Friday, December 03, 2004

Mid-day Report

S&P 500 1,189.75 -.05%
NASDAQ 2,148.64 +.24%

Leading Sectors
Semis +2.45%
Homebuilders +2.18%
Iron/Steel +2.04%

Lagging Sectors
Papers -.89%
Broadcasting -1.26%
Airlines -1.62%

Crude Oil 42.80 -1.04%
Natural Gas 6.80 -.09%
Gold 456.80 +1.04%
Base Metals 117.20 -.57%
U.S. Dollar 81.19 -.94%
10-Yr. T-note Yield 4.25% -3.55%
VIX 12.94 -.31%
Put/Call .71 -14.46%
NYSE Arms 1.35 +55.17%

Market Movers
INTC +6.21% after boosting 4Q outlook, reducing inventories and Needham upgrade to Buy.
AUGT +13.9% on Adams Harkness upgrade to Strong Buy, target $12.
NCR +4.2% after the State of Missouri selected its Teradata division to be its partner in the development of its new Tax Compliance System.
IMDC +6.0% after it and its partner, Genzyme, won U.S. approval to sell the Captique wrinkle gel.
SCSS -20.8% after cutting 4Q outlook.
FITB -6.1% after cutting 4Q outlook and multiple downgrades.
AAPL -3.7% on Needham downgrade to Hold.
ETM -4.6% on SunTrust downgrade to Neutral.
*Semis and equipment up across the board on INTC mid-quarter update.
*Homebuilders up across the board on a sharp decline in interest rates.

Economic Data
Unemployment Rate for November fell to 5.4% versus estimates of 5.4% and 5.5% in October.
Average Hourly Earnings for November rose .1% versus estimates of a .3% gain and a .3% increase in October.
Change in Non-farm Payrolls for November was 112K versus estimates of 200K and 303K in October.
Change in Manufacturing Payrolls for November was -5K versus estimates of 0K and -2K in October.
Average Weekly Hours for November was 33.7 versus estimates of 33.8 and 33.8 in October.
ISM Non-Manufacturing for November was 61.3 versus estimates of 58.5 and 59.8 in October.

-Goldman Sachs reiterated Outperform on INTC, ADP, HEW, PAYX, CEN, COH, WAG, AMGN, BSX . Goldman reiterated Underperform on ABY, PSS, RAI.
-Citi SmithBarney said to switch from TGT to WMT. Citi reiterated Buy on CNET, target $13. Citi reiterated Buy on BHI, target $57. Citi reiterated Buy on INTC, target $26.50. Citi reiterated Buy on CMCSK, target $34. Citi reiterated Buy on LYO, target $36. Citi reiterated Buy on FITB, target $58. Citi reiterated Buy on AMGN, target $90.
-UBS rated BEAV Buy, target $14.
-JP Morgan downgraded ANN to Underweight. JP Morgan downgraded CLE to Underweight.
-Merrill Lynch rated CTAS Buy, target $52. Merrill rated MAN Buy, target $63. Merrill rated KFY, target $23.50. Merrill rated RECN Sell.
-Thomas Weisel upgraded PLT and LRCX to Outperform.

Mid-day News
U.S. stocks are mixed mid-day as strength in tech and interest-rate sensitive sectors is being offset by worries over the consumer. Cell phone rings that play songs have been popular in Western Europe and Asia for the past two years and are catching on fast in the U.S., the Washington Post said. The Democratic National Committee raised more money during the past election than the Republican National Committee for the first time since the mid-1970s, and both sides broke all previous fundraising records, the Washington Post reported. Smaller computer-related companies are enjoying a strong market for IPOs after more than four years of little activity, the NY Times reported. Oregon Steel, the only maker of steel plates on the U.S. West Coast, plans to raise its prices in January, American Metal Market reported. New Jersey drugmakers, including Schering-Pough, are planning a program to allow low-income and families without health insurance better access to medicine, the Star-Ledger reported. An official of Hamas told the AP his group would be open to a Palestinian state and a lengthy truce with Israel. The LA Times will stop publishing its national edition at year-end because the Internet has made the separate newspaper irrelevant, the Washington Post reported. Ukraine's political crisis, which has driven down the price of the country's bonds and stocks, has failed to hurt the debt of other emerging-market nations, the Economist reported. A New Jersey legislative committee approved a bill that would allow casino betting on sporting events, as the state faces a $4 billion budget deficit and competition from casinos in other states, the Philadelphia Inquirer reported. Korn/Ferry Intl., the world's largest executive-search company, sees the job market for top and middle manager as robust, CEO Reilly told CNBC. Ukraine's Supreme Court threw out last month's presidential election results that showed Prime Minister Yanukovych beat rival Yushchenko, saying there is evidence the balloting was riddled with fraud, Bloomberg reported. John Henry, chairman of a $2.9 billion commodity-trading firm that bears his name, said he's betting on a drop in oil prices after profiting from their climb, Bloomberg said. U.S. Treasury notes rose the most in four months after job growth slowed in November, tempering speculation the Fed would accelerate the pace of interest rate increases, Bloomberg said. The ISM Non-manufacturing Index rose to a four-month high, surpassing expectations, Bloomberg reported. U.S. employers added 112,000 workers in November, fewer than economists expected, Bloomberg said. The unemployment rate fell to 5.4%, down from 6.3% in June of 2003, Bloomberg reported.

Bottom Line: The Portfolio is unchanged mid-day as strength in my internet and semi-equipment longs is offsetting weakness in my Chinese ADR and retail longs. I exited an internet long this morning and added ELOS long, thus leaving the Portfolio 125% net long. I am using a $24.25 stop-loss on this position. While job creation was disappointing, the continuing fall in the unemployment rate is very positive. It also appears that weather effects are still significant. Over the last 3 months an ALL-TIME record number of people said they were not at work for weather-related reasons, yet an average of 178,000 jobs/month were created during this period. As I have stated before, over 70% of inflation comes from unit labor costs. Thus, a modestly improving labor market is better for stocks than robust job growth. This is why interest rates are plunging and one of the reasons stocks aren't selling off today. As well, the ISM Non-manufacturing Index shows an acceleration in services, the largest part of the U.S. economy. I expect U.S. stocks to trade mixed-to-higher into the afternoon as short-covering and optimism in the tech sector offsets worries over the consumer.

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