Earnings Announcements
Company/Estimates
CHP/.16
CTAS/.39
DG/.34
IMCL/-.32
L/.05
THC/.02
VXGN/-.15
Splits
CTX 2-for-1
Economic Data
Empire Manufacturing estimated at 38.0 for March vs. 42.05 in February.
Industrial Production for February estimated up .4% vs. up .8% in January.
Capacity Utilization for February estimated at 76.4% vs. 76.2% in January.
Weekend Recommendations
Louis Rukeyser's Wall Street had featured guests that were positive on MRX, WPI, ZBRA, FISV, HDI, CECO, EOG, SHW, AXP and AIG, while they had negative comments on cyclicals and bonds. Forbes on Fox had guests that were positive on OPSW, JBLU, PFE, AZN, MRK and JNJ. Bulls and Bears had guests that were positive on JNJ, EBAY, SYMC, PFE, mixed on C and negative on SMH. Cashin' In had guests that were positive on XOM, BP, UPL, WM and mixed on MSO and MCD. Goldman Sachs reiterated Outperform on POL and $8 target. GS reiterated Outperform on A and WFC. GS raised EBAY 1Q earnings and revenue estimates and reiterated Outperform. Fortune has a positive article on homebuilders. Barron's has positive articles on C, CUB and a negative article on MAMA. GE's new interest in solar power has many becoming bullish on the solar sector, NY Times reported. Changes in the S&P indices will cause selling pressure in WMT and buying pressure in XOM and GE, the San Francisco Chronicle reported.
Weekend News
Qualcomm customers are complaining about long lead times and partial shipments. OPEC looks set to apply the oil production cut, there's talk of a new higher price band, reported Channelnews Asia. The Economist.com has a very good article that I highly recommend reading. The impeachment of South Korean President Roh Moo Hyun may impact Japanese exports and negotiations toward a free trade agreement between Japan and South Korea, Bloomberg reported. U.S. companies are scrounging for scrap metal as surging demand from China is keeping U.S. metal supplies tight, and dealers busy, the New York Times reported. Chinese Premier Wen Jiabao said economic imbalances such as transport bottlenecks energy shortages and rising consumer prices present as big a challenge to the government as SARS did last year, Bloomberg reported. NYC agencies are increasing their use of technology, including satellite-tracking devices and handheld computers, in an effort to cut costs, boost efficiency and improve services, the NY Times reported. About 1,000 NYC firefighters, police, medical experts and other emergency personnel will participate today in a "weapons of mass destruction" drill, the NY Post reported. Three buyout firms agreed to buy a unit of EDS for $2B, the Wall Street Journal reported. Spain's government received a video-tape, hours before their elections, purportedly from al-Qaeda claiming the terrorist group was behind the Madrid bombings. Subsequently, the Socialist party unexpectedly ousted the ruling Popular Party that had been in power for 8 years.
Late-Night Trading
Asian indices are mostly higher, with the exception of Taiwan. Gains range from +.5% to +1.5%. Taiwan is down 2.36%.
S&P 500 indicated -.14%.
NASDAQ indicated -.10%.
BOTTOM LINE: The message the Spanish people sent to al-Qaeda, by unexpectedly voting the ruling party out of power, is that terror pays. This may result in a lower open for U.S. stocks as investors contemplate the possibility of an al-Qaeda led attack on our soil before U.S. elections in an attempt to influence the outcome here, as well. I will buy on any significant weakness in the morning as I believe it will be short-lived. The portfolio is 75% net long heading into the week.
Monday, March 15, 2004
Sunday, March 14, 2004
Chart of the Week
30-year Current Price/Earnings Ratio Chart for the S&P 500
BOTTOM LINE: The S&P 500 P/E on current estimates is 22.5 and falling on the fastest GDP growth since the mid-80's. In the late 80's, the current P/E was at similar levels, yet the 10-year long-bond yield was 155% higher than today's rate of 3.76%. While the S&P 500's P/E in the mid-70's to mid-80's was lower, the U.S. economy was mired in the worst recession of our time and the 10-year long-bond was on its way to an astronomically high yield near 16.0% in 1981.
BOTTOM LINE: The S&P 500 P/E on current estimates is 22.5 and falling on the fastest GDP growth since the mid-80's. In the late 80's, the current P/E was at similar levels, yet the 10-year long-bond yield was 155% higher than today's rate of 3.76%. While the S&P 500's P/E in the mid-70's to mid-80's was lower, the U.S. economy was mired in the worst recession of our time and the 10-year long-bond was on its way to an astronomically high yield near 16.0% in 1981.
