S&P 500 1,137.14 +.50%
NASDAQ 1,957.38 +.78%
Leading Sectors
Disk Drives +3.0%
Iron/Steel +2.42%
Computer Services +2.07%
Lagging Sectors
Papers -.33%
Oil Service -.67%
Homebuilders -2.50%
Other
Crude Oil 49.85 -.54%
Natural Gas 6.74 -.47%
Gold 415.20 -1.42%
Base Metals 120.02 -.03%
U.S. Dollar 88.48 +.98%
10-Yr. T-note Yield 4.19% +.14%
VIX 13.37 +4.86%
Put/Call .80 -15.79%
NYSE Arms .57 +23.91%
Market Movers
SEBL+15.0% after raising 3Q guidance.
BRCM +3.5% after announcing a new family of system-on-a-chip processors targeted at data networking and communications applications.
VAR +19.2% after saying net orders in its oncology systems business grew more than 20% in 4Q.
HTCH +14.2% after raising 4Q guidance substantially.
AKS +15.8% after it said it would increase prices on "nearly all" its contracts and JP Moran added it to their "equity focus list."
NUE +4.4% on AKS news.
TZOO +8.5% on short-squeeze.
MSTR +7.5% on SEBL news.
PRAA +12.5% after acquiring the assets of IGS Nevada and saying it will increase 05 earnings.
SDS +12.1% after saying it will spin off its division that helps customers keep access to their information and reiterating 04 outlook.
HYSL +6.85% after saying Olympus is using its software to increase profitability and build more accurate forecasts.
NTY +10.8% beating 4Q outlook substantially.
NUS -26.9% after lowering 3Q/4Q guidance.
CECO -5.6% on Bank of America downgrade to Neutral.
Economic Data
Factory Orders for August fell .1% versus estimates of a .1% gain and an upwardly revised 1.7% increase in July.
Recommendations
Goldman Sachs reiterated Outperform on AMGN, BBY, KRB, PAYX, AA, HOT, FS, IGT, STN, AET, INTC, AMD, MSFT, CZN, FON, CAL, WMT, FD, ADP, CEN, DEX, N, Goldman reiterated Underperform on DJ, LVLT and MKL. Citi SmithBarney said to Buy GP, LPX and WY. Citi reiterated Buy on ETR, target $65. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on HCA, target $48. Citi reiterated Buy on AMT, target $19. Citi reiterated Buy on SSI, target $54. ALV raised to Overweight at Morgan Stanley, target $45. GG cut to Sector Underperform at CIBC, target $14. PHRM rated Buy at Bank of America, target $74. MCRL cut to Sell at Deutsche Bank, target $8. WON raised to Outperform at Thomas Weisel. LPNT raised to Buy at Oppenheimer, target $40.
Mid-day News
U.S. stocks are higher mid-day on optimism over an accelerating U.S. economy. IBM updated one of its mainframe software engines, used by airlines and credit-card brands including Visa International, with the help of the Linux operating system, the NY Times said. GM plans to put $3 billion of its information technology contracts up for bid for the first time in two decades, the AP said. AtheroGenics's study showing an experimental drug significantly reduced the amount of fatty plaque that clogs blood vessels was released too early, Barron's reported. Halsey Minor, who founded Cnet Networks, plans to invest $50 million of his own money in promising technology startups, the NY Times reported. California's air quality improved this year, reversing three years of worsening pollution, the LA Times said. Members of the U.S. military favor President Bush over Senator Kerry by a 4-to-1 ratio, USA Today said, citing a survey conducted by Amy Times Publishing. Citigroup Senior Vice Chairman Rhodes, who recently returned from meetings with China's premier and central bank governor, told CNBC that the government there is committed "over time" to floating its currency. Office Depot said Chairman and CEO Nelson resigned after four years of struggles to boost sales, Bloomberg reported. Oil futures are falling on expectations U.S. refiners will increase oil inventories amid rising imports and a cease-fire by Nigerian rebels who threatened to disrupt shipments from Africa's largest crude producer, Bloomberg reported. The U.S. Supreme Court, turning away an appeal by a telemarketing trade group, refused to question the national "do not call" registry that bars unsolicited sales calls to more than 63 million phone numbers, Bloomberg reported. The rocket plane SpaceShipOne won the $10 million competition aimed at creating a space tourism industry, flying 100 kilometers to the edge of space, Bloomberg said. Factory orders fell slightly in August on lower demand for aircraft, however bookings rose for a range of consumer products such as automobiles and appliances, suggesting the U.S. economy strengthened in the third quarter, Bloomberg reported.
