S&P 500 1,141.52 +.64%
NASDAQ 2,037.69 +.61%
Leading Sectors
Airlines +3.05%
Broadcasting +1.92%
Internet +1.47%
Lagging Sectors
Homebuilders -1.34%
Disk Drives -1.44%
Oil Service -1.85%
Other
Crude Oil 36.18 -3.65%
Natural Gas 6.20 -2.41%
Gold 400.30 -.74%
Base Metals 109.41 -.07%
U.S. Dollar 88.83 -.05%
10-Yr. T-note Yield 4.71% +1.45%
VIX 15.21 +.13%
Put/Call .53 -19.70%
NYSE Arms .80 -37.50%
Market Movers
TASR +12.2% after saying the Dayton, Ohio Police placed a $436,000 order for the company's stun gun.
WPI -15.3% after cutting second-quarter sales and profit estimates after prices fell and a new birth-control pill was delayed and multiple downgrades.
MO +5.3% after a federal judge cleared the way for major U.S. cigarette makers to file a pre-trial appeal aimed at blocking a $280 billion fraud claim by the U.S. Department of Justice.
CCI -9.7% after saying National Grid Transco, Britain's power grid manager, agreed to buy the U.K. transmission towers of CCI for $2.04 billion.
TZOO +23.2% on short-covering and strength in Internet shares.
ATI +11.9% after saying it will have its first profit in more than two years, helped by a drop in retiree benefit costs and higher demand for flat-rolled stainless steel.
Economic Data
Personal Income rose .6% in May versus estimates of a .5% rise and a .6% increase in April.
Personal Spending rose 1.0% in May versus estimates of a .8% rise and a .2% increase in April.
PCE Deflator (YOY) for May rose 2.5% versus estimates of a 2.2% rise and a 2.0% increase in April.
Recommendations
ELP cut to Underweight at Morgan Stanley. WFMI rated Outperform at Prudential, target $105. TQNT cut to Underweight at Lehman, target $4. GENZ raised to Overweight at Lehman, target $54. FOX raised to Buy at Oppenheimer, target $32. WPI cut to Underweight at JP Morgan. Citi SmithBarney says to Buy JCP today, target $50. Citi also said to Buy IR, target $83. Citi reiterated Buy on CEY, target $44. Citi reiterated Sell on GDT, target $53. Goldman Sachs reiterated Outperform on BIIB, MUR, PXD, AMT and PPL.
Mid-day News
U.S. stocks are higher mid-day as falling oil prices and developments in Iraq boost investor spirits. The U.S.-led coalition formally ended its occupation of Iraq today by handing sovereignty to an interim Iraqi government ahead of schedule, Bloomberg reported. U.S. personal spending rose 1.0% in May, the biggest increase since 2001, as purchases of automobiles and other durable goods accelerated. A measure of prices tied to spending increased the most since 1990, reflecting higher fuel costs, Bloomberg reported. U.S. college students at public universities are spending almost a third less on tuition than they did in 1998, as new federal tax breaks and an increase in state and federal grants help ease education costs, USA Today reported. OAO Lukoil, Russia's biggest oil producer, plans to start crude-oil production in Iraq in 2005, Interfax news service reported. U.S. cable companies are developing new systems that ultimately may enable national television broadcasts to include different commercials aimed at varying audience groups, the NY Times reported. Sun Microsystems will unveil partnerships today meant to bolster the company's position in the mobile Internet business, the NY Times said. AOL won a patent for software that allows people to send instant messages or enter chat rooms while watching TV, the NY Times reported. Governor Schwarzenegger struck a deal with the California State Employees Association that would let the sate borrow almost $1 billion to balance the state's budget, the LA Times reported. Crude oil futures plunged to a two-month low after the U.S.-led coalition handed sovereignty to Iraq ahead of schedule, tempering concern that terrorists would disrupt the country's petroleum operations, Bloomberg reported. Wal-Mart said June sales will increase 2-4%, less than its original forecast, Bloomberg said. United Airlines was turned down for a federal loan guarantee and told it can't reapply, Bloomberg said. Cattle futures plunged the maximum allowed by the CME after the U.S. said a mad-cow screening test was positive, Bloomberg reported.