Weekly Outlook
Investors will have a number of economic data points to study in the coming week, as well as a few important earnings reports. Empire Manufacturing, Industrial Production, Capacity Utilization, Housing Starts, CPI, Philly Fed and Leading Indicators are all scheduled for release next week. Industrial Production, CPI and Housing Sales are the most important releases. Industrial Production is estimated +.4% in February versus a .8% increase in January. The CPI is expected to have risen .3% in February versus a .5% rise in January. Finally, Housing starts in February are estimated at 1940K versus 1903K in January.
Cintas(CTAS), Imclone(IMCL), Tenet Healthcare(THC), Lennar(LEN), FedEx(FDX), Adobe(ADBE), Biogen(BGEN), Barnes & Noble(BKS), Morgan Stanley(MWD), Paychex(PAYX), Nike(NKE), OfficeMax(OMX), Solectron(SLR), Williams-Sonoma(WSM) and Carnival(CCL) are some of the more important companies that release quarterly earnings this week. The FOMC policy meeting, semiconductor book-to-bill, Hewlett-Packard's annual meeting and Friday's "triple witching" option expiration also have market-moving potential.
BOTTOM LINE: The Homebuilding, I-banking and Retail sectors should outperform this week as falling interest rates, tax-cut stimulus and better weather provided the back-drop for better-than-expected earnings reports. The Fed will leave rates unchanged at its policy meeting, however the market will focus intensely on any statements it makes regarding inflation or job creation. Notwithstanding al-Qaeda's apparent involvement in the Madrid bombings, I expect the market to follow-through on Friday's rally early this week. I would like to see better volume on the up-side. The Portfolio is 75% net long and I will look to add recently beaten-up stocks in the morning, with the intention of selling them as the rally runs out of steam later in the week. I am not ruling out the possibility that the major indices formed an intermediate-term bottom last week as fundamentals have improved with falling stock prices, leaving many sectors at very attractive valuation levels. The S&P 500 2004 P/E is 18.1(where it is was in the late 80's and down over 60% from its high set in 02), the economy is growing the fastest since the mid-80's, interest rates are still near 46-year lows, corporate profitability is at all-time highs, American's net-worth is at all-time highs, corporate spending is improving, consumer spending remains strong, the Fed remains on hold as inflation hovers near all-time lows, energy prices will likely fall into the spring, the unemployment rate is falling with improvement in job creation around the corner and the U.S. dollar has stabilized. These are all very important reasons that I believe the recent weakness is just a healthy correction in a good bull market that began a year ago.
Cintas(CTAS), Imclone(IMCL), Tenet Healthcare(THC), Lennar(LEN), FedEx(FDX), Adobe(ADBE), Biogen(BGEN), Barnes & Noble(BKS), Morgan Stanley(MWD), Paychex(PAYX), Nike(NKE), OfficeMax(OMX), Solectron(SLR), Williams-Sonoma(WSM) and Carnival(CCL) are some of the more important companies that release quarterly earnings this week. The FOMC policy meeting, semiconductor book-to-bill, Hewlett-Packard's annual meeting and Friday's "triple witching" option expiration also have market-moving potential.
BOTTOM LINE: The Homebuilding, I-banking and Retail sectors should outperform this week as falling interest rates, tax-cut stimulus and better weather provided the back-drop for better-than-expected earnings reports. The Fed will leave rates unchanged at its policy meeting, however the market will focus intensely on any statements it makes regarding inflation or job creation. Notwithstanding al-Qaeda's apparent involvement in the Madrid bombings, I expect the market to follow-through on Friday's rally early this week. I would like to see better volume on the up-side. The Portfolio is 75% net long and I will look to add recently beaten-up stocks in the morning, with the intention of selling them as the rally runs out of steam later in the week. I am not ruling out the possibility that the major indices formed an intermediate-term bottom last week as fundamentals have improved with falling stock prices, leaving many sectors at very attractive valuation levels. The S&P 500 2004 P/E is 18.1(where it is was in the late 80's and down over 60% from its high set in 02), the economy is growing the fastest since the mid-80's, interest rates are still near 46-year lows, corporate profitability is at all-time highs, American's net-worth is at all-time highs, corporate spending is improving, consumer spending remains strong, the Fed remains on hold as inflation hovers near all-time lows, energy prices will likely fall into the spring, the unemployment rate is falling with improvement in job creation around the corner and the U.S. dollar has stabilized. These are all very important reasons that I believe the recent weakness is just a healthy correction in a good bull market that began a year ago.
Market Week in Review
S&P 500 1,120.57 -3.14%
The S&P 500 had its biggest weekly drop in more than five months on continued profit-taking and anxiety about terrorism following the bombings in Spain that killed almost 200 and injured over 1,400. All 10 S&P 500 industry groups declined for the week, the first time this has happened since November. The Volatility Index(VIX), a measure of investor fear, rose 26.4% for the week to 18.30, its largest weekly gain in more than a year. The AAII Bullish % dropped 13.7% to 41.29 in another sign that investor anxiety is increasing.
