90% of Economy Now Indicating Expansion

- ISM Non-Manufacturing for April rose to 52.0 versus estimates of 49.1 and a reading of 49.6 in March.

BOTTOM LINE: Service industries in the US, which make up almost 90% of the economy, unexpectedly expanded in April, signaling the damage from the housing slump and credit crisis may be dissipating, Bloomberg said. The Employment component of the index jumped to 50.8, the highest level so far this year, versus 46.9 in March. The Supplier Delivery component surged to 56.0 versus 49.0 in March. The New Orders component fell slightly to 50.1 from 50.2 the prior month. The Prices Paid component rose to 72.0 from 70.8 in March. Builders, which are included in this index, have been restraining overall growth since the first quarter of 2006. This indicator joins a number of others that indicate the US economy is not in a recession, notwithstanding the overwhelming belief by the bearish herd that it is. I expect this indicator to indicate even greater expansion in May as the effects of the economic stimulus package further take hold.

Bull Radar

Style Outperformer:

Large-cap Growth (+.06%)

Sector Outperformers:

Construction (+2.0%), Energy (+1.42%) and Homebuilders (+1.0%)

Stocks Rising on Unusual Volume:

BRY, MSFT, ANSS, BRY, GLBL, STEC, BRP, UFPT, VISN, ENG, HAIN, AMRI, MPEL, HNSN, CHNR, CVGI, PRGN, BIDZ, JRCC, MORN, CLDN, DRYS, BUCY, HLEX, MVL, CRY, WLT and LZ

Stocks With Unusual Call Option Activity:

1) CLR 2) MVL 3) BUD 4) WLT 5) YHOO

Links of Interest

Market Snapshot Commentary
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Sector Performance
WSJ Data Center
Top 20 Biz Stories
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Monday Watch

Weekend Headlines
Bloomberg:
- Billionaire Warren Buffett’s Berkshire Hathaway(BRK/A) said profit plunged 64% to the lowest since 2005 as falling rates cut returns from insurance operations and the company marked down the value of derivative contracts.
- Warren Buffett, CEO of Berkshire Hathaway(BRK/A), said the global credit crunch has eased for bankers, and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns(BSC). “The worst of the crisis in Wall Street is over,” Buffett said.
- Billionaire Warren Buffett’s Berkshire Hathaway(BRK/A) has spent $4 billion investing in the municipal auction-rate bond market. “Those are extreme dislocations,” Buffett said. “Those are great time to make unusual amounts of money.”
- Former IMF head Rodrigo de Rato said the worst of the credit crisis is over and that the recent strengthening in the US dollar is justified.
- Chris Loong, head of currency and asset allocation at State Street Global Advisors says the US dollar may extend its rally. (video)
- The US dollar rose the most against the euro since March and reached a two-month high versus the yen as traders bet the Federal Reserve will stop cutting interest rates and the US lost fewer jobs in April than economists forecast. “The tide is beginning to turn for the dollar on two fronts,” said Jim McCormick, head of global currency strategy at Lehman Brothers Holdings(LEH). “One is that the Fed is becoming less dollar-unfriendly. The other is a clear signal that economies outside the US are starting to slow.” “It’s pretty likely we’ve seen the lows in the dollar,” said Robert Sinche, head of global currency strategy at Bank of America. “Buy the dollar,” said Benedikt Germanier, a currency strategist at UBS AG. “The dollar will go to $1.52 in a straight line.”
- Microsoft Corp.(MSFT) walked away from its bid for Yahoo!(YHOO) after failing to agree on a price, a setback to the software maker’s efforts to catch Google Inc.(GOOG) in the online advertising market.
- An Australian index measuring demand for services shrank for the first time in 17 months as rising interest rates and fuel costs prompted consumers to scrap spending plans.
- India may have to suspend trading in some food futures to arrest inflation if parliament calls for it. “If rightly or wrongly people perceive that commodities-futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to head that voice,” Finance Minister Palaniappan Chidambaram said. Prime Minister Singh’s communist allies want to ban futures trading in cooking oil, sugar and other commodities, saying speculators are driving up prices and fanning inflation.
- China warned that cases of hand, food and mouth disease may rise from next month after 22 children died in eastern Anhui province and increased its alert on the epidemic.
- The risk of Australian companies defaulting on their debt fell to the lowest in almost four months, credit-default swaps show. The Markit iTraxx Australia Series 9 Index dropped 6 basis points to 79 basis points in Sydney, according to Citigroup. It is the first time the benchmark has fallen below 80 basis points since January 12.