BOTTOM LINE: The Portfolio is substantially higher mid-day on strength in my steel, semiconductor, software and alternative energy longs. I have not traded today, thus leaving the Portfolio 125% net long. The tone of the market is relatively good today and technology stocks are retaining their leadership role. I suspect this rally has a bit further to go as shorts with large gains from the third quarter continue to take profits and longs with lagging performance put money to work before they fall too far behind to catch up.
Monday, October 04, 2004
Monday Watch
Earnings of Note
Company/Estimate
NFLX/.18
RI/.44
Splits
None of note.
Economic Data
Factory Orders for August estimated to rise .1% versus a 1.3% increase in July.
Weekend Recommendations
Louis Rukeyser's Wall Street had guests that were positive on WFC, PEP, PFE, GD, RIG, UNH, CD, PGR, EBAY, SBUX, QCOM and YHOO. Bulls and Bears had guests that were positive on PGH, SPN, WON, CSCO, BAC, C, TEVA and mixed on PFE, HRB, MRK. Forbes on Fox had guests that were mixed on MCD and LTD. Cashin' In had guests that were positive on BHI and PTR. Barron's had positive comments on NEM. Goldman Sachs reiterated Outperform on FON, AET, PFE, RE, VLTR and CZN. Goldman reiterated Underperform on CYT, DQE, MKL and LVLT.
Weekend News
Bruce Springsteen, R.E.M., Dave Mathews, the Dixie Chicks and other musicians began a series of concerts called the "Vote for Change" tour in order to persuade young adults to vote for Senator Kerry, the NY Times reported. The concerts are presented by MoveOn.org, the political action committee backed by billionaire hedge fund manager George Soros, the paper said. Merck & Co. may face a legal bill of as much as $10 billion after the global withdrawal of its painkiller drug Vioxx due to a potential link to heart attacks and strokes, the Financial Times reported. New York & Co.'s IPO may net $180 million for Bear Stearns Merchant Banking, which bought the women's clothing retailer in 2002, Barron's said. China's central bank doesn't plan to raise interest rates, Chinanews' Web site said. Kohlberg Kravis Roberts joined a group led by Goldman Sachs to bid $2.7 billion for drugmaker Warner Chilcott Plc, the Sunday Times reported. Kuwait plans to buy 10 more F-18 fighter jets from the U.S., adding to 40 bought in 1992, Gulf Business magazine reported. Citigroup is targeting Barclays Plc and Lloyds TSB Group Plc among possible acquisitions as it seeks to expand in U.K. consumer banking, Bloomberg reported. The U.S. presidential candidates are expected to spend 60% more on tv ads in Philadelphia than in the 2000 election, representing a windfall for local tv stations in Pennsylvania, the Philadelphia Inquirer reported. Christie's International and Sotheby's Holdings plan to sell hundreds of millions of dollars worth of art in November in New York, the highest value in almost 15 years, the NY Times said. East New York, once plagued by run-down homes, drug markets and soaring crime, is being spruced up with new two-and three-family row houses, the NY Times reported. Merrill Lynch, after years of cutbacks, has started acquiring companies and recently added almost 1,200 employees and top-level executives in its electronic stock trading and hedge-fund brokerage units, Crain's New York Business reports. Viacom plans to soon purchase electronic-game company Midway Games, the New York Post said. "We are at the early stages of a fairly prolonged global expansion of mining capacity, said Caterpillar CEO Owens. The North Korean military has 500 to 600 computer hackers capable of conducting cyber war against the U.S. and its allies, including South Korea and Japan, the Yonhap News agency said. 3,000 U.S. and 2,000 Iraqi troops have retaken the insurgent-controlled city of Samarra in the so-called Sunni triangle west of Baghdad after a three-day fight, the NY Times said. Wal-Mart estimated September sales at U.S. stores open at least a year rose 2.3% as shoppers bought more bedding and electronics, Bloomberg reported. U.S. President Bush said an election-year bill renewing $146 billion in tax cuts will benefit families and keep the economy on the path of recovery, Bloomberg said. Crude oil futures may fall today after a cease-fire in Nigeria held and rebel leaders said they have no quarrel with international oil companies operating in Africa's biggest oil-producing state, Bloomberg said. The Montreal Expos, who have had the worst attendance in the major leagues for seven straight years, may fetch $300 million to $400 million after they move to Washington, triple what baseball owners paid for the franchise two years ago, Bloomberg reported.
