Initial Jobless Claims Fall Slightly, Philly Fed Below Estimates, Leading Indicators Register Back-to-Back Gains

- Initial Jobless Claims for this week fell to 381K versus estimates of 375K and 386K the prior week.

- Continuing Claims fell to 3060K versus estimates of 3135K and 3136K prior.

- Philly Fed for June fell to -17.1 versus estimates of -10.0 and a reading of -15.6 in May.

- Leading Indicators for May rose .1% versus estimates of unch. and a .1% gain in April.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits fell last week, Bloomberg reported. The four-week moving average of jobless claims rose to 375,250 from 372,000 the prior week. During the very mild recession of 2001, weekly jobless claims averaged 415,000. The unemployment rate among those eligible for benefits, which tracks the US I still expect jobless claims to trend modestly lower over the intermediate-term. unemployment rate, fell to 2.3% from 2.4% the prior week.

A Philadelphia-area report showed manufacturing contracted in June slightly more than the prior month, Bloomberg reported. The New Orders component fell to -12.4 from -3.7 the prior month. The Prices Paid component rose to 69.3 from 53.8 in May. The Prices Received component fell to 29.7 from 31.6 the prior month. The Outlook, for the next 6 months, component fell to 21.3 from 28.2 the prior month. I expect this gauge to improve meaningfully next month on inventory rebuilding and an increase in demand.

The index of leading US economic indicators unexpectedly rose in May for a second straight month, a sign that growth may slow without stalling, Bloomberg said. This was the first back-to-back monthly increase in a year and a half. New orders for consumer goods and bookings for capital equipment each added .01 percentage point to the index. Money supply adjusted for inflation, which has the biggest weighting in the index, subtracted .14 percentage point. Confidence also was a drag, taking away .06 point from the index. I still expect US 2Q GDP growth to exceed economists’ estimates of a .5% gain. Growth should continue to improve modestly in the second half, as well.

Bull Radar

Style Outperformer:

Small-cap Growth (+.35%)

Sector Outperformers:

Road & Rail (+3.0%), Airlines (+2.67%) and Steel (+1.53%)

Stocks Rising on Unusual Volume:

ESLR, SWC, SLAB, SNP, PTR, X, WYE, GSK, PDO, SHI, WB, CWST, GROW, JRCC, HWAY, LNCR, ENER, LSTR, IPSU, AAUK, ENOC, PTRY, FUQI, TWIN, ZEUS, USNA, CRVL, CPRT, APL, HEW, AHG and HNP

Stocks With Unusual Call Option Activity:

1) MPEL 2) LPX 3) PTR 4) HUN 5) UNH

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Central banks and sovereign investment funds are buying mortgage-backed bonds at about the same rate as in recent years as their rising cash hoards offset falling appetite for the debt, according to UBS AG analysts.
- Washington Mutual(WM) said it is dedicating $1 billion to help subprime borrowers with their loans.
- Senator Joseph Lieberman, a Connecticut independent, issued a proposal that could ban institutional investors with more than $500 million in assets from buying commodities. A second proposal would limit the share of commodities held by investors across all exchanges and a third would impose position limits on financial investors not engaged in “bona fide” commodity investing. Lieberman’s measure would be one of at least five proposed in the Senate to try to curb any speculative effects on the price of commodities. Investment groups struck back at the congressional proposals, sending a letter to lawmakers today, cautioning them not to over-regulate financial services. Proposals to raise margin requirements, ban speculation or alter international agreements may undermine markets, the letter said.
- Coventry Health Care(CVH), the Maryland-based HMO, reduced its projected earnings for the second time on higher costs, pulling down shares of Aetna Inc.(AET), WellPoint Inc.(WLP) and other insurers.
- MSCI Inc. will decide within 12 months whether to reclassify South Korea and Israel as developed countries, elevating them from its emerging market indexes.
- China and the US agreed to negotiate an investment treaty and urged each other to strengthen their exchange rates in the fourth round of semiannual economic talks.

Wall Street Journal:
- Treasury Secretary Henry Paulson is expected to call for faster changes to the oversight of financial markets that would expand the role of the Federal Reserve.

