Mid-day Update

S&P 500 1,132.60 +.91%
NASDAQ 1,999.80 +1.07%

Leading Sectors
Gaming +4.24%
Homebuilders +2.41%
Semis +2.18%

Lagging Sectors
Restaurants +.14%
Broadcasting -.04%
Biotech -.41%

Other
Crude Oil 38.30 -.49%
Natural Gas 6.20 -.97%
Gold 394.20 +.64%
Base Metals 108.12 +1.75%
U.S. Dollar 88.21 -.37%
10-Yr. T-note Yield 4.77% -.04%
VIX 15.85 -5.42%
Put/Call .66 -33.33%
NYSE Arms .51 -20.31%

Market Movers
MBG +17.44% after announcing its $4.85 billion acquisition by MGG.
IMCL +9.66% after a recent study showed that its Erbitux medicine helped patients with head and neck cancers live twice as long.
LACO +14.2% on takeover speculation.
DW +6.58% after saying it had been ranked in IBD's Top 100.
CRDN +8.65% on continuing speculation that it will win new body armor contracts from the U.S. government.
CBI -9.90% after cutting 2Q and 04 forecasts substantially.
WEBX -9.61% after ThinkEquity cut to Sell.

Economic Data
None of note.

Recommendations
XMSR and SIRI rated Overweight at JP Morgan. BA raised to Overweight at Lehman, target $55. KFY raised to Buy at UBS. MCRL cut to Sell at Bank of America, target $9. Goldman reiterated Outperform on PFE, FON, WMT, AMGN, DNA, BIIB, MDT, CLS, EBAY, AMLN.

Mid-day News
U.S. stocks are broadly higher mid-day on merger activity, falling energy prices and stabilizing interest rates. Primus Telecom is selling a $19.95 a month phone service over the Internet that allows consumers to make unlimited calls in the U.S., Canada and Western Europe, the Wall Street Journal reported. California lawmakers want to crack down on insurance companies that support questionable tax shelters and pay fines for taxpayers who use illegal shelters, the LA Times reported. U.S. and state officials investigating abusive trading in the mutual fund industry will look into whether fund companies paid brokers to push investors towards particular funds, the LA Times reported. The sentencing date for Martha Stewart and her former broker Peter Bacanovic was moved to July 8 from June 17 because of a defense request, CNBC reported. The IMF may raise its forecast for global economic growth amid a continuing vigorous recovery in the U.S. and a stronger-than-expected expansion in Japan, the Financial Times said. McDonalds said global same-store-sales climbed a robust 7.4% in May, Bloomberg reported. Continental Air dropped a round-trip fare increase of as much as $40 after some competitors didn't adopt the higher prices in all markets, Bloomberg reported. A UN resolution on the transfer of power in Iraq from a U.S.-led coalition to an interim government of Iraqis should happen within "the next couple of days or so," Condoleezza Rice said. The NYSE will close Friday to mark the funeral of President Ronald Reagan, Bloomberg reported.

BOTTOM LINE: The Portfolio is up modestly today as my tech longs are rising more than my declining biotech longs. Complacency is starting to creep back into the market as the ARMs, VIX and Put/Call readings are all falling. However, lower energy prices and the decline in interest rates over the last hour should allow stocks to maintain good gains today. I have not traded today and the Portfolio is still 125% net long.

Monday Watch

Earnings of Note
Company/Estimate
BOBE/.54
DAB/.23
OLG/.31
UTIW/.32

Splits
RIMM 2-for-1

Economic Data
Consumer Credit for April estimated at $6.0 billion versus $5.7 billion in March.

Weekend Recommendations
Forbes on Fox had guests that were positive on SU, PRU and mixed on HMA. Bulls and Bears had guests that were positive on MWY, CNA, MEE, CNX, ACI, mixed on PFE, JNJ, ACN, VAR, DIS, XOM, EAT and negative on JNPR, AMAT and TMA. Cashin' In had guests that were positive on WWU, DGX, MAR, YHOO and mixed on TOM. Louis Rukeyser's Wall Street had guests that were positive on WYE, VIA, ACI, CECO, SPLS, JEC, PFE, TEVA and AIG. Wall St. Week w/Fortune had guests that were positive on WTW, G, TOL, WCI, PHM, ATH, SGEN, LEA, EADS, BAC, PRU, SUNW and NEM. Barron's had positive columns on KRB, LAB and CEG.