BOTTOM LINE: The Portfolio is having a very good day today as my security, internet and biotech longs are rising substantially and my oil service shorts are falling. I took profits in a few stocks from various sectors this morning, leaving the Portfolio with 125% net long market exposure. I expect U.S. equities to trade neutral to higher before a more substantial upwards move begins later in the week. Oil should continue to fall throughout the week and interest rates will likely rise modestly on more strong economic reports.
Monday, June 28, 2004
Monday Watch
Earnings of Note
Company/Estimate
SONC/.31
PKE/.23
Splits
MOV 2-for-1
Economic Data
Personal Income for May estimated to rise .5% versus a .6% rise in April.
Personal Spending for May estimated to rise .8% versus a .3% rise in April.
PCE Deflator (YOY) for May estimated to increase 2.2% versus a 1.9% rise in April.
Weekend Recommendations
Forbes on Fox had guests that were positive on MSFT, AMTD, HYSL, ADP, COP and mixed on HB. Bulls and Bears had guests that were positive on DE, MMC and mixed on RYVNX, BA, WMT and CX. Cashin' In had guests that were positive on MMM and mixed on AIB, STRA, MSFT, IHG, HDI and WMT. Louis Rukeyser's Wall Street had guests that were positive on TXN, EOG, SSL, TWP, WPI, PGN and SPLS. Wall St. Week w/Fortune did not have any stock recommendations. Barron's had positive comments on HNZ, TEU, ACTU, BYD, HD, BBBY, STN, CHS, COH, YHOO and WSM. Goldman Sachs reiterated Outperform on HD, ADP, MMP and PAYX. InformationWeek has a positive article on CSCO.
Weekend News
Iraqi militia fighters and clerics who oppose the U.S. presence in their country expressed disgust at the recent wave of violence by foreign insurgents that has killed Iraqis, the Washington Post reported. President Bush said the European Union statement endorsing Iraq's interim government and a pledge to help the country realize democracy represent an important step forward as Iraq prepares for free elections in January, Bloomberg reported. State Farm Mutual Automobile Insurance, United Services Automobile Association and Farmers Group are lowering car insurance premiums in many U.S. states, and may be joined by dozens of other insurers, the NY Times reported. Violence in Iraq may ease in the run up to elections in January as local security forces begin to take over from U.S. and British troops and people feel they can express their feelings democratically rather than through violence, the U.K.'s top representative said. The Green Party chose a California lawyer to be its presidential candidate instead of Ralph Nader, the LA Times reported. Teresa Heinz Kerry, wife of Senator John Kerry, controls a family fortune worth an estimated $1 billion, the LA Times reported. New Jersey next week will become the second state after New York to ban drivers from using hand-held cellular phones, the Newark Star-Ledger reported. Former President Clinton and Senator Ted Kennedy will get prime-time speaking spots next month at the Democratic National Convention, the LA Times reported. Senator John McCain, California Governor Schwarzenegger and former New York City Mayor Rudolph Giuliani will deliver key prime-time speeches at this summer's Republican convention, the NY Times said. Microsoft has teamed up with Sichuan Changhong Electric in southwestern China to develop digital home appliances, said Shanghai Securities News. Crude oil futures fell in New York on expectations the end of a strike in Norway and the restoration of exports from Iraq will add to U.S. supplies that are already higher than year-ago levels, Bloomberg said. The San Francisco Chronicle has an interesting editorial on the U.N. Oil-for-food scandal.
Late-Night Trading
Asian indices are mixed, -1.25% to +.50% on average.
S&P 500 indicated +.29%.
NASDAQ 100 indicated +.07%.
BOTTOM LINE: I expect U.S. stocks to open modestly higher tomorrow on falling oil prices and Middle East violence commensurate with market expectations, before the handover of power to Iraq on Wednesday. The Portfolio is 150% net long heading into tomorrow.
Company/Estimate
SONC/.31
PKE/.23
Splits
MOV 2-for-1
Economic Data
Personal Income for May estimated to rise .5% versus a .6% rise in April.
Personal Spending for May estimated to rise .8% versus a .3% rise in April.
PCE Deflator (YOY) for May estimated to increase 2.2% versus a 1.9% rise in April.
