There are a few important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include Consumer Credit, Import Price Index, Initial Jobless Claims, Continuing Claims, Wholesale Inventories, Producer Price Index and Trade Balance. The Producer Price Index has market-moving potential.
Neiman Marcus Group(NMG/A), Comverse Technology(CMVT), CBRL Group(CBRL), National Semiconductor(NSM), Quiksilver(ZQK), Take-Two Interactive(TTWO) and Hovnanian(HOV) are some of the more important companies that release quarterly earnings this week. There are also a number of other events that have market-moving potential. The Lehman Brothers Energy Conference, Citi SmithBarney Tech Conference, Greenspan's testimony on the economy to the House Budget Panel, Prudential Consumer Conference, Thomas Weisel Healthcare Conference, CSFB Software Conference, Goldman Sachs Retail Conference, August Chain Store Comp Sales, Fed's Yellen speech, Fed's McTeer speech and the Raymond James Small Cap Investor's Forum could also impact trading this week.
Bottom Line: I expect U.S. stocks to finish the week higher on heavier volume as traders and investors return from vacation and boost shares on optimism over diminishing terrorism fears, pro-business political rhetoric, falling energy prices and economic data showing stabilizing sustainable growth. More nimble investors should begin building long positions over the next couple of weeks in semi/semi-equip. stocks as I believe these companies will outperform substantially during the fourth quarter. My short-term trading indicators are still giving Buy signals and the Portfolio is 125% net long heading into the week.
Monday, September 06, 2004
Sunday, September 05, 2004
Market Week in Review
S&P 500 1,113.63 +.53%
Click here for the Weekly Wrap by Briefing.com.
Bottom Line: Overall, last week's market action was mixed. The S&P 500 gained for a fourth consecutive week, its longest winning streak since January, helping the benchmark erase its loss for the year. Most sectors registered gains outside of technology. Volume was 27% below this year's average as many investors and traders were on vacation. The semiconductor index, now down 36.2% from its January highs, made a new low for the year as Intel's gross margins and earnings guidance disappointed. Crude oil prices reversed on Thursday and Natural Gas prices continue to plunge. Base Metal prices are also on the verge of a technical breakdown. Notwithstanding the drops in some of the underlying commodities, commodity-related stocks led the market. Measures of investor anxiety were mixed last week, however most remained at relatively low levels. One measure of investor sentiment that stands out on the bullish side is the Rydex Cash Flow Ratio which is at levels that normally precede sharp rallies.
Click here for the Weekly Wrap by Briefing.com.
Bottom Line: Overall, last week's market action was mixed. The S&P 500 gained for a fourth consecutive week, its longest winning streak since January, helping the benchmark erase its loss for the year. Most sectors registered gains outside of technology. Volume was 27% below this year's average as many investors and traders were on vacation. The semiconductor index, now down 36.2% from its January highs, made a new low for the year as Intel's gross margins and earnings guidance disappointed. Crude oil prices reversed on Thursday and Natural Gas prices continue to plunge. Base Metal prices are also on the verge of a technical breakdown. Notwithstanding the drops in some of the underlying commodities, commodity-related stocks led the market. Measures of investor anxiety were mixed last week, however most remained at relatively low levels. One measure of investor sentiment that stands out on the bullish side is the Rydex Cash Flow Ratio which is at levels that normally precede sharp rallies.
Saturday, September 04, 2004
Economic Week in Review
ECRI Weekly Leading Index 131.10 -.23%
Personal Income for July rose .1% versus estimates of a .5% rise and a .2% increase in June. Personal Spending for July rose .8% versus estimates of a .7% increase and an upwardly revised .2% decline in June. The PCE Core Index rose 1.5% year-over-year versus estimates of a 1.5% increase and a prior estimate of 1.5%. "With the upward revisions there really wasn't any significant slowing in spending over the last couple of months," said Michael Englund at Action Economics. "We are going to see some pretty solid spending numbers." Englund is forecasting a 3% to 3.5% annualized increase in spending this quarter, Bloomberg reported. Wages and supplements to salaries increased 5.3% at an annual rate in the second quarter, up from 5.2% in the first three months of the year, Bloomberg said. Incomes in July were restrained by a decline in government transfer receipts because of a reduction in the federal matching rate of Medicaid reimbursements. Those payments had been boosted by last year's tax cuts, Bloomberg reported.