Late-Night Trading
Asian indices are sharply higher, +1.5% to +2.75% on average.
S&P 500 indicated +.34%.
NASDAQ indicated +.62%
BOTTOM LINE: I expect U.S. stocks to open higher in the morning on strength in Asia, optimism over accelerating economic growth, short-covering and declining energy prices. The Portfolio is 125% net long heading into the week.
Company/Estimate
NFLX/.18
RI/.44
Splits
None of note.
Economic Data
Factory Orders for August estimated to rise .1% versus a 1.3% increase in July.
Weekend Recommendations
Louis Rukeyser's Wall Street had guests that were positive on WFC, PEP, PFE, GD, RIG, UNH, CD, PGR, EBAY, SBUX, QCOM and YHOO. Bulls and Bears had guests that were positive on PGH, SPN, WON, CSCO, BAC, C, TEVA and mixed on PFE, HRB, MRK. Forbes on Fox had guests that were mixed on MCD and LTD. Cashin' In had guests that were positive on BHI and PTR. Barron's had positive comments on NEM. Goldman Sachs reiterated Outperform on FON, AET, PFE, RE, VLTR and CZN. Goldman reiterated Underperform on CYT, DQE, MKL and LVLT.
Weekend News
Bruce Springsteen, R.E.M., Dave Mathews, the Dixie Chicks and other musicians began a series of concerts called the "Vote for Change" tour in order to persuade young adults to vote for Senator Kerry, the NY Times reported. The concerts are presented by MoveOn.org, the political action committee backed by billionaire hedge fund manager George Soros, the paper said. Merck & Co. may face a legal bill of as much as $10 billion after the global withdrawal of its painkiller drug Vioxx due to a potential link to heart attacks and strokes, the Financial Times reported. New York & Co.'s IPO may net $180 million for Bear Stearns Merchant Banking, which bought the women's clothing retailer in 2002, Barron's said. China's central bank doesn't plan to raise interest rates, Chinanews' Web site said. Kohlberg Kravis Roberts joined a group led by Goldman Sachs to bid $2.7 billion for drugmaker Warner Chilcott Plc, the Sunday Times reported. Kuwait plans to buy 10 more F-18 fighter jets from the U.S., adding to 40 bought in 1992, Gulf Business magazine reported. Citigroup is targeting Barclays Plc and Lloyds TSB Group Plc among possible acquisitions as it seeks to expand in U.K. consumer banking, Bloomberg reported. The U.S. presidential candidates are expected to spend 60% more on tv ads in Philadelphia than in the 2000 election, representing a windfall for local tv stations in Pennsylvania, the Philadelphia Inquirer reported. Christie's International and Sotheby's Holdings plan to sell hundreds of millions of dollars worth of art in November in New York, the highest value in almost 15 years, the NY Times said. East New York, once plagued by run-down homes, drug markets and soaring crime, is being spruced up with new two-and three-family row houses, the NY Times reported. Merrill Lynch, after years of cutbacks, has started acquiring companies and recently added almost 1,200 employees and top-level executives in its electronic stock trading and hedge-fund brokerage units, Crain's New York Business reports. Viacom plans to soon purchase electronic-game company Midway Games, the New York Post said. "We are at the early stages of a fairly prolonged global expansion of mining capacity, said Caterpillar CEO Owens. The North Korean military has 500 to 600 computer hackers capable of conducting cyber war against the U.S. and its allies, including South Korea and Japan, the Yonhap News agency said. 3,000 U.S. and 2,000 Iraqi troops have retaken the insurgent-controlled city of Samarra in the so-called Sunni triangle west of Baghdad after a three-day fight, the NY Times said. Wal-Mart estimated September sales at U.S. stores open at least a year rose 2.3% as shoppers bought more bedding and electronics, Bloomberg reported. U.S. President Bush said an election-year bill renewing $146 billion in tax cuts will benefit families and keep the economy on the path of recovery, Bloomberg said. Crude oil futures may fall today after a cease-fire in Nigeria held and rebel leaders said they have no quarrel with international oil companies operating in Africa's biggest oil-producing state, Bloomberg said. The Montreal Expos, who have had the worst attendance in the major leagues for seven straight years, may fetch $300 million to $400 million after they move to Washington, triple what baseball owners paid for the franchise two years ago, Bloomberg reported.
