Weekly Outlook

There are a few important economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - ISM Non-manufacturing
Tues. - Non-farm Productivity, Unit Labor Costs, Factory Orders, Pending Home Sales
Wed. - Consumer Credit
Thur. - Initial Jobless Claims,
Fri. - Univ. of Mich. Consumer Confidence, Wholesale Inventories

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

Mon. - JOS A Bank Clothiers(JOSB), United Rentals(URI), BISYS Group(BSG)
Tues. - Autozone(AZO), Comverse Technology(CMVT), Flowserve Corp.(FLS), Kroger Co.(KR), Pall Corp.(PLL), Sears Holdings(SHLD), Dana Corp.(DCN), Hovnanian Enterprises(HOV), Toro Company(TTC), Costco Wholesale(COST)
Wed. - National Semiconductor(NSM), Toll Brothers(TOL)
Thur. - Ciena Corp.(CIEN)
Fri. - Martek Biosciences(MATK), Shuffle Master(SHFL)

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

Mon. - Thomas Weisel Security Technology Conference, Bear Stearns Real Estate Conference, CSFB Media Week, Goldman Financial Services CEO Conference
Tue. - Bear Stearns Real Estate Conference, First Albany Growth Conference, UBS Media Conference, CSFB Aerospace/Defense Conference, Citigroup Chemical Conference
Wed. - CSFB Aerospace/Defense Conference, Bear Stearns Commodities Conference, Citigroup Chemicals Conference, UBS Media Conference, First Albany Growth Conference, Lehman Brothers Global Tech Conference, TXN Mid-quarter Update
Thur. - Bear Stearns Commodities Conference, Lehman Brothers Global Tech Conference, CIBC Communications Software Conference, INTC Mid-quarter Update, SG Cowen Internet Conference, CSFB Global Media Week
Fri. - Lehman Brothers Global Tech Conference

BOTTOM LINE: I expect US stocks to finish the week higher on increasing optimism over US economic growth, short-covering, moderating inflation fears and increasing inflows. After a healthy consolidation, the major US indices likely began another push higher late last week. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

Chart of Interest

Market Week in Review

S&P 500 1,265.08 -.25%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was slightly positive considering recent gains, the bounce in long-term rates and the jump in natural gas prices. The advance/decline line rose, sector performance was mixed and volume was above average on the week. Measures of investor anxiety were mostly higher. The average 30-year mortgage rate declined for the second week in a row, falling to 6.26%. This is 105 basis points above all-time lows set in June 2003. I continue to believe mortgage rates will head modestly lower over the intermediate-term. However, the benchmark 10-year T-note yield rose 9 basis points on the week as most economic reports exceeded optimistic expectations, resulting in less hope for an imminent Fed “pause.”

Small-caps and cyclicals continued to outperform on increasing optimism over the unrelenting strength of the economy. US economic growth has now exceeded 3% for 10 straight quarters, the best streak since March 1986. Moreover, corporate profit growth has reached double-digit rates for 14 quarters in a row, the best run since at least 1936. It is quite possible that there has never before in US history been a greater disconnect between economic perception and reality. A recent poll by American Research Group found 43% of Americans believe the US economy is in a recession. The common definition of a recession is 2 consecutive quarters of economic contraction.