The Chicago Purchasing Manager Index for August fell to 57.3 versus estimates of 60.0 and a reading of 64.7 in July. "After growing briskly earlier in the year, manufacturing activity has slowed recently but was still expanding solidly," said Steven Wood, chief economist at Insight Economics. The Chicago purchasers' employment index rose to 51.1 from 45.6 in July, Bloomberg reported. The group's index of prices paid for raw materials surged to 86.6 from 77.6 in July, Bloomberg said.
Consumer Confidence for August fell to 98.2 versus estimates of 103.5 and a reading of 105.7 in July. Consumer confidence in the U.S. economy fell from a 2-year high as job growth slowed and oil prices reached a record, Bloomberg said. "The August reading still is high," the Conference Board's Smith said. "Peoples' assessment of the job situation is August is still a lot better than it was in April or May," said Stephen Stanley, chief economist at RBS Greenwich Capital Markets. Moreover, the survey was completed Aug. 24, before the recent decline in oil prices, Bloomberg reported. Retail gasoline prices have averaged $1.92 a gallon this month, down from $1.95 in July, according to figures from the U.S. Energy Department.
Construction Spending for July rose .4% to a record annual rate of $997.2 billion versus estimates of .4% and 0.0% in June. The rise was the fifth in six months, Bloomberg said. More favorable weather conditions, increased transportation expenditures and lower mortgage rates contributed to the increase in July, Bloomberg reported. "Interest rates are low, inflation is relatively low, the economy is growing at a healthy clip and we've had highly accommodative fiscal and monetary policies for the past three years – all of which adds up to solid growth within the construction industry," said Michael Englund.
ISM Manufacturing for August fell to 59.0 versus estimates of 60.0 and a reading of 62.0 in July. ISM Prices Paid for August rose to 81.5 versus estimates of 79.0 and a reading of 77.0 in July. The manufacturing index has shown expansion, marked by readings higher than 50, since June 2003, Bloomberg said. "The factory sector is just cooling from super strong to solid," said James O'Sullivan, a senior economist at UBS Securities.
Total Vehicle Sales for August were 16.6 million versus estimates of 16.8 million and 17.3 million in July. Domestic Vehicle Sales for August were 13.5 million versus estimates of 13.6 million and 14.1 million in July. Fuel prices have prospective buyers "evaluating whether they should move down to a car or a smaller SUV and that takes time," Global Insight forecaster Rebecca Lindland said. Automakers increased the amount they spent on incentives last month to $4,203 from $4,027 in July and almost unchanged from August 2003, Bloomberg reported.
Factory Orders for July rose 1.3% versus estimates of a 1.1% gain and an upwardly revised 1.2% increase in June. The increase was the most in four months as orders increased from commercial aircraft, appliances and business equipment, Bloomberg said. Rising profits and demand are giving companies the cash to replace aging equipment. Moreover, unfilled orders accelerated in July, suggesting production will pick up and boost the economy in the next few months, Bloomberg reported. "The strong performance of orders, shipments and backlogs indicates that the industrial sector is moving forward and concerns about the economy's soft spot may have been overstated," said Lynn Reaser, chief economist at Banc of America Capital Management.
The Unemployment rate for August fell to 5.4% versus estimates of 5.5% and 5.5% in July. Average Hourly Earnings rose .3% in August versus estimates of a .2% increase and an upwardly revised .4% gain in July. The Change in Non-farm Payrolls for August was 144,000 versus estimates of 150,000 and an upwardly revised increase of 73K in July. The Change in Manufacturing Payrolls for August was 22,000 versus estimates of 15,000 and 6,000 in July. The unemployment rate is now at its lowest level since October 2001 and below the average of the 1970's, 1980's and 1990's, Bloomberg reported. "It's a very reassuring report – one that indicates the economy is doing better in the third quarter than it did in the second," said Lyle Gramley, a former Fed governor that is now an adviser at Schwab Soundview. The economy has now added 1.4 million jobs this year, Bloomberg reported. Business has "been very consistent with a recovering economy, and we don't see any sign that things are slowing down at all," said William Zollars, CEO of Yellow Roadway, the biggest U.S. trucking company. As well, CEOs are more optimistic about the economy than they have been for two years, anticipating greater sales and hiring through the rest of this year and into 2005, according to a recently released survey by the Business Roundtable. 89% of executives polled predicted sales would rise over the next six months and 40% expected payrolls to increase, Bloomberg said.