Weekend News
Wipro, India's third-largest software services company, plans to buy a company in the U.S., the Economic Times reported. Alcatel SA, the world's largest maker of broadband Internet equipment, sees the beginning of a rebound and expects its markets to expand faster than the economy, Le Figaro reported. Former U.S. President Ronald Reagan, who championed shrinking government at home and ending communism abroad, died after a lengthy struggle with Alzheimer's disease, ABC news reported. The U.S. agreed to South Korea's proposal on a plan to end North Korea's nuclear weapons program, Yonhap news reported. Militants loyal to al-Sadr started withdrawing yesterday from the Iraqi cities of Najaf and Kufa, where they have been fighting U.S. forces since April, the New York Times reported. Abbott Labs may take in $2 billion in sales from its Norvir AIDS medicine in the next 10 years, the Chicago Tribune reported. U.S. armed forces recruitment hasn't been affected by the conflict in Iraq and the recruiters are close to achieving their annual quotas, the LA Times said. Speculation that General Mills might be taken over by Nestle is probably wrong, the Wall Street Journal reported. MGM Mirage's $7.65 billion bid for rival casino company Mandalay Resort Group is an attempt to gain dominance over the Las Vegas Strip, Bloomberg reported. Experimental medicines from Pfizer, Genentech and Onyx Pharmaceuticals may offer new weapons for kidney-cancer patients who currently have few treatment options, Bloomberg reported. ImClone Systems' Erbitux medicine helped patients with head and neck cancers live twice as long as those who received the standard treatment in a recent study, Bloomberg reported. Texas Instruments won its first order from Samsung Electronics for a chip that runs cameras and video players in mobile phones, Bloomberg said.

Late-Night Trading
Asian indices are sharply higher, +1.0% to +3.0% on average.
S&P 500 indicated +.43%.
NASDAQ indicated +.41%.

BOTTOM LINE: I expect U.S. stocks to open higher in the morning on a delayed positive reaction to Friday's employment report, declining energy prices, strength in Asia, positive news in the fight against cancer, no significant terrorist attacks over the weekend and continuing improvements in Iraq. The Portfolio is 125% net long heading into tomorrow.

Chart of the Week

Bottom Line: A significant decline in jobs growth began in early 2000 as the stock market bubble burst and the economy began to slow dramatically. Job losses hit their worst levels after the September 11th terrorist attacks. As well, it took awhile for the U.S. economy to burn off the excess capacity generated by the financial recklessness of the later part of the 90's. Tax cuts, low interest rates and increased government spending stimulated demand enough to burn off this massive excess capacity in a relatively short period of time. The U.S. economy has now reached a point were it can sustain itself without excessive stimulus. Corporate profits are soaring, allowing companies to hire more people and to spend more on equipment that will make them even more productive. As corporate spending accelerates, the need for more workers is increasing and incomes are growing. More jobs and higher incomes are more than offsetting an increase in interest rates and energy prices, thus allowing consumer demand to remain at very high levels.

Weekly Outlook

There are a few important economic reports and several significant corporate earnings reports scheduled for release this week. Economic reports this week include Consumer Credit, Wholesale Inventories, Import Price Index, Initial Jobless Claims, Monthly Budget Statement, Trade Balance, Producer Price Index and preliminary Univ. of Mich. Consumer Confidence. The Producer Price Index and Consumer Confidence reading both have market-moving potential.

Take-Two Interactive(TWO), Tommy Hilfiger(TOM), H&R Block(HRB), Martek Biosciences(MATK), Omnivision Technology(OVTI) and National Semiconductor(NSM) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The CIBC Communications and Technology Food Chain Conference, Goldman Sachs Healthcare Conference, Deutsche Bank Media Conference, EEII Convention and Expo, the Fed's Kohn speaking to the National Economist Club, Pacific Growth Equities Life Sciences Conference, the Fed's Guynn speaking in Atlanta and Greenspan's testimony to an international monetary conference could all impact trading this week.

Bottom Line: I expect U.S. stocks to rise modestly this week on a continuation of the fall in energy prices and positive news from multiple conferences. As well, the relatively high Put/Call and ARMS readings and another fall in the AAII % Bulls last week also bodes well for stocks. However, any rise will likely be muted by resurfacing inflation fears and rising interest rates as I expect Producer Prices and Consumer Confidence to exceed expectations at the end of the week. My short-term trading indicators are still giving buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,122.50 +.11%

U.S. stocks finished mixed last week as falling energy prices and rising interest rates led many investors to remain on the sidelines. Market volatility increased, investor complacency decreased and volume was light. The holiday-shortened week began with investor anxiety over terrorist attacks in Saudi Arabia sending oil prices higher and stocks lower. As well, Merrill Lynch made negative comments on Intel ahead of its mid-quarter update which weighed on technology shares early on. As OPEC began to make significant comments with respect to their determination to see lower oil prices, stocks began to rally. However, investor jitters resurfaced quickly ahead of Intel's update, President Bush's trip to Europe and the May jobs report. Finally, stocks finished the week on a modestly strong note as Intel strengthened its revenue guidance range and the U.S. jobs report exceeded expectations.

There were a few other positive developments during the week. Auto sales exceeded expectations as dealers said they were seeing no ill-effects from higher gas prices and interest rates. Same-store-sales for retailers were especially strong in May. Wal-Mart and J.C. Penney gained after the retailers said sales rose more-than-expected. Mandalay Resort Group announced earnings that significantly beat expectations. Finally, Comverse Technology reported earnings that exceeded forecasts and it raised forward guidance.