Wall Street Journal:
- Old Lane, Citigroup’s(C) $4.5 billion hedge fund, is about to become a shadow of its former, underperforming self. In March, Citigroup gave Old Lane’s outside investors, who have claims on about $3 billion of the fund’s money, permission to withdraw early as a result of changes in the fund’s senior management.

Barron’s:
- David Soko, chairman of MidAmerican Energy Holdings, is the most likely candidate to lead Berkshire Hathaway(BRK/A) once Warren Buffet departs.

MarketWatch.com:
- Berkshire Hathaway(BRK/A) has bought portfolios of subprime mortgages and has frozen resets that were due to send the interest rate on those home loans higher, Chairman Warren Buffet said on Sunday.
- With half of US stocks undervalued by one estimate, expect repeats of Thursday, when the Down rose 190 points. Over the last 37 years, the average percentage of stocks deemed to be underpriced, by virtue of having price-to-value ratios no higher than .70, is 19%. That’s less than half the current percentage. There have been only two other occasions since 1980 in which the percentage of underpriced stocks was higher than where it is today.

CNBC.com:
- Money is moving out of commodities and into growth cyclicals such as technology and financials in anticipation of an economic recovery in the second half of 2009. “This is the cheapest I’ve ever seen tech,” said David Bianco, a strategist at UBS Investment Research. “It’s really dirt cheap when you approach valuation…with consideration of interest rates, balance sheets and earnings quality,” Bianco said. Bianco raised UBS’s rating on semiconductors to “overweight” Thursday.

NY Times:
- Jeffrey Peek, CEO of CIT Grourp(CIT), said the commercial lender has sufficient cash to make it through the next year.
- What do you call a surgeon who operates without scalpels, stitching tools or a powerful headlamp to light the patient’s insides? A better doctor, according to a growing number of surgeons who prefer to hand over much of the blood-and-guts portion of their work to medical robots controlled from computer consoles. Many urologists performing prostate surgery view the precise, tremor-free movements of a robot as the best way to spare nerves crucial to bladder control and sexual potency. A robot’s ability to deftly handle small tools may lead to a less invasive procedure and faster recovery for a patient. Robots also can protect surgeons from physical stress and exposure to X-rays that may force them into premature retirement. Visionaries like Dr. Richard M. Satava have predicted that robots would eventually be able to operate as precisely as the world’s greatest surgeons and far more tirelessly, perhaps even in remote locations, through satellite links.

Gizmodo:
- Sony(SNE) Hybrid Fuel Cell Delivers 14 Hours of Cellphone Video, Will Arrive “Soon”

Silicon Alley Insider:
- Why Yahoo(YHOO) Should Go Ahead With Google(GOOG) Outsourcing Deal by Henry Blodget.

Washington Post:
- The superdelegates from the District, Maryland and Virginia are being cornered in grocery stores by their constituents. Some have been threatened with retribution if they vote for one candidate or the other. And many of them now dread the personal phone calls from Obama or Clinton and their surrogates.
- Surgery Shows Promise For Treatment of Diabetes.
- As Sen. Barack Obama tries to secure the Democratic presidential nomination and turn his attention to the presumptive GOP nominee, Sen. John McCain -- a war hero who survived more than five years in enemy captivity -- he is facing a crucial test of one of his driving themes: redefining what it means to be a patriot.