ISM Non-Manufacturing for August fell to 58.2 versus estimates of 62.0 and a reading of 64.8 in July. However, a measure of employment rose, while the gauge of price increases fell, Bloomberg reported. "I think you have to say from our numbers this month, the soft patch was still with us in August," Ralph Kauffman, chairman of the non-manufacturing committee at the institute said. "People are going back to work and they're buying office supplies," Ron Sargent, president and CEO of Staples said. "We're seeing good momentum in every single part of the business. We're pretty upbeat and bullish about the economy in the second half of the year."
Bottom Line: Overall, last week's economic data were mixed. The bounce-back in employment growth is a very good sign. Several million jobs were likely created during the economic bubble in the later part of the 90's by hyped-up companies with flawed or fraudulent business models. While current employment growth is mild by mania standards, it is nonetheless solid and created by profitable companies with sustainable business models using much less "creative" accounting. Moreover, the unemployment rate is low by historical measures, notwithstanding the media's attempts to paint a negative picture of the job market. As well, multiple surveys point to continuing improvement in the labor market throughout the year. This will boost incomes which will result in increased confidence and sustain spending. The recent plunge in natural gas prices(-31.3%) and declines in gasoline(-10.3%) and oil prices(-10.1%) should also boost confidence and increase spending. The PCE Core Index, Greenspan's favorite inflation gauge, remained unchanged from the prior month and should decelerate in the future with declining commodity prices. As well, long-term interest rates, the best gauge of inflationary fears, remain very low by historic standards. Construction spending bounced back sharply in July after record setting bad weather in June for most of the country. Hurricanes Charley and Frances will result in strong construction spending throughout the remainder of the year. While the ISM readings on manufacturing and services continue to show deceleration from record-setting levels, I view this as temporary and expect them to follow factory activity and re-accelerate in the fourth quarter. I continue to expect energy prices to fall through year-end as terrorism fears diminish and demand slows from Asia as a result of decelerating Chinese economic growth. Furthermore, I continue to expect a sharp acceleration in U.S. economic growth during the fourth quarter. Diminishing terrorism fears, an end to the extreme negativity surrounding the U.S. election, better weather, companies purchasing equipment before tax incentives expire at year-end, lower energy prices, rebuilding in Florida and lower interest rates should boost economic growth to around 5% during the fourth quarter. This will likely result in a very large number of corporate earnings surprises as companies beat recently lowered estimates.
Personal Income for July rose .1% versus estimates of a .5% rise and a .2% increase in June. Personal Spending for July rose .8% versus estimates of a .7% increase and an upwardly revised .2% decline in June. The PCE Core Index rose 1.5% year-over-year versus estimates of a 1.5% increase and a prior estimate of 1.5%. "With the upward revisions there really wasn't any significant slowing in spending over the last couple of months," said Michael Englund at Action Economics. "We are going to see some pretty solid spending numbers." Englund is forecasting a 3% to 3.5% annualized increase in spending this quarter, Bloomberg reported. Wages and supplements to salaries increased 5.3% at an annual rate in the second quarter, up from 5.2% in the first three months of the year, Bloomberg said. Incomes in July were restrained by a decline in government transfer receipts because of a reduction in the federal matching rate of Medicaid reimbursements. Those payments had been boosted by last year's tax cuts, Bloomberg reported.
The Chicago Purchasing Manager Index for August fell to 57.3 versus estimates of 60.0 and a reading of 64.7 in July. "After growing briskly earlier in the year, manufacturing activity has slowed recently but was still expanding solidly," said Steven Wood, chief economist at Insight Economics. The Chicago purchasers' employment index rose to 51.1 from 45.6 in July, Bloomberg reported. The group's index of prices paid for raw materials surged to 86.6 from 77.6 in July, Bloomberg said.
Consumer Confidence for August fell to 98.2 versus estimates of 103.5 and a reading of 105.7 in July. Consumer confidence in the U.S. economy fell from a 2-year high as job growth slowed and oil prices reached a record, Bloomberg said. "The August reading still is high," the Conference Board's Smith said. "Peoples' assessment of the job situation is August is still a lot better than it was in April or May," said Stephen Stanley, chief economist at RBS Greenwich Capital Markets. Moreover, the survey was completed Aug. 24, before the recent decline in oil prices, Bloomberg reported. Retail gasoline prices have averaged $1.92 a gallon this month, down from $1.95 in July, according to figures from the U.S. Energy Department.
Construction Spending for July rose .4% to a record annual rate of $997.2 billion versus estimates of .4% and 0.0% in June. The rise was the fifth in six months, Bloomberg said. More favorable weather conditions, increased transportation expenditures and lower mortgage rates contributed to the increase in July, Bloomberg reported. "Interest rates are low, inflation is relatively low, the economy is growing at a healthy clip and we've had highly accommodative fiscal and monetary policies for the past three years – all of which adds up to solid growth within the construction industry," said Michael Englund.
