Monday, October 25, 2004

Mid-day Update

S&P 500 1,094.30 -.13%
NASDAQ 1,915.61 +.02%


Leading Sectors
Airlines +4.13%
Iron/Steel +3.57%
Homebuilders +3.46%

Lagging Sectors
Restaurants -.62%
I-Banks -.64%
Biotech -1.41%

Other
Crude Oil 55.18 +.02%
Natural Gas 7.97 -1.67%
Gold 430.10 +1.03%
Base Metals 111.02 -1.63%
U.S. Dollar 85.0 -1.01%
10-Yr. T-note Yield 3.95% +-.48%
VIX 16.52 +8.12%
Put/Call .76 +2.70%
NYSE Arms 1.23 -3.15%

Market Movers
GOOG +5.5% on continuing optimism over last week's earnings report.
ONXX -27.2% after the company said it doesn't expect to begin selling an experimental kidney-cancer treatment until 2006.
TXU +13.4% after boosting 05 estimates substantially, announcing 50M share buyback and boosting dividend.
ISG +24.0% Mittal agreed to Buy the company for $4.5B, forming the world's largest steel company.
*Steel stocks up across the board on ISG deal.
ADP +5.5% after beating 1Q estimates.
VFC +7.1% after beating 3Q estimates, raising 4Q outlook and boosting dividend.
JBSS -28.6% on disappointing 1Q earnings.
CNF -6.1% after missing 3Q estimates and lowering 4Q guidance.
*Homebuilding stocks up across the board on strong existing home sales report.

Economic Data
Existing Home Sales for September were 6.75M versus estimates of 6.51M and 6.55M in August.

Recommendations
Goldman Sachs reiterated Outperform on NEM, VLTR, SII and PDG. Goldman reiterated Underperform on FISV, RAI and LSI. Citi SmithBarney upgraded semiconductor sector globally, favorites are INTC, ADI, FCS, IRF, LLTC, MCRL, MXIM, NSM, SMTC. Citi reiterated Buy on CTSH, target $40. Citi reiterated Buy on NE, target $57. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on PLCE, target $40. AIG raised to Buy at Deutsche Bank, target $69. SUP cut to Reduce at UBS, target $22. XL cut to Underweight at Morgan Stanley. OSTK raised to Buy at Legg Mason, target $69. CDX raised to Buy at Bank of America, target $31. ACE raised to Overweight at Morgan Stanley, target $41. IPCR raised to Overweight at JP Morgan. HCA cut to Underperform at CSFB, target $31. PHM raised to Outperform at CSFB, target $55. LRCX added to JP Morgan "Focus List", target $30.

Mid-day News
U.S. stocks are quietly mixed mid-day as a better-than-expected housing report is being offset by declining biotech shares. Delta Air is close to an agreement to give its pilots a big equity stake in return for cuts in pay and benefits, the Wall Street Journal reported. Barney New York plans to open 32 stores in the next five years, almost doubling its size, in hopes of finding a buyer for the company, the NY Post reported. AOL Music's Web site has become an important tool in the recording industry for promoting musicians and records, the NY Daily News said. Constellation Brands may face rivals in its bid to acquire California winemaker Robert Mondavi, the LA Times said. Applied Digital Solutions, which makes implantable chips to track people and pets, may face hurdles in selling chips that instantly provide patients' medical histories, Barron's reported. Deckers Outdoor's Ugg footwear remains in demand by retailers, even as fashion critics claim the sheepskin boots are out of style, the LA Times reported. U.S. Supreme Court Justice Rehnquist has been hospitalized for thyroid cancer, CNN reported. Ispat Intl. NV, part of the world's second-largest steelmaker, said it will buy LNM Holdings NV and then merge with Intl. Steel Group to create the world's largest steelmaker, Bloomberg reported. Violent crime in the U.S. declined 3% last year and has decreased 26% since 1994, according to the FBI's annual crime report. The European Union said it's ending sanctions on $4 billion of U.S. imports in about two months, Bloomberg reported. Norway's government intervened for the second time this year to forcibly end a labor conflict that threatened to shut down all oil and gas production from the world's third-largest crude exporter, Bloomberg said. The $866 billion hedge fund industry is making a last-ditch attempt to stop a U.S. SEC plan to impose new regulations on the private investment partnerships, Bloomberg reported. U.S. sales of previously owned houses rose in September to the third-highest pace on record, evidence that low borrowing costs were attracting buyers and helping sustain the economic expansion, Bloomberg said. RealClearPolitics.com has President Bush with an average national lead in the 3-way race for president of 3.1 percentage points in all major polls.

Bottom Line: The Portfolio is substantially higher mid-day on strength in my security, internet and telecom ADR longs. I added a few new longs this morning, bringing the Portfolio to 100% net long. One of my new longs is OS and I am using a $13.50 stop-loss on this position. The strong housing report is a very good sign for the U.S. economy and once again crushes the Bears hopes for a bursting of the so-called "housing bubble." I continue to expect the U.S. economy to grow around 4% for the 3rd quarter and accelerate to around 5% growth during the 4th quarter as election uncertainty lifts, oil falls in price and domestic terrorism fears diminish. I also believe technology shares will continue to outperform through year-end. It is probable that the major indices are very close or at a bottom for the year. I will look to add market exposure on any weakness through week's end.

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