Weekend Recommendations
Forbes on Fox had guests that were positive on MSFT, AMTD, HYSL, ADP, COP and mixed on HB. Bulls and Bears had guests that were positive on DE, MMC and mixed on RYVNX, BA, WMT and CX. Cashin' In had guests that were positive on MMM and mixed on AIB, STRA, MSFT, IHG, HDI and WMT. Louis Rukeyser's Wall Street had guests that were positive on TXN, EOG, SSL, TWP, WPI, PGN and SPLS. Wall St. Week w/Fortune did not have any stock recommendations. Barron's had positive comments on HNZ, TEU, ACTU, BYD, HD, BBBY, STN, CHS, COH, YHOO and WSM. Goldman Sachs reiterated Outperform on HD, ADP, MMP and PAYX. InformationWeek has a positive article on CSCO.
Weekend News
Iraqi militia fighters and clerics who oppose the U.S. presence in their country expressed disgust at the recent wave of violence by foreign insurgents that has killed Iraqis, the Washington Post reported. President Bush said the European Union statement endorsing Iraq's interim government and a pledge to help the country realize democracy represent an important step forward as Iraq prepares for free elections in January, Bloomberg reported. State Farm Mutual Automobile Insurance, United Services Automobile Association and Farmers Group are lowering car insurance premiums in many U.S. states, and may be joined by dozens of other insurers, the NY Times reported. Violence in Iraq may ease in the run up to elections in January as local security forces begin to take over from U.S. and British troops and people feel they can express their feelings democratically rather than through violence, the U.K.'s top representative said. The Green Party chose a California lawyer to be its presidential candidate instead of Ralph Nader, the LA Times reported. Teresa Heinz Kerry, wife of Senator John Kerry, controls a family fortune worth an estimated $1 billion, the LA Times reported. New Jersey next week will become the second state after New York to ban drivers from using hand-held cellular phones, the Newark Star-Ledger reported. Former President Clinton and Senator Ted Kennedy will get prime-time speaking spots next month at the Democratic National Convention, the LA Times reported. Senator John McCain, California Governor Schwarzenegger and former New York City Mayor Rudolph Giuliani will deliver key prime-time speeches at this summer's Republican convention, the NY Times said. Microsoft has teamed up with Sichuan Changhong Electric in southwestern China to develop digital home appliances, said Shanghai Securities News. Crude oil futures fell in New York on expectations the end of a strike in Norway and the restoration of exports from Iraq will add to U.S. supplies that are already higher than year-ago levels, Bloomberg said. The San Francisco Chronicle has an interesting editorial on the U.N. Oil-for-food scandal.
Late-Night Trading
Asian indices are mixed, -1.25% to +.50% on average.
S&P 500 indicated +.29%.
NASDAQ 100 indicated +.07%.
BOTTOM LINE: I expect U.S. stocks to open modestly higher tomorrow on falling oil prices and Middle East violence commensurate with market expectations, before the handover of power to Iraq on Wednesday. The Portfolio is 150% net long heading into tomorrow.
Sunday, June 27, 2004
Chart of the Week
Bottom Line: Look for the Morgan Stanley Technology Index to convincingly break out of its recent downtrend and lead the major U.S. indices higher. Technology spending will accelerate is the second-half of this year, earnings estimates are too low and valuations have mostly come down to reasonable levels.
Weekly Outlook
There are a number of important economic reports and a few significant corporate earnings reports scheduled for release this week. Economic reports this week include Personal Income, Personal Spending, Consumer Confidence, Chicago Purchasing Manager, Initial Jobless Claims, Construction Spending, ISM Manufacturing, Vehicle Sales, Unemployment Rate, Average Hourly Earnings, Change in Non-farm/Manufacturing Payrolls, Average Weekly Hours and Factory Orders. Consumer Confidence, Chicago Purchasing Manager, ISM Manufacturing, Change in Non-farm Payrolls all have market-moving potential.
McKormick(MKC), Research in Motion(RIMM), Sonic(SONC), Emmis Communications(EMMS), Monsanto(MON), Constellation Brands(STZ), Biomet(BMET), ConAgra(CAG) and General Mills(GIS) are some of the more important companies that release quarterly earnings this week. There are also a couple of other events that have market-moving potential. The FMOC Policy Announcement, end of the quarter repositioning, handover of power to the Iraqi government and the NYSSA Homeland Security Industry Conference will also impact trading this week.
Bottom Line: I expect U.S. stocks to rise this week, possibly by a substantial margin, led by technology shares. The handover of power to the Iraqis, the Fed keeping the word "measured" in its policy statement with respect to the pace of rate-hikes, falling energy prices, the recent decline in interest rates and positive economic reports should provide the catalysts for a good week for U.S. stocks. The AAII % Bulls increased by a substantial amount last week which would normally be a negative. However, I believe that while investors may feel more bullish, they are waiting for the uncertainty surrounding events of the coming week to lift before they actually buy in a significant way.