Late-Night Trading
Asian indices are sharply higher, +1.5% to +2.75% on average.
S&P 500 indicated +.34%.
NASDAQ indicated +.62%
BOTTOM LINE: I expect U.S. stocks to open higher in the morning on strength in Asia, optimism over accelerating economic growth, short-covering and declining energy prices. The Portfolio is 125% net long heading into the week.
Sunday, October 03, 2004
Chart of the Week
S&P 500 Index
Bottom Line: The S&P 500 is very close to breaking above its 9-month downtrend line. I expect this to happen in the very near future. Upon breaking this key resistance level, the benchmark index should gain traction on the upside, making a new high for the year during the month of November.
Bottom Line: The S&P 500 is very close to breaking above its 9-month downtrend line. I expect this to happen in the very near future. Upon breaking this key resistance level, the benchmark index should gain traction on the upside, making a new high for the year during the month of November.
Weekly Outlook
There are a few important economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include Factory Orders, ISM Non-Manufacturing, Initial Jobless Claims, Consumer Credit, Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls, Average Weekly Hours and Wholesale Inventories. ISM Non-Manufacturing and the Change in Non-farm Payrolls both have market-moving potential.
Apollo Group(APOL), Genentech(DNA), Monsanto(MON), Alcoa(AA), Costco(COST), Accenture(ACN) and General Electric(GE) are some of the more important companies that release quarterly earnings this week. There are also a number of other events that have market-moving potential. Multiple Federal Reserve Member speeches, the JP Morgan Asia Pacific Conference, Goldman Sachs Communacopia Conference, CSFB Medtech Conference, Vice-Presidential Debate, Merrill Lynch India Investor Forum and Chain Store Comp Sales Releases could also impact trading this week.
Bottom Line: I expect U.S. stocks to finish the week modestly higher on continued optimism over accelerating economic growth, diminishing domestic terrorism fears and short-covering. Investor complacency and the market's technically overbought state will likely hold gains in check. A further rise by Senator Kerry in the polls or another spike in oil prices would likely send stocks lower for the week. My short-term trading indicators are giving Buy signals and the Portfolio is 125% net long heading into the week.
Apollo Group(APOL), Genentech(DNA), Monsanto(MON), Alcoa(AA), Costco(COST), Accenture(ACN) and General Electric(GE) are some of the more important companies that release quarterly earnings this week. There are also a number of other events that have market-moving potential. Multiple Federal Reserve Member speeches, the JP Morgan Asia Pacific Conference, Goldman Sachs Communacopia Conference, CSFB Medtech Conference, Vice-Presidential Debate, Merrill Lynch India Investor Forum and Chain Store Comp Sales Releases could also impact trading this week.
Bottom Line: I expect U.S. stocks to finish the week modestly higher on continued optimism over accelerating economic growth, diminishing domestic terrorism fears and short-covering. Investor complacency and the market's technically overbought state will likely hold gains in check. A further rise by Senator Kerry in the polls or another spike in oil prices would likely send stocks lower for the week. My short-term trading indicators are giving Buy signals and the Portfolio is 125% net long heading into the week.