ISM Manufacturing for August fell to 59.0 versus estimates of 60.0 and a reading of 62.0 in July. ISM Prices Paid for August rose to 81.5 versus estimates of 79.0 and a reading of 77.0 in July. The manufacturing index has shown expansion, marked by readings higher than 50, since June 2003, Bloomberg said. "The factory sector is just cooling from super strong to solid," said James O'Sullivan, a senior economist at UBS Securities.
Total Vehicle Sales for August were 16.6 million versus estimates of 16.8 million and 17.3 million in July. Domestic Vehicle Sales for August were 13.5 million versus estimates of 13.6 million and 14.1 million in July. Fuel prices have prospective buyers "evaluating whether they should move down to a car or a smaller SUV and that takes time," Global Insight forecaster Rebecca Lindland said. Automakers increased the amount they spent on incentives last month to $4,203 from $4,027 in July and almost unchanged from August 2003, Bloomberg reported.
Factory Orders for July rose 1.3% versus estimates of a 1.1% gain and an upwardly revised 1.2% increase in June. The increase was the most in four months as orders increased from commercial aircraft, appliances and business equipment, Bloomberg said. Rising profits and demand are giving companies the cash to replace aging equipment. Moreover, unfilled orders accelerated in July, suggesting production will pick up and boost the economy in the next few months, Bloomberg reported. "The strong performance of orders, shipments and backlogs indicates that the industrial sector is moving forward and concerns about the economy's soft spot may have been overstated," said Lynn Reaser, chief economist at Banc of America Capital Management.
The Unemployment rate for August fell to 5.4% versus estimates of 5.5% and 5.5% in July. Average Hourly Earnings rose .3% in August versus estimates of a .2% increase and an upwardly revised .4% gain in July. The Change in Non-farm Payrolls for August was 144,000 versus estimates of 150,000 and an upwardly revised increase of 73K in July. The Change in Manufacturing Payrolls for August was 22,000 versus estimates of 15,000 and 6,000 in July. The unemployment rate is now at its lowest level since October 2001 and below the average of the 1970's, 1980's and 1990's, Bloomberg reported. "It's a very reassuring report – one that indicates the economy is doing better in the third quarter than it did in the second," said Lyle Gramley, a former Fed governor that is now an adviser at Schwab Soundview. The economy has now added 1.4 million jobs this year, Bloomberg reported. Business has "been very consistent with a recovering economy, and we don't see any sign that things are slowing down at all," said William Zollars, CEO of Yellow Roadway, the biggest U.S. trucking company. As well, CEOs are more optimistic about the economy than they have been for two years, anticipating greater sales and hiring through the rest of this year and into 2005, according to a recently released survey by the Business Roundtable. 89% of executives polled predicted sales would rise over the next six months and 40% expected payrolls to increase, Bloomberg said.
ISM Non-Manufacturing for August fell to 58.2 versus estimates of 62.0 and a reading of 64.8 in July. However, a measure of employment rose, while the gauge of price increases fell, Bloomberg reported. "I think you have to say from our numbers this month, the soft patch was still with us in August," Ralph Kauffman, chairman of the non-manufacturing committee at the institute said. "People are going back to work and they're buying office supplies," Ron Sargent, president and CEO of Staples said. "We're seeing good momentum in every single part of the business. We're pretty upbeat and bullish about the economy in the second half of the year."
Bottom Line: Overall, last week's economic data were mixed. The bounce-back in employment growth is a very good sign. Several million jobs were likely created during the economic bubble in the later part of the 90's by hyped-up companies with flawed or fraudulent business models. While current employment growth is mild by mania standards, it is nonetheless solid and created by profitable companies with sustainable business models using much less "creative" accounting. Moreover, the unemployment rate is low by historical measures, notwithstanding the media's attempts to paint a negative picture of the job market. As well, multiple surveys point to continuing improvement in the labor market throughout the year. This will boost incomes which will result in increased confidence and sustain spending. The recent plunge in natural gas prices(-31.3%) and declines in gasoline(-10.3%) and oil prices(-10.1%) should also boost confidence and increase spending. The PCE Core Index, Greenspan's favorite inflation gauge, remained unchanged from the prior month and should decelerate in the future with declining commodity prices. As well, long-term interest rates, the best gauge of inflationary fears, remain very low by historic standards. Construction spending bounced back sharply in July after record setting bad weather in June for most of the country. Hurricanes Charley and Frances will result in strong construction spending throughout the remainder of the year. While the ISM readings on manufacturing and services continue to show deceleration from record-setting levels, I view this as temporary and expect them to follow factory activity and re-accelerate in the fourth quarter. I continue to expect energy prices to fall through year-end as terrorism fears diminish and demand slows from Asia as a result of decelerating Chinese economic growth. Furthermore, I continue to expect a sharp acceleration in U.S. economic growth during the fourth quarter. Diminishing terrorism fears, an end to the extreme negativity surrounding the U.S. election, better weather, companies purchasing equipment before tax incentives expire at year-end, lower energy prices, rebuilding in Florida and lower interest rates should boost economic growth to around 5% during the fourth quarter. This will likely result in a very large number of corporate earnings surprises as companies beat recently lowered estimates.