Business Week:
- Is Ethanol Getting a Bum Rap? Corn-based fuel isn’t the villain critics contend, but shifting to other crops is critical. Lat year, American farmers grew a record 13.1 billion bushels of corn on 85 million acres. Of that, 22% went to make about 7 billion gallons of ethanol. That still left enough corn to supply the domestic market, increase exports to record levels, and stockpile a 10% surplus. McKinsey principal Bill Caesar estimates farmers will be able to keep increasing corn-based ethanol production to 15 billion gallons in 2015 without reducing the amount going for food and feed, and without increasing acres planted. The secret: continuing improvements in yields. Absent corn ethanol, food prices would still be up dramatically because of soaring global demand, fast-rising prices for oil and natural gas used to make fertilizer, and climatic factors such as Australia’s drought. It’s also worth noting that these high crop prices save taxpayers billions of dollars in reduced subsidies to farmers – far more than is spent to subsidize ethanol. Merrill Lynch’s(MER) Francisco Blanch, head of global commodity research, figures that oil prices would be at least 15% higher than they are, if not for today’s output of ethanol. Even better is biofuel from feedstocks that don’t eat into food supplies, displace crops, or cause greenhouse gas emissions from plowing up forests or prairies. One prime candidate is switchgrass, perennial prairie plant. Instead of throwing out biofuels, the key is to speed up the transition from corn to crops that offer more benefits.
- One-Third of Germans Want the Mark Back. Many in Germany are nostalgic for the deutsche mark. German economic growth has already been affected by the high euro, Peter Bofinger, an economist at the Univ. of Wuzberg and a German expert on currency policy said. “German exports have stagnate4d in real terms since August,” he said. “The rising euro exchange rate…carries substantial risks for an export-oriented economy like Germany’s.”

USA Today:
- Gas prices slip for first time in weeks, may be near top.
- Retailers from Safeway to RadioShack are offering special discounts to lure consumers in and persuade them to spend some or all of their economic stimulus checks, the first wave of which were deposited into bank accounts this past week.

Forbes:
- The US economy is certainly not deteriorating, and it may be starting to improve. Wages of all US workers on payrolls rose 3.6% y-o-y in the past three weeks, down from over 4% the prior weeks but still up slightly from 3.4% y-o-y in the first quarter of 2008, adjusting for calendar quirks. The 40% discount has priced foreclosed homes at roughly a 15% to 20% discount to replacement cost, which has brought out a lot of buyers nationwide. With incomes rising and banks cutting prices of bank-owned properties(REO), the overhang of REO should disappear by this summer.

c/net:
- Yahoo-Google ad deal could be announced next week.

SmartMoney.com:
- Housing Prices Near or at Bottom? Today home prices have fallen so much, mortgage rates are so low, and personal income is so high – that homes are more affordable today than at any other time, ever. Since the housing market started coming apart two years ago, jobs in the housing sector have already declined by over 1.5 million. That’s about 1% of the whole national labor force, and it takes housing employment back to where it was in 2000 before the so-called “housing bubble” even got started. Which begs the question: How many more jobs are there to lose in this sector?
- Based on recent price action, the bull run in precious metals appears to be over. Millions of investors have bought gold, gold stocks or precious-metal ETFs. Books like “Crash Proof” and “The Coming Economic Collapse” have sold briskly, and commodities conferences with Jim Rogers and other gurus have attracted thousands of attendees. Gold has now become downright mainstream. And while surely gold will have value over the long-term, this one-time leader’s price action in the here and now is anything but encouraging.

Reuters:
- Yahoo(YHOO) may face lawsuit flood after talks collapse.
- Audi to offer electric cars in 5-10 years: report.

Financial Times:
- General Electric(GE) is seeking a buyer for its rail-services unit in a transaction that may be valued at about $4 billion.
- Hillary Clinton said on Sunday she was convinced that energy companies were manipulating oil prices and vowed to launch an investigation if elected president.
- In the past, commodity markets have largely been driven by demand from consumers and industrial users. But demand has surged in recent years from financial investors scrambling to diversify their portfolios. Many have invested in hedge funds that have the flexibility to invest in commodities in all their forms. A spate of new funds have been launched with managers emerging from investment banks or spinning their own groups out of bigger hedge funds. Hedge funds are also increasingly breaking into new ground as the commodities market has become more crowded. One veteran hedge fund manager says: “We are seeing a trend of managers buying less liquid investments.”