Market Week in Review
S&P 500 1,131.50 +1.93%
Click here for the Weekly Wrap by Briefing.com
Bottom Line: Market action last week was positive, led by technology stocks and small-caps. Volume increased and the advance/decline line was healthy. The DJIA increased 1.45% notwithstanding component Merck's 24.8% plunge, its largest weekly drop in over 20 years. Commodity-related stocks continued to outperform and long-term bonds declined as investors anticipated stronger U.S. economic growth. Moreover, the S&P Small-cap 600 reached an ALL-TIME high and the S&P 500 bumped right up against its intermediate-term downtrend line that has been in place since early March. Volume on the S&P 500, which had been in an intermediate-term downtrend since January, broke to the upside last week and should continue to improve through year-end. Finally, measures of investor anxiety were mixed.
Click here for the Weekly Wrap by Briefing.com
Bottom Line: Market action last week was positive, led by technology stocks and small-caps. Volume increased and the advance/decline line was healthy. The DJIA increased 1.45% notwithstanding component Merck's 24.8% plunge, its largest weekly drop in over 20 years. Commodity-related stocks continued to outperform and long-term bonds declined as investors anticipated stronger U.S. economic growth. Moreover, the S&P Small-cap 600 reached an ALL-TIME high and the S&P 500 bumped right up against its intermediate-term downtrend line that has been in place since early March. Volume on the S&P 500, which had been in an intermediate-term downtrend since January, broke to the upside last week and should continue to improve through year-end. Finally, measures of investor anxiety were mixed.
Saturday, October 02, 2004
Economic Week in Review
ECRI Weekly Leading Index 131.50 +.08%
New Home Sales for August rose to 1184K versus estimates of 1155K and 1082K in July. The 9.4% gain, propelled by the lowest mortgage rates in four months, is helping sustain strong U.S. economic growth, Bloomberg reported. "We are in the midst of, I would say, the biggest worldwide housing boom ever," said Robert Shiller, an economics professor at Yale University, Bloomberg said. The median selling price for a new home climbed 9.7% from a year earlier to $208,900. The average rate on a 30-year fixed mortgage fell to 5.87% in August from 6.06% in July, Bloomberg reported. The inventory of new homes for sale fell to a 4.2 months supply from 4.4 months in July, Bloomberg said. Finally some 1.16 million homes will be sold this year, another record, up from an all-time high of 1.085 million last year. "Anything over a million is a super strong level," said Stuart Hoffman, chief economist for PNC Financial. "The housing market is still very hot."
Consumer Confidence for September was 96.8 versus estimates of 99.5 and a reading of 98.7 in August. "It's possible this is an echo from some earlier sluggishness in the economy, and not necessarily indicative of what is going on today", said Robert DiClemente, chief economist at Citigroup Global Markets. Moreover, a gauge of optimism about the economic outlook over the next six months rose to 97.6 this month from 97.3 in August, and consumers said the job market and their own income prospects will improve, Bloomberg reported. As well the percentage of consumers planning to buy a major appliance rose to 29.9%, Bloomberg said. The confidence index has averaged 96.1 so far this year, compared with 79.8 for all of last year.
The final 2Q GDP reading showed 3.3% growth versus earlier estimates of 3.0% and 2.8%. Personal Consumption rose 1.6%, meeting estimates. As well, the GDP Price Deflator rose 3.2%, meeting forecasts. "The soft patch is over, and we expect stronger growth in the third quarter," said Nariman Behravesh, chief economist at Global Insight. The economy may expand at a 3.8% rate this quarter and 4.3% for the year, according to a separate Bloomberg News survey. Moreover, the International Monetary Fund said worldwide economic growth will reach 5% this year, the most in 30 years. "This is a very robust economy and it looks like it's going to have legs," said James Owen, CEO of Caterpillar Inc. "We're shipping as much as we can ship and have done a lot of hiring." The core personal consumption expenditures price index, a measure of inflation closely watched by Fed policy makers, increase at a very modest 1.7% rate, Bloomberg said. Finally, corporate profits after taxes rose 18.5% in the 12 months that ended in June, Bloomberg reported.
Personal Incomes rose .4% in August versus estimates of .4% rise and a .2% increase in July. Personal Spending remained flat in August versus estimates of a .1% increase and a 1.1% gain in July. The pause in spending followed a larger than previously estimated gain in July. Incomes, helped by larger factory payrolls, rose 5% from the same month last year. This increase is significantly better than the pace of inflation and suggests consumer spending will accelerate, Bloomberg reported. "Spending for the third quarter, which ends today, is going to be fairly strong, and the prospects for the fourth quarter are good," said Gary Bigg, an economist at Banc of America Securities.