Friday, September 03, 2004
Weekly Scoreboard*
Indices
S&P 500 1,113.63 +.53%
Dow 10,260.20 +.64%
NASDAQ 1,844.48 -.95%
Russell 2000 556.24 +.83%
S&P Equity Long/Short Index 962.11 +.69%
Put/Call 1.02 +36.0%
NYSE Arms 1.0 -1.96%
Volatility(VIX) 13.91 -5.44%
AAII % Bulls 41.51 -.05%
US Dollar 89.63 -.22%
CRB 273.50 +1.17%
Futures Spot Prices
Gold 402.50 -.76%
Crude Oil 43.99 +2.06%
Unleaded Gasoline 120.65 +3.12%
Natural Gas 4.67 -9.75%
Base Metals 105.57 -2.43%
10-year US Treasury Yield 4.29% +1.61%
Average 30-year Mortgage Rate 5.77% -.86%
Leading Sectors
Oil Service +4.57%
Energy +3.99%
Iron/Steel +3.22%
Lagging Sectors
Internet -1.97%
Software -2.07%
Semis -6.41%
*% Gain or loss for the week
S&P 500 1,113.63 +.53%
Dow 10,260.20 +.64%
NASDAQ 1,844.48 -.95%
Russell 2000 556.24 +.83%
S&P Equity Long/Short Index 962.11 +.69%
Put/Call 1.02 +36.0%
NYSE Arms 1.0 -1.96%
Volatility(VIX) 13.91 -5.44%
AAII % Bulls 41.51 -.05%
US Dollar 89.63 -.22%
CRB 273.50 +1.17%
Futures Spot Prices
Gold 402.50 -.76%
Crude Oil 43.99 +2.06%
Unleaded Gasoline 120.65 +3.12%
Natural Gas 4.67 -9.75%
Base Metals 105.57 -2.43%
10-year US Treasury Yield 4.29% +1.61%
Average 30-year Mortgage Rate 5.77% -.86%
Leading Sectors
Oil Service +4.57%
Energy +3.99%
Iron/Steel +3.22%
Lagging Sectors
Internet -1.97%
Software -2.07%
Semis -6.41%
*% Gain or loss for the week
Mid-day Update
S&P 500 1,115.90 -.22%
NASDAQ 1,846.21 -1.45%
Leading Sectors
Oil Service +1.72%
Telecom +.73%
Restaurants +.67%
Lagging Sectors
Disk Drives -1.81%
Networking -2.10%
Semis -4.87%
Other
Crude Oil 44.0 -.14%
Natural Gas 4.67 -1.93%
Gold 402.50 -1.35%
Base Metals 105.57 -1.29%
U.S. Dollar 89.65 +.74%
10-Yr. T-note Yield 4.28% +1.75%
VIX 14.02 -1.82%
Put/Call 1.05 +12.90%
NYSE Arms .80 +73.91%
Market Movers
INTC -7.4% after lowering 3Q revenue, gross margin forecasts and multiple downgrades.
EFII -22.4% after lowering 3Q and 4Q outlook.
LNG +15.3% after saying it Sabine Pass unit will sell liquefied natural gas regasification capacity of 1 billion cubic feet a day for 20 years beginning no later than April 1, 2009, to a unit of Total SA.
MICC +11.8% after saying its Paktel subsidiary reached an agreement with PTA, a Pakistani regulator, that lets Paktel switch on its wireless network for $11.1 million, less than the $39 million originally expected.
ESL -12.6% after missing 3Q estimates and lowering 04 outlook.
*Semis and Semi-equipment down across-the-board on INTC report.
Economic Data
Unemployment Rate for August fell to 5.4% versus estimates of 5.5% and 5.5% in July.