Here are some of the reasons for my current bullish stance on U.S. stocks:
1)Recently, NASDAQ short interest hit an all-time high and NYSE short interest approached an all-time high, which should result in a significant amount of short-covering in the very near future as fundamentals continue to improve.
2)Interest rates have declined by almost 30 basis points in the last few weeks. The 10-yr T-note is yielding 4.64%, over 40% lower than in 1994.
3)Gas prices have fallen 13% from their recent highs.
4)Inflation for 2004 is set to rise less than the 40-year average of 3.0%.
5)Valuations for most U.S. stocks(S&P 500 04 P/E=17.3, down 66% from peak) are very reasonable given the strong economic backdrop and relatively low interest rate picture.
6)Corporate profits and growth are near all-time highs.
7)Corporate balance sheets are much cleaner and healthier.
8)Executive corruption is down.
9)U.S. and world economic growth are on pace to reach 20-year highs this year.
10)Japan(the world's second largest economy) is contributing meaningfully to world growth for the first time in almost 15 years.
11)China's growth is slowing, but still exceptional.
12)The big picture in Iraq is improving. The cost of the
War in Iraq is set to come in at only 1% of U.S. GDP versus 12% for the Vietnam War, 15% for the Korean War and 130% for WWII.
13)There have been no major terror acts on U.S. soil since 9/11.
14)U.S. home ownership is at all-time highs.
15)American's are the wealthiest in U.S. history. Moreover, 1 out of every 125 are now millionaires, even excluding home equity.
16)Job opportunities and wages are improving substantially. 1.2 million jobs have been created in the last 6 months.
17)The Unemployment rate is lower than the average rate over any 10-year period during the last 40 years.
18)The Budget Deficit will come in significantly below estimates for 2004 as substantial economic growth increases incomes and profits, resulting in increased government tax receipts.
19)Consumer sentiment is improving with job gains and income growth.
20)U.S. manufacturing, which has been in a depression for many years, is rebounding at one of the fastest paces on record.
21)Corporate spending on services and equipment is on the rise for the first time in several years.
22)Consumers are continuing to spend at a very healthy rate.
23)The massive overcapacity, in many sectors, generated during the Internet bubble is almost burned off.
24)Current U.S economic growth is the result of real companies with real business models generating real profits. During the Internet bubble, companies with poor management teams, flawed business models, corrupt accounting and no profits were artificially inflating economic growth.
25)Stock market internals are rapidly improving.
Finally, my short-term trading indicators are giving buy signals and the Portfolio is 150% net long heading into the week.
McKormick(MKC), Research in Motion(RIMM), Sonic(SONC), Emmis Communications(EMMS), Monsanto(MON), Constellation Brands(STZ), Biomet(BMET), ConAgra(CAG) and General Mills(GIS) are some of the more important companies that release quarterly earnings this week. There are also a couple of other events that have market-moving potential. The FMOC Policy Announcement, end of the quarter repositioning, handover of power to the Iraqi government and the NYSSA Homeland Security Industry Conference will also impact trading this week.
Bottom Line: I expect U.S. stocks to rise this week, possibly by a substantial margin, led by technology shares. The handover of power to the Iraqis, the Fed keeping the word "measured" in its policy statement with respect to the pace of rate-hikes, falling energy prices, the recent decline in interest rates and positive economic reports should provide the catalysts for a good week for U.S. stocks. The AAII % Bulls increased by a substantial amount last week which would normally be a negative. However, I believe that while investors may feel more bullish, they are waiting for the uncertainty surrounding events of the coming week to lift before they actually buy in a significant way.
Here are some of the reasons for my current bullish stance on U.S. stocks:
1)Recently, NASDAQ short interest hit an all-time high and NYSE short interest approached an all-time high, which should result in a significant amount of short-covering in the very near future as fundamentals continue to improve.
2)Interest rates have declined by almost 30 basis points in the last few weeks. The 10-yr T-note is yielding 4.64%, over 40% lower than in 1994.
3)Gas prices have fallen 13% from their recent highs.
4)Inflation for 2004 is set to rise less than the 40-year average of 3.0%.
