Today's Headlines

Bloomberg:
- SunTrust Banks(STI) bought a minority interest in Alpha Equity Management LLC to expand its hedge fund offerings.
- For the first time since the August freeze in the credit markets, companies issued more IOUs backed by collateral as the cost to borrow in the short-term debt fell to the lowest in 22 months.
- The cost of borrowing in euros, dollars and pounds fell for a fourth day, suggesting central bank efforts at reviving interbank lending are working.
- Crude oil fell after an Energy Dept. report showed that US gasoline and diesel inventories rose as refineries increased operating rates.
- US airline delays in November fell for the third consecutive month.
- Monsanto Co.(MON) more than doubled first-quarter profit and raised this year’s earnings forecast after demand for food and biofuels boosted corn plantings in South America.
- Average global temperatures will be lower in 2008 than in any year since 2000 because of cooling waters in the Pacific Ocean, according to an estimate from the Met office, the UK weather forecaster.

Wall Street Journal:
- New Office for Macs Speeds Up Programs, Integrates Formats.
- Wireless HDTVs to Be on View at Tech Show.
- China Stocks Could Be Hindered In 2008 by Slower Profit Growth.

ABC News:
- Housing Slump?” Not in Manhattan.

IBD:
- The Big 10: Top Hedge Fund Trades of 2007.

AFP:
- Iran would receive “no benefit” by opening diplomatic or trade relations with the US administration, Supreme Leader Ayatollah Ali Khamenei said.

Bear Radar

Style Underperformer:

Small-cap Value (-.86%)

Sector Underperformers:

Coal (-3.86%), Retail (-2.42%) and REITs (-1.94%)

Stocks Falling on Unusual Volume:

JTX, CVS, SFG, SFLY, OSIP, CYMI, BLOG, VRTX, PCBC, PNRA, YRCW, SONC, LVS and ALJ

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.