Bottom Line: Overall, last week was characterized by a cautiously positive tone. The fact that U.S. stocks rose in the face of a terrorist attack in Saudi Arabia and rising oil prices at the beginning of the week is very positive. As well, it is obvious that the American consumer is financially healthy and willing to spend as their record-high wealth levels, increasing incomes and better job opportunities more than offset higher interest rates and energy prices. However, volume was light throughout the week as an imminent interest rate hike by the Fed and the expectation of increased terrorist activity into Iraq's handover on June 30 continued to weigh on investors' minds. It was definitely disappointing that falling energy prices, an unexpectedly positive mid-quarter update by Intel and a very strong jobs report could not generate more enthusiasm.

Economic Week in Review

ECRI Weekly Leading Index 134.10 +.30%

Construction Spending for April rose 1.3% to a record annual pace of $970 billion versus estimates of a .4% rise and an upwardly revised 2.4% increase in March. Builders completed homes at the highest rate since 1979 in April, the agency said last month. Government and company spending on construction may pick up the slack should home building slow later this year amid higher mortgage costs, Bloomberg reported. "We're still riding the wave of the super-strong housing starts numbers," said Ken Mayland, chief economist of Clear View Economics. "We can't expect these sorts of increases to persist in the second half, but the baton is being handed off as nonresidential is starting to perform better."

ISM Manufacturing for May came in at 62.8 versus estimates of 61.5 and a reading of 62.4 in April. ISM Prices Paid for May came in at 86.0 versus an estimate of 89.3 and a reading of 88.0 in April. The report showed that more factories were hiring than at any time in 31 years, Bloomberg reported. The index reached 63.6 earlier this year, the highest since December 1983 and has been greater than 60 for seven months in a row. Manufacturers are hiring workers and buying new equipment to boost production as sales improve. "Production should remain strong for many months and probably into 2005. I am very optimistic about manufacturing," said Richard DeKaser, chief economist at National City Corp.

The final 1Q Non-farm Productivity reading showed an increase of 3.8% versus estimates of a 3.7% rise and a prior estimate of 3.5%. The final 1Q Unit Labor Costs reading showed an increase of .8% versus estimates of a .4% rise and a prior forecast of .5%. Gains in productivity, aided by higher spending on equipment and software, may help companies hold down costs and prices as they try to keep up with orders and add to payrolls, Bloomberg reported. "We're now seeing a pickup in business investment spending, and that should help firms boost productivity even more," said Michael Moran, chief economist at Daiwa Securities.

Factory Orders for April fell 1.7% versus estimates of a 1.4% decline and an upwardly revised 5.0% increase in March. "April was essentially a month where orders took a breather," Stephen Stanley, chief economist for RBS Greenwich Capital said. As well, Factory Orders were up almost 11% compared to a year earlier.

ISM Non-manufacturing for May came in at 65.2 versus estimates of 66.0 and a reading of 68.4 in April. This gauge of activity at U.S. service companies, which make up the largest share of the economy, reached the fourth highest level on record as businesses increased hiring, Bloomberg said. The employment component of the survey reached its second highest level on record. Stronger employment and rising incomes are keeping households in a buying mood, which should help underpin economic growth for the rest of the year, economists said. "Since the beginning of the year, there has been a dramatic acceleration in the economy," said William Zollars, CEO of Yellow Roadway Corp., the biggest U.S. trucking company.

The Change in Non-farm Payrolls for May was 248,000 versus estimates of 225,000 and an upwardly revised gain of 346,000 in April. The Change in Manufacturing Payrolls for May was 32,000 versus estimates of 20,000 and an upwardly revised 29,000 in April. The Unemployment Rate for May held at 5.6%, meeting estimates and the same as April's rate. The gain in manufacturing employment was the largest in six years and the economy has now recouped all the jobs lost in the aftermath of 9/11 and the recession, Bloomberg reported. Moreover, employment has increased by 1.2 million so far this year, the best five months of job growth since the stock market bubble burst and the economy began to deteriorate in early 2000. "People wouldn't be hiring like this if they didn't have a high level of confidence," said Edward McKelvey, chief U.S. economist at Goldman Sachs.

Bottom Line: There are several key takeaways for the week. First, construction is on fire. Homebuilding will likely slow from its current torrid pace to a more sustainable level of good growth. Non-residential construction is now starting to accelerate as companies flush with record-high cash hoards are expanding operations. The secular downturn in manufacturing that began over a decade ago appears to be over. Factories are now hiring and expanding at very healthy levels. This should bring good economic growth to areas of the U.S. that missed out on the technology-led prosperity of the 90's. The recent pickup in business investment for technology products should result in continued high levels of productivity, allowing companies to shield their customers from significant price increases. Lastly, American's net worth is at all-time highs, incomes are rising and hiring is accelerating, more than offsetting the increase in energy prices and interest rates, resulting in strong demand for many goods and serives. Thus, the service sector, which accounts for 85% of the U.S. economy is very strong and getting stronger.