5)Valuations for most U.S. stocks(S&P 500 04 P/E=17.3, down 66% from peak) are very reasonable given the strong economic backdrop and relatively low interest rate picture.
6)Corporate profits and growth are near all-time highs.
7)Corporate balance sheets are much cleaner and healthier.
8)Executive corruption is down.
9)U.S. and world economic growth are on pace to reach 20-year highs this year.
10)Japan(the world's second largest economy) is contributing meaningfully to world growth for the first time in almost 15 years.
11)China's growth is slowing, but still exceptional.
12)The big picture in Iraq is improving. The cost of the
War in Iraq is set to come in at only 1% of U.S. GDP versus 12% for the Vietnam War, 15% for the Korean War and 130% for WWII.
13)There have been no major terror acts on U.S. soil since 9/11.
14)U.S. home ownership is at all-time highs.
15)American's are the wealthiest in U.S. history. Moreover, 1 out of every 125 are now millionaires, even excluding home equity.
16)Job opportunities and wages are improving substantially. 1.2 million jobs have been created in the last 6 months.
17)The Unemployment rate is lower than the average rate over any 10-year period during the last 40 years.
18)The Budget Deficit will come in significantly below estimates for 2004 as substantial economic growth increases incomes and profits, resulting in increased government tax receipts.
19)Consumer sentiment is improving with job gains and income growth.
20)U.S. manufacturing, which has been in a depression for many years, is rebounding at one of the fastest paces on record.
21)Corporate spending on services and equipment is on the rise for the first time in several years.
22)Consumers are continuing to spend at a very healthy rate.
23)The massive overcapacity, in many sectors, generated during the Internet bubble is almost burned off.
24)Current U.S economic growth is the result of real companies with real business models generating real profits. During the Internet bubble, companies with poor management teams, flawed business models, corrupt accounting and no profits were artificially inflating economic growth.
25)Stock market internals are rapidly improving.
Finally, my short-term trading indicators are giving buy signals and the Portfolio is 150% net long heading into the week.
Market Week in Review
S&P 500 1,134.43 -.05%
U.S. indices finished mixed last week on a good pick-up in volume as technology shares outperformed substantially, offsetting declines in healthcare-related stocks. Stocks fell slightly on Monday, led lower by healthcare and energy-related shares. A mid-week rally began Tuesday, led by technology stocks, after SBC Communications announced a $6 billion capital spending spree to build a new fiber optic network. As well, the very successful IPO of Salesforce.com(CRM) boosted sentiment towards technology stocks. Finally, falling interest rates, increasing merger activity, strong corporate earnings reports and declining energy prices also spurred investor enthusiasm mid-week. The week ended on a mixed note as violence in the Middle East prevented investors from bidding shares higher in advance of the coming week's Iraqi handover of power. Moreover, the Russell rebalancing, end of the quarter repositioning and imminent Fed rate-hike continued to weigh on investors' psyche at week's end.
There were several notable movers last week. Shares of Taser International(TASR) rose 63.3% after boosting 04 annual revenue growth from 100% to 150% and speculation over a deal with Sharper Image to sell a personal version of its stun gun. NVE Corp.(NVEC) rose 46.7% after receiving a new patent on an innovative type of MRAM. PalmOne(PLMO) gained 62.5% after beating 4Q estimates and raising its 1Q forecast substantially. Dick's Sporting Goods(DKS) increased 14.5% after saying it would purchase Galyan's Trading for $305 million in cash. Career Education(CECO) fell 20.0% after the company said a SEC inquiry was raised to a formal investigation. Orasure Technologies(OSUR) gained 24.7% after it received FDA approval of it OraQuick Rapid HIV-1/2 Antibody Test. Shares of Performance Food Group(PFGC) fell 19.3% after lowering its second-quarter earnings estimate, saying the distribution of fruit products and retooling plants is costing more than anticipated. Finally, AT&T(T) fell 9.0% after it reduced its 2004 profit and revenue forecasts because it lowered prices to business customers.
Bottom Line: The tone of the market last week was very good, notwithstanding minimal movements in the major averages. The advance/decline line continued to improve and volume increased. Many sectors registered substantial gains with small-cap and technology shares outperforming significantly. According to Thomson First Call, positive-to-negative earnings pre-announcements are running at a record high. This is turning out to be one of the best years in recent history for stock-pickers as the major averages flounder while certain sectors and stocks register significant gains. Last weeks' market action, combined with declining interest rates and energy prices, bodes well for the future.
