Job Market Healthy, Leading Indicators Forecast Slower Growth

- Initial Jobless Claims fell to 303K last week versus estimates of 309K and 313K the prior week.
- Continuing Claims rose to 2439K versus estimates of 2440K and 2421K prior.
- Leading Indicators for March fell .1% versus estimates of unchanged and a downwardly revised .5% decline in February.

BOTTOM LINE: First-time claims for US unemployment benefits fell more than forecast last week and the number of Americans on jobless rolls stayed close to a five-year low, signaling a strengthening labor market, Bloomberg said. The 4-week moving average of continuing claims fell to 2.44 million, the lowest since Feb. 3, 2001. The unemployment rate among those eligible to receive benefits, which tracks the US unemployment rate, remained at 1.9%. I continue to expect the labor market to remain healthy without generating substantial unit labor cost increases.

An index of US leading indicators fell for a second month in March, suggesting the slowdown in housing and record energy prices will chip away at economic growth,
Bloomberg said. This is the first back-to-back decline since February and March 2001. Leading Indicators historically forecast economic activity about 3-6 months out. The coincident indicators component, a measure of current economic activity, rose .2% for the month. I continue to believe US economic growth peaked for the year during the first quarter and will head back to average levels through year-end.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Reliance Industries Ltd., whose shares have gained 8% in two days, plans to announce an oil discovery at the Krishna Godavari exploration area off India’s east coast.
- Carlos Slim Domit, the son of Mexico’s richest man, bought $288 million of Univision Communications stock(UVN) after the company put itself up for sale.
- China’s government said the surge in investment that drove the fastest economic growth in more than a year is a “problem,” increasing pressure on the central bank to restrict lending.

London-based Times:
- NYSE Group(NYX) may hire Goldman Sachs(GS) to advise it on a possible bid for London Stock Exchange or Euronext NV.

Late Buy/Sell Recommendations
Wachovia:
- Rated CVH and HUM Outperform.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated +.01%.

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Earnings of Note
Company/EPS Estimate
- (MO)/1.28
- (DOX)/.42
- (AH)/1.09
- (BAC)/1.00
- (BAX)/.40
- (BLS)/.53
- (BGG)/1.28
- (BRCM)/.34
- (COF)/2.06
- (CERN)/.27
- (CPS)/.45
- (LLY)/.75
- (EMC)/.14
- (FFIV)/.50
- (FDC)/.49
- (GM)/-.44
- (GOOG)/1.97
- (HSY)/.50
- (ITW)/1.25
- (IGT)/.30
- (MAR)/.72
- (MRK)/.72
- (NEM)/.32
- (NUE)/2.33
- (RYL)/1.72
- (SNDK)/.44
- (SGP)/.14
- (LUV)/.07
- (UPS)/.88

Upcoming Splits
- (GGB) 3-for-2

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 308K versus 313K the prior week.
- Continuing Claims are estimated to rise to 2439K versus 2424K prior.

10:00 am EST
- Leading Indicators for March is estimated to remain unchanged versus a .2% decline in February.

12:00 pm EST
- Philadelphia Fed for April is estimated to rise to 14.0 versus a reading of 12.3 in March.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology stocks in the region. I expect US equities to open mixed and to rally modestly into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on Earnings Optimism

Indices
S&P 500 1,309.93 +.17%
DJIA 11,278.77 +.09%
NASDAQ 2,370.88 +.63%
Russell 2000 778.42 +1.12%
Wilshire 5000 13,278.62 +.36%
S&P Barra Growth 612.63 +.19%
S&P Barra Value 694.63 +.16%
Morgan Stanley Consumer 603.30 unch.
Morgan Stanley Cyclical 853.96 +.59%
Morgan Stanley Technology 557.26 +.36%
Transports 4,725.01 +.53%
Utilities 393.29 +.31%
Put/Call .67 -1.47%
NYSE Arms .88 +126.31%
Volatility(VIX) 11.32 -.70%
ISE Sentiment 148.00 +8.82%
US Dollar 87.77 -.53%
CRB 357.29 +.68%