Initial Jobless Claims for last week were 369K versus estimates of 343K and 351K the prior week. Continuing Claims were 2873K versus estimates of 2875K and 2876K prior. Hurricanes Charley, Frances and Ivan swept across southern U.S. states over the past six week, causing billions of dollars of damage and disrupting business activity, Bloomberg said. "The increase is mainly caused by hurricane affects," said James O'Sullivan, senior economist at UBS Securities. The U.S. has added 1.4 million jobs this year, Bloomberg reported.
The Chicago Purchasing Manager Index for September rose to 61.3 versus estimates of 58.0 and a reading of 57.3 in August. Readings above 50 mean growth, and September is the 17th month of uninterrupted expansion, Bloomberg reported. "Capital spending has strengthened considerably this year as manufacturers rebuild inventories and capacity," said William Hummer, chief economist at Wayne Hummer Investments. The increase in the factory index bolsters expectations the economy is strengthening after a slowdown in the second quarter, Bloomberg said. The Chicago purchasers' employment index rose to 53.9 in September from 51.1 in August as manufacturers hired in the region to meet strong demand. Finally, the group's index of prices paid for raw materials dropped in September, Bloomberg said.
The final reading on the Univ. of Mich. Consumer Confidence Index for September was 94.2 versus a prior estimate of 96.0 and a reading of 95.8 in August. A major factor for the decline was likely weather as four hurricanes hit Florida and neighboring states, Bloomberg reported. When the university's sentiment index exceeds its long-term average of 88, the political party in office tends to keep the White House, according to a research report issued last month by economists at CSFB.
Construction Spending for August rose .8% versus estimates of a .4% gain and an upwardly revised 1.1% increase in July. Private residential construction, which accounts for more than half the total, rose 1.7% to an all-time record annual rate of $550.6 billion, Bloomberg reported. "Low interest rates will help support economic growth of as much as 4% over the next year, even with crude oil near $50/bbl., said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. The housing market has remained very strong and commercial construction is recovering nicely with the economy as some of the overcapacity from the late-90's bubble has been worked off, Bloomberg reported.
ISM Manufacturing for September was 58.5 versus estimates of 58.4 and a reading of 59.0 in August. ISM Prices Paid was 76.0 versus estimates of 81.0 and a reading of 81.5 in August. The manufacturing group's employment index increased to 58.1 from 55.7 in August, Bloomberg said. "Outside of some elevation in the auto sector, inventories remain below desired levels across most of the economy, so further elevated levels of inventory restocking are likely going forward," said Ted Wieseman, an economist at Morgan Stanley. For the year, business spending on new factories, equipment and software is projected to rise 9.5%, almost three times the 3.3% gain last year and the most since 1998, according to Blue Chip Economic Indicators. "There is now a belief that this recovery is sustainable for some years to come," said Lynn McPheeters, CFO of Caterpillar.
Total Vehicle Sales for September were 17.5M versus estimates of 16.7M and 16.6M in August. Domestic Vehicle Sales for September were 14.3M versus estimates of 13.4M and 13.5M in August. U.S. auto sales rose 10% in September, led by a 25% gain at General Motors and increases for DaimlerChrysler AG and Toyota Motor, Bloomberg reported. Average spending on incentives rose 12% to $4,523 in September, according to estimates from CNW Market Research. New models at companies such as Chrysler also helped lure buyers, Bloomberg said. U.S. sales were led by a 17% rise for trucks, Bloomberg data showed. Moreover, U.S. carmakers' market share topped 60% for the first time this year, climbing to 61.7%, while Asian carmakers such as Toyota and Honda fell to 32%, the second straight monthly decline, Bloomberg said.