U.S. indices finished mixed last week on a good pick-up in volume as technology shares outperformed substantially, offsetting declines in healthcare-related stocks. Stocks fell slightly on Monday, led lower by healthcare and energy-related shares. A mid-week rally began Tuesday, led by technology stocks, after SBC Communications announced a $6 billion capital spending spree to build a new fiber optic network. As well, the very successful IPO of Salesforce.com(CRM) boosted sentiment towards technology stocks. Finally, falling interest rates, increasing merger activity, strong corporate earnings reports and declining energy prices also spurred investor enthusiasm mid-week. The week ended on a mixed note as violence in the Middle East prevented investors from bidding shares higher in advance of the coming week's Iraqi handover of power. Moreover, the Russell rebalancing, end of the quarter repositioning and imminent Fed rate-hike continued to weigh on investors' psyche at week's end.
There were several notable movers last week. Shares of Taser International(TASR) rose 63.3% after boosting 04 annual revenue growth from 100% to 150% and speculation over a deal with Sharper Image to sell a personal version of its stun gun. NVE Corp.(NVEC) rose 46.7% after receiving a new patent on an innovative type of MRAM. PalmOne(PLMO) gained 62.5% after beating 4Q estimates and raising its 1Q forecast substantially. Dick's Sporting Goods(DKS) increased 14.5% after saying it would purchase Galyan's Trading for $305 million in cash. Career Education(CECO) fell 20.0% after the company said a SEC inquiry was raised to a formal investigation. Orasure Technologies(OSUR) gained 24.7% after it received FDA approval of it OraQuick Rapid HIV-1/2 Antibody Test. Shares of Performance Food Group(PFGC) fell 19.3% after lowering its second-quarter earnings estimate, saying the distribution of fruit products and retooling plants is costing more than anticipated. Finally, AT&T(T) fell 9.0% after it reduced its 2004 profit and revenue forecasts because it lowered prices to business customers.
Bottom Line: The tone of the market last week was very good, notwithstanding minimal movements in the major averages. The advance/decline line continued to improve and volume increased. Many sectors registered substantial gains with small-cap and technology shares outperforming significantly. According to Thomson First Call, positive-to-negative earnings pre-announcements are running at a record high. This is turning out to be one of the best years in recent history for stock-pickers as the major averages flounder while certain sectors and stocks register significant gains. Last weeks' market action, combined with declining interest rates and energy prices, bodes well for the future.
Saturday, June 26, 2004
Economic Week in Review
ECRI Weekly Leading Index 132.30 -.30%
Durable Goods Orders for May fell 1.6% versus expectations of a 1.5% rise and a 2.6% fall in April. Durable Goods Orders Less Transportation for May fell .7% versus estimates of a 1.3% rise and a decline of 1.7% in April. "There is so much volatility in durable goods orders, and there was so much strength in February and March that it is too soon to say if the declines in April and May are meaningful," said Christopher Low, chief economist at FTN Financial. Company officials "haven't found the gas pedal yet, but they've got their foot off the brake" on spending for new equipment, said John Chambers, CEO of Cisco Systems. However, SBC Communications said it will spend $4-$6 billion over the next five years on building a fiber-optic network that offers digital television service, Bloomberg reported. Tax cuts approved last year included a greater allowance for depreciating investments in equipment, giving companies incentive to accelerate spending this year. This provision is set to expire in 2005, likely resulting in increased corporate spending in the second half of this year, Bloomberg said.
Initial Jobless Claims for last week were 349K versus estimates of 340K and 336K the prior week. Continuing Claims were 2967K versus estimates of 2875K and 2892K prior. The U.S. has added 1.2 million jobs from January through May and the average number of weekly claims this year has fallen to 347,000 from about 402,000 in 2003. "The longer trend is clearly that we're in a self-sustaining recovery, that employment growth will continue but not at the rate of the recent past," said Carl Steen, market analyst at MFR. However, companies may increase wages at an even faster rate as the economy grows, demand for their products continues to be high and the slack in the labor market lessens, Bloomberg reported.