Average Hourly Earnings for August rose .3% versus estimates of a .2% rise and an upwardly revised .4% increase in July.
Change in Non-farm payrolls for August was 144K versus estimates of 150K and an upwardly revised 73K in July.
Change in Manufacturing payrolls for August was 22K versus estimates of 15K and a downwardly revised 6K in July.
Average Weekly Hours was 33.8 versus estimates of 33.7 and 33.8 in July.
ISM Non-Manufacturing for August was 58.2 versus estimates of 62.0 and 64.8 in July.
Recommendations
Goldman Sachs reiterated Outperform on INTC, target $29. Goldman reiterated Outperform on AMD, FDC, GILD, BIIB, MDT. Citi SmithBarney reiterated Buy on INTC, target $25.50. Citi reiterated Buy on GPS, target $25.00. Goldman reiterated Outperform on PAYX, CEN, NKE and ADP.
Mid-day News
U.S. stocks are lower mid-day on weakness in technology shares after a disappointing mid-quarter report by Intel. Disney postponed its expansion of video-on-demand service to explore agreements that could include the feature in set-top boxes, computers and other devices, the AP said. Charter Communications, the cable tv operator controlled by Microsoft co-founder Paul Allen, may offer subscribers free premium services as part of a proposed settlement for a lawsuit accusing it of misleading customers, the AP reported. More than 98% of the acute-care hospitals in the U.S. are reporting health-care data on the treatment of heart attacks, heart failure and pneumonia, Reuters reported. Kelly Services President Camden told CNBC that today's August jobs report shows the proportion of new jobs that are temporary fell to 10% of the total from 20% a few months ago, Bloomberg reported. Puma AG plans to buy a license from Ferrari SpA that will allow it to use its brand, Frankfurter Allgemeine Zeitung reported. Pfizer agreed to pay $430 million to resolve claims against a subsidiary that sold products containing asbestos in the early 1970's, Bloomberg reported. U.S. employers added 144,000 workers to payrolls in August, the most since May and the first acceleration in five months, suggesting the economy is emerging from a mid-year lull, Bloomberg reported. The unemployment rate fell again in August to 5.4%, Bloomberg said. Crude oil futures are falling on reduced concern that shipments from Russia and Iraq will be disrupted, Bloomberg reported. President Bush has a "bold agenda" for streamlining the 3,000-page tax code, with no initiative ruled out, U.S. Treasury Secretary Snow said. The U.S. will ask China to agree to a voluntary limit on textile and clothing exports in a bid to head of petitions and complaints from U.S. textile makers, Bloomberg reported. IBM said it introduced new data-storage machines to take small-business sales from EMC and Dell, Bloomberg said. Hurricane Frances may cost insurers less than computer modelers predicted yesterday after the storm weakened and was steering clear of Florida's densely populated southern coast, Risk Management Solutions said. Former President Clinton has had a heart attack and will have quadruple-bypass surgery, the New York Times reported. Russian troops are fighting terrorists holding hostages in the country's south, after storming a school where at least 1,000 people had been held since Wednesday. More than 100 of the captives died, including children, Bloomberg reported.
BOTTOM LINE: The Portfolio is down modestly mid-day as my falling technology longs are more than offsetting my rising security, education and Russian ADR longs. I have not traded today and the Portfolio is still 125% net long. The damage today is mostly concentrated in the semiconductor sector, with many consumer-related stocks rising. Breadth has improved off the morning lows and many commodities are falling in price once again. I expect U.S. stocks to move modestly higher into the close on bargain-hunting in the tech sector and short-covering in anticipation of a rise next week as many investors return from vacation and conclude that fundamentals will improve during the fourth quarter.
NASDAQ 1,846.21 -1.45%
Leading Sectors
Oil Service +1.72%
Telecom +.73%
Restaurants +.67%
Lagging Sectors
Disk Drives -1.81%
Networking -2.10%
Semis -4.87%
Other
Crude Oil 44.0 -.14%
Natural Gas 4.67 -1.93%
Gold 402.50 -1.35%
Base Metals 105.57 -1.29%
U.S. Dollar 89.65 +.74%
10-Yr. T-note Yield 4.28% +1.75%
VIX 14.02 -1.82%
Put/Call 1.05 +12.90%
NYSE Arms .80 +73.91%
Market Movers
INTC -7.4% after lowering 3Q revenue, gross margin forecasts and multiple downgrades.
EFII -22.4% after lowering 3Q and 4Q outlook.