Futures Spot Prices
Crude Oil 72.08 -.12%
Unleaded Gasoline 223.94 +.70%
Natural Gas 8.19 -.02%
Heating Oil 205.80 -.21%
Gold 645.40 +1.48%
Base Metals 204.43 -.86%
Copper 297.00 +.35%
10-year US Treasury Yield 5.02% +.75%

Leading Sectors
Internet +3.36%
Gold & Silver +3.36%
Oil Service +2.58%

Lagging Sectors
Disk Drives -1.03%
Wireless -1.03%
Telecom -1.05%

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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- The US death rate for 2004 fell to the lowest level ever recorded, and life expectancy at birth rose to a new high.
- A UN report that cites Iran’s support for the Lebanese Shiite Muslim group Hezbollah is recognition that “Iran is financing terrorist groups in Lebanon and Syria,” US Ambassador Bolton said.
- Qualcomm Inc.(QCOM) said second-quarter profit rose 11% on higher sales of handsets that surf the Internet and take pictures.
- Intel(INTC) said first-quarter earnings sank 38% as the world’s biggest computer-chip maker lost market share to Advanced Micro Devices(AMD).
- Apple Computer(AAPL) said second-quarter profit rose 41% even after iPod and Macintosh shipments fell from a record holiday season.
- eBay(EBAY) said first-quarter profit fell 3.1% because of stock option expenses.

Nikkei English News:
- Toyota Motor(TM) plans to spend $11.9 billion in capital expenditures in fiscal 2006.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Internet longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was bullish considering yesterday’s sharp gains and today’s headwinds. I sense that many shorts are trapped after yesterday's advance and are hoping for poor earnings reports to bail them out tonight.

Stocks Modestly Higher into Final Hour on Strong Corporate Earnings

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Biotech longs and Internet longs. I exited the remainder of my IWM and QQQQ shorts and an energy short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, sector performance is mixed and volume is above average. Earnings for the S&P 500 are coming in 13.3% above year-ago levels. This would make the first quarter the 15th straight of double digit profit gains, the best streak since record keeping began in 1936. The S&P 500 P/E has contracted relentlessly during this streak. I continue to believe that P/E multiple expansion will occur later this year, helping propel the S&P 500 to around a 15% total return for the year. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering.

Today's Headlines

Bloomberg:
- Chinese President Hu Jintao pronounced himself “a friend” of Microsoft(MSFT) as he toured the largest software maker’s headquarters and dined on smoked guinea fowl at Microsoft Chairman Gates’ lakeside home.
- White House spokesman Scott McClellan resigned.
- Envoys meeting in Moscow to discuss Iran’s nuclear development agreed the Islamic Republic must face international action for defying the UN by enriching uranium, said Nicholas Burns, US undersecretary of state for political affairs.

Wall Street Journal:
- News Corp.’s(NWS) Fox Interactive Media division is investing $3.5 million in the employment-listing site of Simply Hired Inc.
- Aztar Corp.(AZR) is close to agreeing to sell the business to Pinnacle Entertainment for about $1.5 billion.
- The US Veterans Administration medical center in Portland, Oregon, is allowing patients the option of remaining home to cut down on healthcare costs and free up beds.
- Apache Corp.(APA) says it will buy all of BP Plc’s oil and gas fields on the Gulf of Mexico’s continental shelf for $1.3 billion.
- The FAA has proposed new metal-fatigue inspection and maintenance standards that could force some planes to be retired faster.
- Boston’s office real estate market is beginning to show signs of a turnaround as demand rises for top floor space in skyscrapers and premium properties in nearby Waltham.
- Shares of eBay(EBAY) have fallen 10% this year and 33% since January 2005, but its earnings and growth are still strong, and the stock now looks like a bargain.

NY Times:
- McDonald’s Corp.(MCD) revenue growth has been driven by its Dollar Menu and hamburgers, not by healthier items such as salads that were more recently added to its menu.

USA Today:
- Construction of the US Embassy in Iraq is on schedule and within budget.

Hurriyet:
- Turkey’s state oil company Turkiye Petrolleri AO has found oil at three sites near the Syrian border.

Guardian:
- The number of worldwide refugees dropped to a 25-year low last year as millions returned to Afghanistan, Angola and Sierra Leone, according to a recent UN report.