TimesOnline:
- Hedge Funds call bottom on Britain’s bank shares. Traders have begun to scale back their “short” positions on shares in Britain’s biggest banks.

RIA Novosti:
- The Russian equipment for Iran’s first nuclear reactor at Bushehr was allowed to proceed to Iran yesterday after being held up in Azerbaijan, citing Iranian Foreign Ministry spokesman Mohammad Al Hosseini. Azerhaijan approved the cargo’s transit after receiving the required documents from the Russian side.

Der Spiegel:
- Deutsche Telekom AG is analyzing a possible takeover of Sprint Nextel Corp.(S), the third-largest US mobile-phone company. Sprint Nextel’s share price drop and the strong euro make the transaction a bargain. Sprint Nextel is valued at less than $1,000 per customer based on a study of takeover scenarios by Merrill Lynch(MER).

El Pais:
- Slower global growth is extending the effects of the financial crisis that began with the collapse of the US subprime mortgage market, IMF director Jaime Caruana wrote. The crisis may spread to emerging economies. “Many of these countries are vulnerable to a contraction in credit, especially those where domestic growth has been dependent on external financing,” Caruana wrote.

Nikkei:
- Mitsubishi Corp. will invest $40 million for a 19.5% stake in Aladdin Capital Holdings LLC, a US hedge fund that is known for corporate bond investment. Aladdin’s performance worsened last year because of the credit crunch, forcing the company to seek an investment from Mitsubishi.

Emerging Markets:
- Fan Gang, an advisor to China’s central bank, said a “too big” revaluation of the yuan may lead to a recession in China. China’s economy is currently going through a “soft landing rather than a hard landing,” and the currency needs to appreciate gradually to prevent a crisis, Fan said.

Shanghai Securities News:
- China’s export growth may decelerate to 10% in 2008 because of a global economic slowdown, citing a researcher affiliated with the Ministry of Commerce. China’s exports grew 26% in 2007 from a year earlier.

China Business Journal:
- China’s consumer prices likely rose 8.1% in April, slowing from 8.3% in March, after prices of some agricultural products fell.

Edge:
- Motorola(MOT) won a $474 million telecommunications network system project from Malaysia’s government.

WAM news agency:
- Soaring rents in Abu Dhabi threaten to trigger an economic and social “crisis” unless curbed, the emirate’s Dept. of Planning and Economy said. Low and middle income families spend as much as half their salaries on rent as prices increased 17% in the first quarter. At the top end of the market, supply of luxury homes is reaching “saturation point,” according to the report.

Weekend Recommendations
Barron's:
- Made positive comments on (GD), (TWX) and (MPEL).
- Made negative comments on (CSCO).

Citigroup:
- Reiterated Buy on (CCK), target $32.
- Downgraded (YHOO) to Sell, target $26.
- Reiterated Buy on (ONNN), target $10.
- Reiterated Buy on (MET), target $70.
- Reiterated Buy on (AOC), target $55.
- Reiterated Buy on (ETN), raised target to $106.

Night Trading
Asian indices are +.25% to +.75% on avg.
S&P 500 futures -.47%.
NASDAQ 100 futures -.44%.

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
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (MVL)/.45
- (TDW)/1.71
- (HEW)/.38
- (MCK)/1.00
- (QGEN)/.15
- (FST)/.88
- (APC)/1.20
- (DIVX)/.14
- (VMC)/.57
- (VM)/.04
- (PPS)/.00
- (CLF)/1.05
- (HGSI)/-.36
- (MWY)/-.27
- (WTW)/.74
- (PPC)/-.75
- (VIP)/.49
- (SMT)/1.17
- (LF)/-.48

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- The ISM Non-Manufacturing report for April is estimated at 49.1 versus 49.6.