LNG +15.3% after saying it Sabine Pass unit will sell liquefied natural gas regasification capacity of 1 billion cubic feet a day for 20 years beginning no later than April 1, 2009, to a unit of Total SA.
MICC +11.8% after saying its Paktel subsidiary reached an agreement with PTA, a Pakistani regulator, that lets Paktel switch on its wireless network for $11.1 million, less than the $39 million originally expected.
ESL -12.6% after missing 3Q estimates and lowering 04 outlook.
*Semis and Semi-equipment down across-the-board on INTC report.
Economic Data
Unemployment Rate for August fell to 5.4% versus estimates of 5.5% and 5.5% in July.
Average Hourly Earnings for August rose .3% versus estimates of a .2% rise and an upwardly revised .4% increase in July.
Change in Non-farm payrolls for August was 144K versus estimates of 150K and an upwardly revised 73K in July.
Change in Manufacturing payrolls for August was 22K versus estimates of 15K and a downwardly revised 6K in July.
Average Weekly Hours was 33.8 versus estimates of 33.7 and 33.8 in July.
ISM Non-Manufacturing for August was 58.2 versus estimates of 62.0 and 64.8 in July.
Recommendations
Goldman Sachs reiterated Outperform on INTC, target $29. Goldman reiterated Outperform on AMD, FDC, GILD, BIIB, MDT. Citi SmithBarney reiterated Buy on INTC, target $25.50. Citi reiterated Buy on GPS, target $25.00. Goldman reiterated Outperform on PAYX, CEN, NKE and ADP.
Mid-day News
U.S. stocks are lower mid-day on weakness in technology shares after a disappointing mid-quarter report by Intel. Disney postponed its expansion of video-on-demand service to explore agreements that could include the feature in set-top boxes, computers and other devices, the AP said. Charter Communications, the cable tv operator controlled by Microsoft co-founder Paul Allen, may offer subscribers free premium services as part of a proposed settlement for a lawsuit accusing it of misleading customers, the AP reported. More than 98% of the acute-care hospitals in the U.S. are reporting health-care data on the treatment of heart attacks, heart failure and pneumonia, Reuters reported. Kelly Services President Camden told CNBC that today's August jobs report shows the proportion of new jobs that are temporary fell to 10% of the total from 20% a few months ago, Bloomberg reported. Puma AG plans to buy a license from Ferrari SpA that will allow it to use its brand, Frankfurter Allgemeine Zeitung reported. Pfizer agreed to pay $430 million to resolve claims against a subsidiary that sold products containing asbestos in the early 1970's, Bloomberg reported. U.S. employers added 144,000 workers to payrolls in August, the most since May and the first acceleration in five months, suggesting the economy is emerging from a mid-year lull, Bloomberg reported. The unemployment rate fell again in August to 5.4%, Bloomberg said. Crude oil futures are falling on reduced concern that shipments from Russia and Iraq will be disrupted, Bloomberg reported. President Bush has a "bold agenda" for streamlining the 3,000-page tax code, with no initiative ruled out, U.S. Treasury Secretary Snow said. The U.S. will ask China to agree to a voluntary limit on textile and clothing exports in a bid to head of petitions and complaints from U.S. textile makers, Bloomberg reported. IBM said it introduced new data-storage machines to take small-business sales from EMC and Dell, Bloomberg said. Hurricane Frances may cost insurers less than computer modelers predicted yesterday after the storm weakened and was steering clear of Florida's densely populated southern coast, Risk Management Solutions said. Former President Clinton has had a heart attack and will have quadruple-bypass surgery, the New York Times reported. Russian troops are fighting terrorists holding hostages in the country's south, after storming a school where at least 1,000 people had been held since Wednesday. More than 100 of the captives died, including children, Bloomberg reported.
BOTTOM LINE: The Portfolio is down modestly mid-day as my falling technology longs are more than offsetting my rising security, education and Russian ADR longs. I have not traded today and the Portfolio is still 125% net long. The damage today is mostly concentrated in the semiconductor sector, with many consumer-related stocks rising. Breadth has improved off the morning lows and many commodities are falling in price once again. I expect U.S. stocks to move modestly higher into the close on bargain-hunting in the tech sector and short-covering in anticipation of a rise next week as many investors return from vacation and conclude that fundamentals will improve during the fourth quarter.
Friday Watch
Earnings of Note
Company/Estimate
None of note.
Splits
None of note.
Economic Data
Unemployment Rate for August estimated at 5.5% versus 5.5% in July.
Average Hourly Earnings for August estimated up .2% versus a .3% increase in July.