Bottom Line: Overall, last week's economic data were positive. The strong number of new homes sold for August was exceptional considering the very bad weather in much of the country. Better employment prospects, higher incomes and lower interest rates will continue to propel home sales, through year-end. Consumer confidence readings likely fell in September as a result of the very negative political rhetoric, multiple hurricanes, increased violence in Iraq and the media's continuing intense focus on all that is negative. Consumer confidence should also improve through year-end. The U.S. economy is currently on pace to achieve 4.3% growth this year, the best performance since the heights of the bubble in 1999. Inflation readings are falling and income growth is accelerating, which bodes well for this holiday shopping season. The affects of the hurricanes are still hurting employment, however recent surveys and rebuilding point to a surge in hiring during the fourth quarter. Manufacturing, after a brief pause, is accelerating and is contributing meaningfully to economic growth. Finally, the fact that consumers are buying trucks and SUVs again in a big way likely means that higher gas prices are being offset by other positive factors, such as low interest rates, better incomes and employment prospects.
New Home Sales for August rose to 1184K versus estimates of 1155K and 1082K in July. The 9.4% gain, propelled by the lowest mortgage rates in four months, is helping sustain strong U.S. economic growth, Bloomberg reported. "We are in the midst of, I would say, the biggest worldwide housing boom ever," said Robert Shiller, an economics professor at Yale University, Bloomberg said. The median selling price for a new home climbed 9.7% from a year earlier to $208,900. The average rate on a 30-year fixed mortgage fell to 5.87% in August from 6.06% in July, Bloomberg reported. The inventory of new homes for sale fell to a 4.2 months supply from 4.4 months in July, Bloomberg said. Finally some 1.16 million homes will be sold this year, another record, up from an all-time high of 1.085 million last year. "Anything over a million is a super strong level," said Stuart Hoffman, chief economist for PNC Financial. "The housing market is still very hot."
Consumer Confidence for September was 96.8 versus estimates of 99.5 and a reading of 98.7 in August. "It's possible this is an echo from some earlier sluggishness in the economy, and not necessarily indicative of what is going on today", said Robert DiClemente, chief economist at Citigroup Global Markets. Moreover, a gauge of optimism about the economic outlook over the next six months rose to 97.6 this month from 97.3 in August, and consumers said the job market and their own income prospects will improve, Bloomberg reported. As well the percentage of consumers planning to buy a major appliance rose to 29.9%, Bloomberg said. The confidence index has averaged 96.1 so far this year, compared with 79.8 for all of last year.
The final 2Q GDP reading showed 3.3% growth versus earlier estimates of 3.0% and 2.8%. Personal Consumption rose 1.6%, meeting estimates. As well, the GDP Price Deflator rose 3.2%, meeting forecasts. "The soft patch is over, and we expect stronger growth in the third quarter," said Nariman Behravesh, chief economist at Global Insight. The economy may expand at a 3.8% rate this quarter and 4.3% for the year, according to a separate Bloomberg News survey. Moreover, the International Monetary Fund said worldwide economic growth will reach 5% this year, the most in 30 years. "This is a very robust economy and it looks like it's going to have legs," said James Owen, CEO of Caterpillar Inc. "We're shipping as much as we can ship and have done a lot of hiring." The core personal consumption expenditures price index, a measure of inflation closely watched by Fed policy makers, increase at a very modest 1.7% rate, Bloomberg said. Finally, corporate profits after taxes rose 18.5% in the 12 months that ended in June, Bloomberg reported.
Personal Incomes rose .4% in August versus estimates of .4% rise and a .2% increase in July. Personal Spending remained flat in August versus estimates of a .1% increase and a 1.1% gain in July. The pause in spending followed a larger than previously estimated gain in July. Incomes, helped by larger factory payrolls, rose 5% from the same month last year. This increase is significantly better than the pace of inflation and suggests consumer spending will accelerate, Bloomberg reported. "Spending for the third quarter, which ends today, is going to be fairly strong, and the prospects for the fourth quarter are good," said Gary Bigg, an economist at Banc of America Securities.
Initial Jobless Claims for last week were 369K versus estimates of 343K and 351K the prior week. Continuing Claims were 2873K versus estimates of 2875K and 2876K prior. Hurricanes Charley, Frances and Ivan swept across southern U.S. states over the past six week, causing billions of dollars of damage and disrupting business activity, Bloomberg said. "The increase is mainly caused by hurricane affects," said James O'Sullivan, senior economist at UBS Securities. The U.S. has added 1.4 million jobs this year, Bloomberg reported.