Other Potential Market Movers
- The (YUM) analyst conference, Goldman Sachs Alternative Energy Conference, Deutsche Bank Health Care Conference and JPMorgan Energy Symposium could also impact trading today.

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

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for stocks in focus for Monday by MarketWatch.

There are several economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – ISM Non-Manufacturing

Tues. – Weekly retail sales reports

Wed. – Weekly MBA Mortgage Applications report, weekly EIA energy inventory data report, Preliminary 1Q Non-farm Productivity, Preliminary 1Q Unit Labor Costs, Pending Home Sales, Consumer Credit

Thur. – Initial Jobless Claims, Wholesale Inventories, ICSC Chain Store Sales

Fri. – Trade Balance

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Tidewater(TDW), Hewitt Assoc.(HEW), McKesson(MCK), Weight Watchers(WTW), Virgin Mobile(VM), Midway Games(MWY), Cleveland-Cliffs(CLF), Anadarko Petroleum(APC), Vulcan Materials(VMC), Post Properties(PPS), Pilgrim’s Pride(PPC)

Tues. – NYSE Euronext(NYX), Covidien Ltd(COV), St Joe(JOE), MGM Mirage(MGM), Emerson Electric(EMR), DR Horton(DHI), Legg Mason(LM), Disney(DIS), Papa John’s(PZZA), Cisco Systems(CSCO), THQ Inc.(THQI), WMS Industries(WMS), Synchronoss Technologies(SNCR), Alltel(AT), Pitney Bowes(PBI), Louisiana-Pacific(LPX), Estee Lauder(EL), Kenneth Cole(KCP), Sara Lee(SLE), Vornado(VNO)

Wed. – Transocean(RIG), Marsh & McLennan(MMC), Quanta Services(PWR), Checkpoint Systems(CKP), Steris Corp.(STE), Owens Corning(OC), News Corp.(NWS/A), Hansen Natural(HANS), Quicksilver Resources(KWK), Allergan(AGN), Foster Wheeler(FWLT), WellCare Health(WCG), Liz Claiborne(LIZ)

Thur. – Warner Music(WMG), Gartner Inc.(IT), American Superconductor(AMSC), Celgene(CELG), California Pizza(CPKI), VeriSign(VRSN), American Intl. Group(AIG), Activision(ATVI), Nuance Communications(NUAN), Cablevision(CVC), Barr Pharma(BRL), priceline.com(PCLN), Nvidia Corp.(NVDA), El Paso(EP)

Fri. – Sotheby’s(BID)

Other events that have market-moving potential this week include:

Mon. – (YUM) analyst conference, Goldman Sachs Alternative Energy Conference, Deutsche Bank Health Care Conference, JPMorgan Energy Symposium

Tue. – Fed’s Hoenig speaking, (YUM) analyst conference, Deutsche Bank Health Care Conference, Goldman Sachs Alternative Energy Conference, CSFB Basic Materials Conference, Merrill Lynch Technology Conference

Wed. – (ELN) company day, (MFE) investor day, (AMX) analyst meeting, (KND) investor meeting, (GENZ) analyst day, (HUM) investor meeting, Deutsche Bank Health Care Conference, Merrill Lynch Technology Conference, Bank of America Basics/Industrials Conference, Merrill Lynch Global Industries Conference, DA Davidson Financial Services Conference

Thur. – (SYK) analyst meeting, (ASF) analyst day, (ASYT) analyst day, (TXN) analyst meeting, (MTSN) analyst meeting, Needham Internet/Digital Media Conference, DA Davidson Financial Services Conference, Bank of America Basics/Industrials Conference, Merrill Lynch Technology Conference, Merrill Lynch Global Industries Conference

Fri. – (TXN) analyst meeting and (C) analyst presentation

BOTTOM LINE: I expect US stocks to finish the week mixed as a stronger US dollar, lower energy prices, less economic pessimism and mostly positive earnings reports offset profit-taking and more shorting. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,413.90 +1.14%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change