Change in Non-farm Payrolls estimated at 150K versus 32K in July.
Change in Manufacturing Payrolls estimated at 15K versus 10K in July.
Average Weekly Hours for August estimated at 33.7 versus 33.7 in July.
ISM Non-Manufacturing for August estimated at 62.0 versus 64.8 in July.
Recommendations
None of note.
Late-Night News
Asian indices are lower on declines in technology shares in the region after a disappointing report by Intel after the U.S. close. A poll of likely voters just released by Zogby International shows President Bush with a 46-44 lead over Senator Kerry. Kerry led Bush, 48-43 in the previous poll, Bloomberg said. A judge refused a request by Google and Overture search engines to dismiss a lawsuit by Geico insurance that challenges the companies' advertising sales practices, Cnet News reported. China forecast a sevenfold increase in the number of vehicles on the nation's streets to 140 million by 2010, the state-run Xinhua news agency said. China's economic growth may slow to between 7-8% this year as the government limits investment in industries including steel and cement, Vice Finance Minister Li Yong said. President Bush said he will "never relent" in the war against terror, and set new domestic goals including a simplified U.S. tax code and more federal aid to communities that have lost jobs, Bloomberg reported. A gun battle erupted at dawn around a school in southern Russia where terrorists are holding hostages, including women and children, AFP reported. The number of hostages is around 1500, rather than the 300 officially reported, an unidentified women released yesterday told Izvestiya daily. Hurricane Frances, which is expected to be the costliest storm to hit the U.S. in more than a decade, contined its approach toward Florida, forcing about 2.5 million people to flee their homes, Bloomberg said.
Late-Night Trading
Asian Indices are -1.0% to unch. on average.
S&P 500 indicated -.46%.
NASDAQ 100 indicated -1.07%
BOTTOM LINE: I expect U.S. equities to open lower in the morning on weakness in technology shares and worries over slowing job growth. However, I expect stocks to mount a rally later in the day on pro-business political rhetoric, diminishing domestic terrorism fears, stabilizing energy prices, falling interest rates and optimism over a reacceleration of economic growth during the fourth quarter. The Portfolio is 125% net long heading into tomorrow.
Company/Estimate
None of note.
Splits
None of note.
Economic Data
Unemployment Rate for August estimated at 5.5% versus 5.5% in July.
Average Hourly Earnings for August estimated up .2% versus a .3% increase in July.
Change in Non-farm Payrolls estimated at 150K versus 32K in July.
Change in Manufacturing Payrolls estimated at 15K versus 10K in July.
Average Weekly Hours for August estimated at 33.7 versus 33.7 in July.
ISM Non-Manufacturing for August estimated at 62.0 versus 64.8 in July.
Recommendations
None of note.
Late-Night News
Asian indices are lower on declines in technology shares in the region after a disappointing report by Intel after the U.S. close. A poll of likely voters just released by Zogby International shows President Bush with a 46-44 lead over Senator Kerry. Kerry led Bush, 48-43 in the previous poll, Bloomberg said. A judge refused a request by Google and Overture search engines to dismiss a lawsuit by Geico insurance that challenges the companies' advertising sales practices, Cnet News reported. China forecast a sevenfold increase in the number of vehicles on the nation's streets to 140 million by 2010, the state-run Xinhua news agency said. China's economic growth may slow to between 7-8% this year as the government limits investment in industries including steel and cement, Vice Finance Minister Li Yong said. President Bush said he will "never relent" in the war against terror, and set new domestic goals including a simplified U.S. tax code and more federal aid to communities that have lost jobs, Bloomberg reported. A gun battle erupted at dawn around a school in southern Russia where terrorists are holding hostages, including women and children, AFP reported. The number of hostages is around 1500, rather than the 300 officially reported, an unidentified women released yesterday told Izvestiya daily. Hurricane Frances, which is expected to be the costliest storm to hit the U.S. in more than a decade, contined its approach toward Florida, forcing about 2.5 million people to flee their homes, Bloomberg said.
Late-Night Trading
Asian Indices are -1.0% to unch. on average.
S&P 500 indicated -.46%.
NASDAQ 100 indicated -1.07%
BOTTOM LINE: I expect U.S. equities to open lower in the morning on weakness in technology shares and worries over slowing job growth. However, I expect stocks to mount a rally later in the day on pro-business political rhetoric, diminishing domestic terrorism fears, stabilizing energy prices, falling interest rates and optimism over a reacceleration of economic growth during the fourth quarter. The Portfolio is 125% net long heading into tomorrow.
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