The week began with weakness in semiconductors on continued fears of a slowdown after Intel's mid-quarter update. The weakness quickly spread to the entire technology sector, resulting in a break through some key intermediate-term support levels on the NASDAQ. Healthcare-related companies took a beating mid-week as Tenet Healthcare, the second-largest U.S. hospital company, had its credit rating cut by S&P. As well, pharmaceutical companies fell on news of investigations and lawsuits by the U.S. government and the AARP's demands for voluntary price controls and support for drug importation. Supermarket stocks fell substantially as WalMart continues to take market share. Finally, airlines were crushed after investors concluded that the terrorist attacks in Spain, coupled with high oil prices, will lead to significant financial distress for the major carriers.
The week ended on a positive note, as the market experienced a broad-based oversold rally on Friday. Falling energy prices, falling mortgage rates and the markets technically oversold state all led to Friday's positive action.
BOTTOM LINE: The major indices sustained some pretty bad technical damage over the course of the week. My analysis leads me to conclude that the major indices may rally a bit further before a test of the recent lows. The volume on Friday's rally was light and most of my short-term trading indicators are giving sell signals from oversold positions. Company fundamentals continue to improve as stock prices drop, leading to very reasonable valuations in most sectors. Thus, while I feel the correction has a bit further to go, I do not expect significant declines from here. I will look to scale into long positions in my favorite stocks as I think this correction presents a tremendous opportunity for significant profits later in the year.
The S&P 500 had its biggest weekly drop in more than five months on continued profit-taking and anxiety about terrorism following the bombings in Spain that killed almost 200 and injured over 1,400. All 10 S&P 500 industry groups declined for the week, the first time this has happened since November. The Volatility Index(VIX), a measure of investor fear, rose 26.4% for the week to 18.30, its largest weekly gain in more than a year. The AAII Bullish % dropped 13.7% to 41.29 in another sign that investor anxiety is increasing.
The week began with weakness in semiconductors on continued fears of a slowdown after Intel's mid-quarter update. The weakness quickly spread to the entire technology sector, resulting in a break through some key intermediate-term support levels on the NASDAQ. Healthcare-related companies took a beating mid-week as Tenet Healthcare, the second-largest U.S. hospital company, had its credit rating cut by S&P. As well, pharmaceutical companies fell on news of investigations and lawsuits by the U.S. government and the AARP's demands for voluntary price controls and support for drug importation. Supermarket stocks fell substantially as WalMart continues to take market share. Finally, airlines were crushed after investors concluded that the terrorist attacks in Spain, coupled with high oil prices, will lead to significant financial distress for the major carriers.
The week ended on a positive note, as the market experienced a broad-based oversold rally on Friday. Falling energy prices, falling mortgage rates and the markets technically oversold state all led to Friday's positive action.
BOTTOM LINE: The major indices sustained some pretty bad technical damage over the course of the week. My analysis leads me to conclude that the major indices may rally a bit further before a test of the recent lows. The volume on Friday's rally was light and most of my short-term trading indicators are giving sell signals from oversold positions. Company fundamentals continue to improve as stock prices drop, leading to very reasonable valuations in most sectors. Thus, while I feel the correction has a bit further to go, I do not expect significant declines from here. I will look to scale into long positions in my favorite stocks as I think this correction presents a tremendous opportunity for significant profits later in the year.
Saturday, March 13, 2004
Economic Week in Review
ECRI Weekly Leading Index 134.20 +.45%
Sales at U.S. retailers rose .6% in February, meeting expectations, as consumers took advantage of higher tax refunds and better weather to buy automobiles and shop at department stores. The average tax refund Americans have received so far his year is $2,182, up 4.4% from this time last year. Consumer spending is now projected to increase 3.6% this quarter and 3.9% in the 2nd quarter. "January and February were probably our best months that we've had in, I think, forever, but definitely in years," said Sandy Beall, the CEO of Ruby Tuesday said.
The number of Americans filing initial unemployment claims fell last week to 341,000, approaching a 3-year low. Applications decreased from 347,000 the week before. First-time applications reached 339,000 in the week ended Jan. 23, matching the last week of December as the fewest since January 2001. The U.S. economy is showing "increasing signals of recovery that should boost job growth soon," Federal Reserve Chairman Alan Greenspan said. He also said, "We have reason to be confident that new jobs will replace old ones as they always have." He warned against protectionist measures that would result in "stagnated growth and harm our standard of living." Greenspan reiterated his view that low-skilled labor needs to be retrained.
Inventories at U.S. businesses rose a less-than-expected .1% in January as companies struggled to keep up with rising sales. The inventory-to-sales ratio held at a record low of 1.33 months. Factories will have to step up production in the coming months to replenish stockpiles, giving a boost to GDP, economists said.