MarketWatch.com:
- Is the oil market at $135 per barrel forming a bubble, vulnerable to being popped like Internet stocks did in March 2000? One adviser who has focused on these issues is John Dessauer, editor of the Investors World newsletter. In a recent communication to subscribers, he discussed the impact on the price of oil of the Commodity Futures Modernization Act, which Congress passed in December 2000. One consequence of that legislation, according to Dessauer, is that "the oil market has been grossly distorted." Dessauer estimates that if the government rolled back the regulatory changes made in that legislation, oil's price could fall back all the way to $80 per barrel. That would represent a 40% drop from where crude closed on Tuesday. Dessauer's analysis should give pause to investors and traders alike.
- Thermal solar technology catching the spotlight.
- Yahoo(YHOO) loses two more prominent execs.

NY Times:
- Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power. For an industry being frozen out of new ventures in the world’s dominant oil-producing countries, from Russia to Venezuela, Iraq offers a rare and prized opportunity. The impact, experts say, could be remarkable increases in Iraqi oil output.

Forbes.com:
- A trade group representing hedge funds spent $660,000 in the first quarter to lobby Congress against a proposal to hike taxes on the industry and on other regulatory issues.

CNNMoney.com:
- YouTube goes long. The popular video site is experimenting with full-length video to attract more advertisers.

Reuters:
- Hewlett-Packard(HPQ) obtains $8 billion loan commitment to help finance its acquisition of Electronic Data Systems(EDS).
- Japanese manufacturers’ business sentiment in June matched a five-year low set in May as firms felt the pinch from high raw material costs and a global economic slowdown.

Financial Times:
- It’s getting harder to resist the notion that the leveraged loan market may be on the road to recovery.

Daily Telegraph:
- Al Gore’s electricity bill goes through the (insulated) roof. Environment campaigner Al Gore is using more electricity than ever despite pledging to cut consumption more than a year ago, a libertarian research group claims. The TCPR branded him a “hypocrite” in February 2007 after discovering that his eight-bathroom house in Nashville, TN consumed nearly 221,000 kilowatt-hours of electricity in the previous year – more than 20 times the national average.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SMTS), boosted target to $24.
- Reiterated Buy on (NUAN), added to Top Picks Live List, target $24.
- Upgraded (AIG) to Buy, target $42.
- Reiterated Buy on (TER), target $17.

Night Trading
Asian Indices are -2.0% to -1.25% on average.
S&P 500 futures -.07%.
NASDAQ 100 futures -.29%.

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Earnings of Note
Company/EPS Estimate
- (JW/A)/.35
- (CC)/-1.07
- (CCL)/.41
- (ATU)/.55
- (SJM)/.78
- (GRB)/.24
- (PDC)/.24

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to fall to 375K versus 384K the prior week.
- Continuing Claims are estimated to fall to 3135K versus 3139K the prior week.

10:00 am EST
- The Philly Fed for June is estimated at -10.0 versus -15.6 in May.
- Leading Indicators for May are estimated unch. versus a .1% gain in April.

Other Potential Market Movers
- The EIA weekly natural gas inventory report, (MCK) analyst meeting, (HIG) investor day, (ARO) analyst day, (TD) analyst meeting, (ESLR) analyst day, (MET) investor day, BIO International Convention, Deutsche Bank Consumer & Food Retail Conference, Merrill Lynch Transports Conference, BMO Capital eMerging Media Forum, William Blair Growth Stock Conference and Bank of America Homebuilders Conference could also impact trading today.

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

Stocks Finish Lower, Weighed Down by Bank, Airline, Gaming, Retail, Semi Shares

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In Play

Stocks Lower into Final Hour on Rise in Oil, Bank Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Computer longs and Gaming longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising 2.8% and remains above average at 21.7. The ISE Sentiment Index is below average at 118.0 and the total put/call is high at 1.10. Finally, the NYSE Arms has been running high most of the day and is currently 1.31. The Euro Financial Sector Credit Default Swap Index is rising 6.7% today to 76.46 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is rising 2.4% today to 108.37. The TED spread is rising 5.4% today to .88 basis points. On the positive side, the NYSE Arms hit a very high 2.24 this morning. Investor pessimism is reaching very high levels once again. However, it seems the bears may be running low on firepower. The (XLF) has trimmed losses meaningfully as the I-Banks trade 1.3% higher on the day. A number of leading growth stocks are actually higher today, despite losses in the headline averages and the rise in oil. Nikkei futures indicate a -92 open in Japan and DAX futures indicate an +11 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting and short-covering.