New Home Sales for May were 1369K versus estimates of 1125K and an upwardly revised 1192K in April. The number of homes sold and waiting to be started rose to the second-highest level ever, suggesting builders are struggling to keep up with demand. The new-home sales pace so far this year corresponds with total 2004 sales of 1.343 million houses, which would shatter the record of 1.085 million new homes sold last year, Bloomberg reported. "Our home traffic is very strong, our sales are very strong and we have houses waiting to be started. Our backlog is at an all-time high," said Alan Levan, CEO of Levitt Corp. Furthermore, Levan said interest rates would have to rise another 200 to 300 basis points before borrowing costs started to erode demand. Finally, the inventory of new homes for sale fell to a record-low 3.3 months' supply in May from 3.9 months in April.
Final 1Q Gross Domestic Product rose 3.9% versus estimates of 4.4%. Final 1Q Personal Consumption rose 3.8% versus estimates of 3.9%. Final 1Q GDP Price Deflator rose 2.9% versus estimates of a 2.6% rise. The trade deficit subtracted .7 percentage points from growth, about twice as much as estimated last month. "The trade deficit could be viewed as a sign of strength in demand in the U.S. economy," said Michael Moran, chief economist at Daiwa Securities. The core personal consumption expenditures price index, a favorite measure of inflation watched by Greenspan, rose 2.0%, more than the 1.7% estimated last month.
The Final reading of the University of Michigan Consumer Confidence Index for June came in at 95.6 versus estimates of 95.0 and a 95.2 prior estimate. "Consumer confidence is improving" as some of the negative impact from higher gasoline prices and violence in the Middle East fades, said Wesley Beal, chief economist at IDEAglobal. "The employment recovery will be more than enough to keep consumers spending." The addition of 1.2 million jobs this year is boosting incomes, and retail gasoline prices have fallen the past four weeks, Bloomberg reported.
Existing Home Sales for May came in at 6.8 million versus estimates of 6.5 million and 6.63 million in April. The median price of an existing home climbed 3.6% to $183,600 last month, the highest on record, Bloomberg reported. "With employment picking up, driving personal income, people are certainly going to be able to afford more," said Ellen Beeson, an economist at Bank of Tokyo-Mitsubishi. "The housing markets are very, very healthy," said David Lereah, an economist with the housing association. "People think interest rates are still very reasonable and inventories are very tight," said Daryl Jesperson, chief executive officer of Re/Max International. "The surge in mortgage applications for purchase in the spring points to strength in purchases of existing homes over the next month or two" when those sales close, said Stephen Stanley, chief economist at RBS Greenwhich Capital.
Bottom Line: I believe Durable Goods Orders for May were below-expectations because of the extreme strength earlier in the year. I expect orders accelerated in June. As well, corporate spending on technology should lead the way in the second half of the year. Initial jobless claims were a bit above expectations due to the shortened government work-week and continued re-tooling of major auto plants. Hiring should remain strong throughout the second half of the year as corporate spending accelerates. Home sales continue to defy the bears and skeptics. While interest rates have risen, they are still relatively low by historical standards. Increasing job opportunities and incomes are more than offsetting rates increases. Moreover, Americans are the wealthiest than at any time in U.S. history. As a result, more people are moving from apartments to homes or purchasing second homes for vacation purposes. U.S. economic growth should remain very strong throughout the year as GDP rises at the fastest pace since 1984. Inflation pressures should moderate as the year progresses. Slowing Chinese demand and falling energy prices should help keep inflation relatively subdued throughout the remainder of the year. Inflation is set to rise about 2.4% this year, below the last 40-year average of 3.0%. Consumer confidence should continue to rise and break recent highs, as survey's point to more Americans figuring out how good things are economically, notwithstanding the media's attempts to underreport all positive news.
Durable Goods Orders for May fell 1.6% versus expectations of a 1.5% rise and a 2.6% fall in April. Durable Goods Orders Less Transportation for May fell .7% versus estimates of a 1.3% rise and a decline of 1.7% in April. "There is so much volatility in durable goods orders, and there was so much strength in February and March that it is too soon to say if the declines in April and May are meaningful," said Christopher Low, chief economist at FTN Financial. Company officials "haven't found the gas pedal yet, but they've got their foot off the brake" on spending for new equipment, said John Chambers, CEO of Cisco Systems. However, SBC Communications said it will spend $4-$6 billion over the next five years on building a fiber-optic network that offers digital television service, Bloomberg reported. Tax cuts approved last year included a greater allowance for depreciating investments in equipment, giving companies incentive to accelerate spending this year. This provision is set to expire in 2005, likely resulting in increased corporate spending in the second half of this year, Bloomberg said.