The preliminary reading of the Univ. of Mich. Consumer Confidence Index for March was 94.1, slightly below expectations of 94.5. High gas prices, political negativity, the mainstream media's obsession with all that is negative and "slower-than-expected" job growth all contributed to the slight decline is confidence. "If you look at what consumers are doing as opposed to what they are telling pollsters, it's actually a pretty good story," said Henry Willmore, chief U.S. economist for Barclays Capital Inc. in New York.
BOTTOM LINE: Economic data points continue to show a rapidly growing economy. I am seeing signs that companies are missing out on sales due to their record low inventories. I expect that this will result in an accelerated rate of production shortly. I am not troubled by the decline in consumer confidence as long as retail spending remains strong. I also agree with Alan Greenspan's statements that good job creation will come shortly.
Sales at U.S. retailers rose .6% in February, meeting expectations, as consumers took advantage of higher tax refunds and better weather to buy automobiles and shop at department stores. The average tax refund Americans have received so far his year is $2,182, up 4.4% from this time last year. Consumer spending is now projected to increase 3.6% this quarter and 3.9% in the 2nd quarter. "January and February were probably our best months that we've had in, I think, forever, but definitely in years," said Sandy Beall, the CEO of Ruby Tuesday said.
The number of Americans filing initial unemployment claims fell last week to 341,000, approaching a 3-year low. Applications decreased from 347,000 the week before. First-time applications reached 339,000 in the week ended Jan. 23, matching the last week of December as the fewest since January 2001. The U.S. economy is showing "increasing signals of recovery that should boost job growth soon," Federal Reserve Chairman Alan Greenspan said. He also said, "We have reason to be confident that new jobs will replace old ones as they always have." He warned against protectionist measures that would result in "stagnated growth and harm our standard of living." Greenspan reiterated his view that low-skilled labor needs to be retrained.
Inventories at U.S. businesses rose a less-than-expected .1% in January as companies struggled to keep up with rising sales. The inventory-to-sales ratio held at a record low of 1.33 months. Factories will have to step up production in the coming months to replenish stockpiles, giving a boost to GDP, economists said.
The preliminary reading of the Univ. of Mich. Consumer Confidence Index for March was 94.1, slightly below expectations of 94.5. High gas prices, political negativity, the mainstream media's obsession with all that is negative and "slower-than-expected" job growth all contributed to the slight decline is confidence. "If you look at what consumers are doing as opposed to what they are telling pollsters, it's actually a pretty good story," said Henry Willmore, chief U.S. economist for Barclays Capital Inc. in New York.
BOTTOM LINE: Economic data points continue to show a rapidly growing economy. I am seeing signs that companies are missing out on sales due to their record low inventories. I expect that this will result in an accelerated rate of production shortly. I am not troubled by the decline in consumer confidence as long as retail spending remains strong. I also agree with Alan Greenspan's statements that good job creation will come shortly.
Friday, March 12, 2004
Weekly Scoreboard*
Indices
S&P 500 1,120.57 -3.14%
Dow 10,240.08 -3.35%
NASDAQ 1,984.73 -3.07%
Russell 2000 582.84 -2.78%
Wilshire 5000 10,968.18 -3.06%
Volatility(VIX) 18.30 +26.38%
AAII Bullish % 41.29 -13.67%
US Dollar 89.12 +1.10%
CRB 271.50 -.73%
Futures Spot Prices
Gold 395.60 -1.57%
Crude Oil 36.19 -2.98%
Natural Gas 5.60 +3.24%
Base Metals 108.59 -1.17%
10-year US Treasury Yield 3.76% -2.36%
Average 30-year Mortgage Rate 5.41% -3.22%
Leading Sectors
Broadcasting -1.21%
Transports -1.25%
HMO's -1.66%
Lagging Sectors
I-Banking -4.96%
Iron/Steel -5.78%
Airlines -6.71%
*% Gain or loss for the week
S&P 500 1,120.57 -3.14%
Dow 10,240.08 -3.35%
NASDAQ 1,984.73 -3.07%
Russell 2000 582.84 -2.78%
Wilshire 5000 10,968.18 -3.06%
Volatility(VIX) 18.30 +26.38%
AAII Bullish % 41.29 -13.67%
US Dollar 89.12 +1.10%
CRB 271.50 -.73%
Futures Spot Prices
Gold 395.60 -1.57%
Crude Oil 36.19 -2.98%
Natural Gas 5.60 +3.24%
Base Metals 108.59 -1.17%
10-year US Treasury Yield 3.76% -2.36%
Average 30-year Mortgage Rate 5.41% -3.22%
Leading Sectors
Broadcasting -1.21%
Transports -1.25%
HMO's -1.66%
Lagging Sectors
I-Banking -4.96%
Iron/Steel -5.78%
Airlines -6.71%
*% Gain or loss for the week
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