indicative of a broad economic contraction. I suspect the change in non-farm payrolls for December, released tomorrow, will come in slightly below estimates of 70K. As well, the unemployment rate is likely to come in around estimates of 4.8%, which is still low by historic standards. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Orders to US factories rose more than forecast in November, Bloomberg reported. The 1.5% gain in orders was the most in four months. Excluding transportation, bookings rose 1.4%. Bookings for non-durable goods surged 3%, the most since March 2005. Commercial aircraft orders rose 21%. Orders for non-defense capital goods excluding aircraft, a gauge of future business spending, fell .1% versus a 3% decline in October. Shipments of those goods, which are used to calculate GDP, rose .2% versus a 1.2% decline in October. Manufacturers had 1.22 months of goods on hand versus 1.23 months worth in October. I continue to expect manufacturing to help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of record high exports.

Bull Radar

Style Outperformer:

Large-cap Value(+.38%)

Sector Outperformers:

Construction (+2.43%), Defense (+1.13%) and Utilities (+1.10%)

Stocks Rising on Unusual Volume:

SPN, RC, SYT, UNF, MON, STT, KFS, FTI, VE, AKNS, SCRX, ITWO, WATG, SOLF, CRXL, AIXG, THRX, SINA, CSIQ, DRIV, PHRM, IIVI, NURO, HSTX, CALM, HERO, CELG, CMED, TRA, TOT, BP, ISIL, MHS, ESRX and ETN

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Thursday Watch

Late-Night Headlines
Bloomberg:
- EDP-Energias de Portugal SA said GE Energy Financial Services and Wachovia Investment Holdings LLC agreed to invest in four wind energy farms that Portugal’s biggest electricity provider is developing in the US. The investors will spend $260 million on the wind projects this year, adding to $340 million they invested in 2007, EDP said.

Wall Street Journal:
- Oil prices only briefly touched $100 a barrel yesterday, but a prolonged stay at that level could soften the world’s strong economic growth.
- Oil’s Surge Reshapes the World. The surging price of oil, from just over $10 a barrel a decade ago to $100 yesterday, is altering the wealth and influence of nations and industries around the world.

NY Times:
- Practicing the Subtle Sell of Placing Products on Webisodes.
- Netflix(NFLX) Partners with LG to Bring Movies Straight to TV.

MarketWatch.com:
- Stocks look better than gold for 2008.

BusinessWeek.com:
- Junk Bonds: A Brighter 2008? S&P thinks high-yield issues could be a good investment in the coming year, as investors shake off their aversions to risk.

CNNMoney.com:
- Analyst: Citi has ‘enormous earnings power’
- Fed to investors: More cuts coming. Ben Bernanke and other Fed members say ‘substantial easing’ may be needed.

SmartMoney.com:
- Mutual Fund Report Card for 2007.

IBD:
- Upturn in Biotech Spending Drives Covance’s(CVD) Growth.

USA Today.com:
- New-generation GPS offers a lot more than maps, traffic data.

Reuters:
- Post-holiday discounts and shoppers redeeming gift cards helped boost retail sales 14% for the last full week of December. ShopperTrak RCT, which tracks sales at more than 50,000 US retail locations, also found that retail traffic rose 7% over a year ago during the week ended December 29.
- OPEC may raise output at Feb. 1 meeting.

Financial Times:
- Is “quant” a busted flush? Since last summer’s crisis, when fund managers following quantitative strategies started claming black swans, most have suffered net outflows, while many weaker funds have been badly hurt. Even where money has stayed put, no fund-of-funds manager or other investor is looking at quant in quite the same way.
- Stock exchanges outside the US – including the London Stock Exchange – could provide direct trading access to US investors through US-based brokers for the first time under proposals being prepared by the SEC.
- This year could see consolidation in the US airlines industry, with the fate of Delta Air Lines(DAL) likely to prove pivotal, executives, bankers and investors say.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GPS), target raised to $25.
- Maintain Buy on (MAN), target $90.

Night Trading
Asian Indices are -1.5% to -.50% on average.
S&P 500 futures +.27%.
NASDAQ 100 futures +.29%.

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Earnings of Note
Company/EPS Estimate
- (TXI)/.88
- (MON)/.35
- (SONC)/.21
- (FINL)/-.15
- (GPN)/.45
- (BBBY)/.52

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to fall to 345K versus 349K the prior week.
- Continuing Claims are estimated to fall to 2675K versus 2713K prior.

10:00 am EST
- Factory Orders for November are estimated to rise .5% versus a .5% gain in October.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -2,175,000 barrels versus a -3,299,000 barrel decline the prior week. Gasoline supplies are expected to rise by 1,750,000 barrels versus a 636,000 barrel increase the prior week. Distillate supplies are expected to fall by -250,000 barrels versus a -2,768,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise .5% versus a .25% increase the prior week.

Afternoon:
- Total Vehicle Sales for December are estimated to fall to 16.0M versus 16.2M in November.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, Challenger Job Cuts report and ADP Employment Change report could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial shares and airline stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Lower on Higher Energy Prices, Rising Economic Pessimism

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Stocks Sharply Lower into Final Hour on Higher Energy Prices, Rising Economic Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Biotech longs and Software longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is elevated. Today’s overall market action is bearish. I do have an unusual amount of stocks on my monitor pages in positive territory given today’s headline losses. As well, very few stocks are falling on above-average volume. Volume is below average on the NYSE and Nasdaq and above average on the AMEX, where many ETFs trade. This likely indicates quite a bit of new shorting and selling by hedge funds which were already positioned very bearishly, according to most recent data. The VIX is surging 6% to 24, the total put/call is a high 1.25 and the ISE Sentiment Index hit a depressed 68.0 this morning. For the fifth day in a row, the NYSE Arms is high, hitting an elevated 2.58. The 30-day US asset backed commercial paper yield is plunging another 81 basis points today and is down 155 basis points in three weeks and down 170 basis points from September highs. Fed funds futures now imply a 58.8% chance for another 25 basis point rate cut at the upcoming Fed meeting, up from a 46.8% chance last week. The last time the DJIA fell this much on a percentage basis on the first day of the year was 1983. However, the DJIA finished the year 20.3% higher that year. I suspect Asia will trade lower again tonight which could pressure stocks here further in the morning. I still expect a decent rally to materialize in the broad market over the next few days. I expect US stocks to trade mixed into the close from current levels as more economic pessimism, increased shorting and higher energy prices offsets bargain hunting and seasonal strength.