Initial Jobless Claims for last week were 349K versus estimates of 340K and 336K the prior week. Continuing Claims were 2967K versus estimates of 2875K and 2892K prior. The U.S. has added 1.2 million jobs from January through May and the average number of weekly claims this year has fallen to 347,000 from about 402,000 in 2003. "The longer trend is clearly that we're in a self-sustaining recovery, that employment growth will continue but not at the rate of the recent past," said Carl Steen, market analyst at MFR. However, companies may increase wages at an even faster rate as the economy grows, demand for their products continues to be high and the slack in the labor market lessens, Bloomberg reported.
New Home Sales for May were 1369K versus estimates of 1125K and an upwardly revised 1192K in April. The number of homes sold and waiting to be started rose to the second-highest level ever, suggesting builders are struggling to keep up with demand. The new-home sales pace so far this year corresponds with total 2004 sales of 1.343 million houses, which would shatter the record of 1.085 million new homes sold last year, Bloomberg reported. "Our home traffic is very strong, our sales are very strong and we have houses waiting to be started. Our backlog is at an all-time high," said Alan Levan, CEO of Levitt Corp. Furthermore, Levan said interest rates would have to rise another 200 to 300 basis points before borrowing costs started to erode demand. Finally, the inventory of new homes for sale fell to a record-low 3.3 months' supply in May from 3.9 months in April.
Final 1Q Gross Domestic Product rose 3.9% versus estimates of 4.4%. Final 1Q Personal Consumption rose 3.8% versus estimates of 3.9%. Final 1Q GDP Price Deflator rose 2.9% versus estimates of a 2.6% rise. The trade deficit subtracted .7 percentage points from growth, about twice as much as estimated last month. "The trade deficit could be viewed as a sign of strength in demand in the U.S. economy," said Michael Moran, chief economist at Daiwa Securities. The core personal consumption expenditures price index, a favorite measure of inflation watched by Greenspan, rose 2.0%, more than the 1.7% estimated last month.
The Final reading of the University of Michigan Consumer Confidence Index for June came in at 95.6 versus estimates of 95.0 and a 95.2 prior estimate. "Consumer confidence is improving" as some of the negative impact from higher gasoline prices and violence in the Middle East fades, said Wesley Beal, chief economist at IDEAglobal. "The employment recovery will be more than enough to keep consumers spending." The addition of 1.2 million jobs this year is boosting incomes, and retail gasoline prices have fallen the past four weeks, Bloomberg reported.
Existing Home Sales for May came in at 6.8 million versus estimates of 6.5 million and 6.63 million in April. The median price of an existing home climbed 3.6% to $183,600 last month, the highest on record, Bloomberg reported. "With employment picking up, driving personal income, people are certainly going to be able to afford more," said Ellen Beeson, an economist at Bank of Tokyo-Mitsubishi. "The housing markets are very, very healthy," said David Lereah, an economist with the housing association. "People think interest rates are still very reasonable and inventories are very tight," said Daryl Jesperson, chief executive officer of Re/Max International. "The surge in mortgage applications for purchase in the spring points to strength in purchases of existing homes over the next month or two" when those sales close, said Stephen Stanley, chief economist at RBS Greenwhich Capital.
Bottom Line: I believe Durable Goods Orders for May were below-expectations because of the extreme strength earlier in the year. I expect orders accelerated in June. As well, corporate spending on technology should lead the way in the second half of the year. Initial jobless claims were a bit above expectations due to the shortened government work-week and continued re-tooling of major auto plants. Hiring should remain strong throughout the second half of the year as corporate spending accelerates. Home sales continue to defy the bears and skeptics. While interest rates have risen, they are still relatively low by historical standards. Increasing job opportunities and incomes are more than offsetting rates increases. Moreover, Americans are the wealthiest than at any time in U.S. history. As a result, more people are moving from apartments to homes or purchasing second homes for vacation purposes. U.S. economic growth should remain very strong throughout the year as GDP rises at the fastest pace since 1984. Inflation pressures should moderate as the year progresses. Slowing Chinese demand and falling energy prices should help keep inflation relatively subdued throughout the remainder of the year. Inflation is set to rise about 2.4% this year, below the last 40-year average of 3.0%. Consumer confidence should continue to rise and break recent highs, as survey's point to more Americans figuring out how good things are economically, notwithstanding the media's attempts to underreport all positive news.
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