Gold rose again this week on continuing international diversification into the precious metal. I still believe the rise in gold is not a result of increasing inflation fears. Unleaded Gas futures bounced modestly from recent losses, but are still 45% below September highs even as refinery utilization still remains below normal as a result of the hurricanes. Natural gas supplies decreased this week, but remain 6.3% above the 5-year average for this time of year even as a substantial amount of daily Gulf of Mexico production remains shut-in. Natural Gas has now dropped 11% from recent highs. I still believe global energy demand destruction and a substantial increase in supplies into 2006 will continue pushing energy prices substantially lower over the intermediate-term. The S&P 500 is still within striking distance of my mid-year prediction of a double-digit annual gain. The index is currently up 6.2% for the year.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,265.08 -.25%
DJIA 10,877.51 -.50%
NASDAQ 2,273.37 +.46%
Russell 2000 690.57 +1.02%
DJ Wilshire 5000 12,665.67 -.08%
S&P Equity Long/Short Index 1,084.05 +.53%
S&P Barra Growth 605.99 -.07%
S&P Barra Value 654.69 -.42%
Morgan Stanley Consumer 594.85 -.13%
Morgan Stanley Cyclical 781.34 +.63%
Morgan Stanley Technology 537.07 +.19%
Transports 4,138.55 -.97%
Utilities 403.03 -.24%
S&P 500 Cum A/D Line 8,619.00 +.90%
Bloomberg Crude Oil % Bulls 43.0 +25.4%
Put/Call .85 -4.49%
NYSE Arms 1.23 +38.20%
Volatility(VIX) 11.01 +1.19%
ISE Sentiment 232.00 -27.73%
AAII % Bulls 52.47 -2.16%
US Dollar 91.92 -.14%
CRB 323.38 +2.77%

Futures Spot Prices
Crude Oil 59.32 +1.14%
Unleaded Gasoline 161.13 +5.31%
Natural Gas 13.93 +16.09%
Heating Oil 177.20 +1.11%
Gold 508.20 +1.03%
Base Metals 149.28 +3.43%
Copper 198.70 +3.97%
10-year US Treasury Yield 4.51% +2.04%
Average 30-year Mortgage Rate 6.26% -.32%

Leading Sectors
Steel +5.96%
Semis +4.32%
Disk Drives +3.86%

Lagging Sectors
Gaming -2.0%
Gold & Silver -2.05%
Biotech -2.14%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Slightly Lower Mid-day on Profit-taking and Rising Energy Prices

Indices
S&P 500 1,264.03 -.05%
DJIA 10,881.59 -.28%
NASDAQ 2,267.33 +.01%
Russell 2000 687.71 -.37%
DJ Wilshire 5000 12,649.06 -.08%
S&P Barra Growth 605.56 +.07%
S&P Barra Value 654.01 -.16%
Morgan Stanley Consumer 593.92 +.09%
Morgan Stanley Cyclical 780.85 -.51%
Morgan Stanley Technology 536.32 -.31%
Transports 4,130.81 -.65%
Utilities 402.52 -.18%
Put/Call .75 -8.54%
NYSE Arms 1.05 +30.88%
Volatility(VIX) 11.07 -1.51%
ISE Sentiment 241.00 +55.48%
US Dollar 91.98 +.17%
CRB 323.21 +.77%

Futures Spot Prices
Crude Oil 59.45 +1.51%
Unleaded Gasoline 161.25 +3.19%
Natural Gas 13.71 +5.24%
Heating Oil 178.10 +2.43%
Gold 507.00 +.14%
Base Metals 149.28 +.19%
Copper 197.80 -1.08%
10-year US Treasury Yield 4.51% +.09%

Leading Sectors
Airlines +1.46%
Papers +.89%
Semis +.82%

Lagging Sectors
Gold & Silver -1.63%
Wireless -1.11%
Broadcasting -.94%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Semi longs, Airline longs and Medical longs. I have not traded this morning, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is lower, sector performance is mixed and volume above average. Measures of investor anxiety are mixed. Overall, today’s market action is neutral considering the bounce in oil and yesterday’s gains. The Fed's Yellen is now saying that the Fed is discussing the wording of forward-looking language and is discussing "removing accommodation" language. She also said it is unlikely the end of tightening cycle is at hand and that the core pce is "essentially compatible" with Fed's goal. I would expect investors to cheer these statements as it shows recent strong data have not deterred the Fed from contemplating a "pause.” I expect US stocks to trade mixed-to-higher into the close as short-covering more than offsets the rise in energy prices.