The Chicago Purchasing Manager Index for September rose to 61.3 versus estimates of 58.0 and a reading of 57.3 in August. Readings above 50 mean growth, and September is the 17th month of uninterrupted expansion, Bloomberg reported. "Capital spending has strengthened considerably this year as manufacturers rebuild inventories and capacity," said William Hummer, chief economist at Wayne Hummer Investments. The increase in the factory index bolsters expectations the economy is strengthening after a slowdown in the second quarter, Bloomberg said. The Chicago purchasers' employment index rose to 53.9 in September from 51.1 in August as manufacturers hired in the region to meet strong demand. Finally, the group's index of prices paid for raw materials dropped in September, Bloomberg said.
The final reading on the Univ. of Mich. Consumer Confidence Index for September was 94.2 versus a prior estimate of 96.0 and a reading of 95.8 in August. A major factor for the decline was likely weather as four hurricanes hit Florida and neighboring states, Bloomberg reported. When the university's sentiment index exceeds its long-term average of 88, the political party in office tends to keep the White House, according to a research report issued last month by economists at CSFB.
Construction Spending for August rose .8% versus estimates of a .4% gain and an upwardly revised 1.1% increase in July. Private residential construction, which accounts for more than half the total, rose 1.7% to an all-time record annual rate of $550.6 billion, Bloomberg reported. "Low interest rates will help support economic growth of as much as 4% over the next year, even with crude oil near $50/bbl., said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. The housing market has remained very strong and commercial construction is recovering nicely with the economy as some of the overcapacity from the late-90's bubble has been worked off, Bloomberg reported.
ISM Manufacturing for September was 58.5 versus estimates of 58.4 and a reading of 59.0 in August. ISM Prices Paid was 76.0 versus estimates of 81.0 and a reading of 81.5 in August. The manufacturing group's employment index increased to 58.1 from 55.7 in August, Bloomberg said. "Outside of some elevation in the auto sector, inventories remain below desired levels across most of the economy, so further elevated levels of inventory restocking are likely going forward," said Ted Wieseman, an economist at Morgan Stanley. For the year, business spending on new factories, equipment and software is projected to rise 9.5%, almost three times the 3.3% gain last year and the most since 1998, according to Blue Chip Economic Indicators. "There is now a belief that this recovery is sustainable for some years to come," said Lynn McPheeters, CFO of Caterpillar.
Total Vehicle Sales for September were 17.5M versus estimates of 16.7M and 16.6M in August. Domestic Vehicle Sales for September were 14.3M versus estimates of 13.4M and 13.5M in August. U.S. auto sales rose 10% in September, led by a 25% gain at General Motors and increases for DaimlerChrysler AG and Toyota Motor, Bloomberg reported. Average spending on incentives rose 12% to $4,523 in September, according to estimates from CNW Market Research. New models at companies such as Chrysler also helped lure buyers, Bloomberg said. U.S. sales were led by a 17% rise for trucks, Bloomberg data showed. Moreover, U.S. carmakers' market share topped 60% for the first time this year, climbing to 61.7%, while Asian carmakers such as Toyota and Honda fell to 32%, the second straight monthly decline, Bloomberg said.
Bottom Line: Overall, last week's economic data were positive. The strong number of new homes sold for August was exceptional considering the very bad weather in much of the country. Better employment prospects, higher incomes and lower interest rates will continue to propel home sales, through year-end. Consumer confidence readings likely fell in September as a result of the very negative political rhetoric, multiple hurricanes, increased violence in Iraq and the media's continuing intense focus on all that is negative. Consumer confidence should also improve through year-end. The U.S. economy is currently on pace to achieve 4.3% growth this year, the best performance since the heights of the bubble in 1999. Inflation readings are falling and income growth is accelerating, which bodes well for this holiday shopping season. The affects of the hurricanes are still hurting employment, however recent surveys and rebuilding point to a surge in hiring during the fourth quarter. Manufacturing, after a brief pause, is accelerating and is contributing meaningfully to economic growth. Finally, the fact that consumers are buying trucks and SUVs again in a big way likely means that higher gas prices are being offset by other positive factors, such as low interest rates, better incomes and employment prospects.
Subscribe to:
Posts (Atom)