Monday, May 02, 2005

Stocks Finish Quietly Higher Ahead of Fed

Indices
S&P 500 1,162.16 +.46%
DJIA 10,251.70 +.58%
NASDAQ 1,928.65 +.36%
Russell 2000 585.86 +1.12%
DJ Wilshire 5000 11,426.87 +.52%
S&P Barra Growth 561.51 +.47%
S&P Barra Value 596.31 +.45%
Morgan Stanley Consumer 579.98 +.83%
Morgan Stanley Cyclical 701.67 +.61%
Morgan Stanley Technology 437.31 +.17%
Transports 3,483.83 +1.67%
Utilities 373.19 +.46%
Put/Call .94 -7.84%
NYSE Arms .93 +7.29%
Volatility(VIX) 15.12 -1.24%
ISE Sentiment 165.00 +22.2%
US Dollar 84.49 +.07%
CRB 302.89 -.28%

Futures Spot Prices
Crude Oil 50.82 -.20%
Unleaded Gasoline 151.10 -.23%
Natural Gas 6.67 -.33%
Heating Oil 146.10 -.15%
Gold 430.70 +.05%
Base Metals 124.97 +1.10%
Copper 145.00 -.34%
10-year US Treasury Yield 4.18% -.23%

Leading Sectors
Oil Service +2.78%
Oil Tankers +2.37%
Energy +1.96%

Lagging Sectors
Broadcasting -.61%
Telecom -1.16%
I-Banks -1.92%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GNW, GD, PFE and AMGN.
- Reiterated Attractive view of Drug Retailers.

Afternoon/Evening Headlines
Bloomberg:
- Prudential Equity Group’s chief investment strategist, told clients to raise their allocation for US stocks to 80%.
- MCI Inc. accepted an increased takeover offer from Verizon Communications, snubbing a bid from Qwest Communications that is more than $1 billion higher.
- Crude oil rose, rebounding from a two-month low, after Algeria’s energy minister Khelil said that OPEC should boost production to meet “very strong” demand.
- The Fed this week will drop its year-old commitment to increase rates at a “measured” pace, according to five of Wall Street’s 22 biggest bond-trading firms surveyed by Bloomberg.
- Hewlett-Packard agreed to pay bigger rival EMC Corp. $325 million over five years to end lawsuits over patents.

LA Times:
- Los Angeles County office vacancies fell 3 percentage points to 14% in the first quarter as businesses continue to expand.

BOTTOM LINE: The Portfolio finished unchanged as gains in my Computer and Internet longs offset losses in my Commodity-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market improved modestly into the close as the advance/decline finished slightly higher, most sectors rose and volume was light. Measures of investor anxiety were mostly lower. Overall, today’s market action was modestly positive considering Friday’s gains and the rise in energy prices. I expect the Fed’s comments tomorrow to result in an extension of the recent rally.

Stocks Mixed Mid-day on Rising Energy Prices

Indices
S&P 500 1,155.54 -.11%
DJIA 10,197.61 +.05%
NASDAQ 1,917.89 -.20%
Russell 2000 579.72 +.06%
DJ Wilshire 5000 11,361.60 -.05%
S&P Barra Growth 558.73 -.03%
S&P Barra Value 593.02 -.11%
Morgan Stanley Consumer 576.98 +.32%
Morgan Stanley Cyclical 697.32 -.02%
Morgan Stanley Technology 435.50 -.25%
Transports 3,460.34 +.98%
Utilities 372.23 +.20%
Put/Call .99 -2.94%
NYSE Arms .95 +11.62%
Volatility(VIX) 15.63 +2.09%
ISE Sentiment 141.00 +4.44%
US Dollar 84.55 +.14%
CRB 302.40 -.44%

Futures Spot Prices
Crude Oil 50.65 +1.77%
Unleaded Gasoline 148.00 -1.08%
Natural Gas 6.61 +.46%
Heating Oil 143.70 +.78%
Gold 430.90 -1.19%
Base Metals 124.97 +1.10%
Copper 145.50 -.61%
10-year US Treasury Yield 4.19% -.14%

Leading Sectors
Insurance +1.46%
Oil Service +1.43%
Oil Tankers +1.32%

Lagging Sectors
Papers -.74%
Steel -.88%
I-Banks -2.56%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Computer and Internet longs are being offset by losses in my Oil Tankers shorts. I took profits in some of my trading longs this morning, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Measures of investor anxiety are mixed. Today’s overall market action is mildly positive, considering Friday’s gains, rising energy prices and the market’s oversold state. Ried, Thunberg's weekly index measuring the outlook for U.S. government debt rose for the first time in a month last week to 41 from 40. Readings below 50 mean investors continue to anticipate a rise in yields by the end of June. This reading continues to be bullish for bonds. As well, 70% of their survey's participants expect the Fed to refer to signs of sluggish economic growth in their policy statement. I expect US stocks to trade mixed into the close as short-covering and bargain-hunting offset apprehensions ahead of the Fed meeting and rising energy prices.

Today's Headlines

Bloomberg:
- GM, after selling an average of about $13.5 billion of unsecured bonds annually for the past decade, may stay out of the market this year as investors demand yields typically paid by companies with credit ratings five levels lower.
- Obesity is growing fastest among people in households that earn more than $60,000 a year, reversing a trend of higher rates of obesity among the poor, according to a study for the American Heart Assoc.
- Crude oil fell to a two-month low this morning amid speculation that slower economic growth in the US, Europe and Japan and increased output will bolster stockpiles.

Wall Street Journal:
- Oracle isn’t in talks now to buy Siebel Systems.
- The US newspaper industry may face the steepest decline in readership in more than 10 years when circulation figures are released today.
- News Corp.’s Fox News, ABC, CBS and NBC face a challenge for young viewers from Univision Communications, the largest US Spanish-language television and radio broadcaster.
- Texans are giving up their longstanding fondness for SUVs, as the cost of filling them up reaches almost $100.
- Slower growth in Europe, Japan and Canada is expected to push US exports below 2004 levels, citing economists.
- Brazil refused $40 million in US grants to fight AIDS because of a clause requiring recipients to discourage prostitution.

NY Times:
- Dominion Resources and Exelon Corp. are among power companies planning to build nuclear reactors as rising natural gas prices make other energy sources more expensive.
- McDonald’s, Kraft Foods and PepsiCo are among companies that have hired more than two dozen nutrition experts and scientists for their advisory boards, as food companies have been threatened with lawsuits over diet-related illnesses.
- Penalties against US companies that repeatedly commit workplace safety violations may rise as government agencies coordinate to apply laws often used to prosecute white-collar criminals.
- Verizon may raise its $7.6 billion offer for MCI Inc. if MCI agrees to state publicly that some of its customers are against Qwest’s competing offer.
- GM’s Saturn and Hummer brands and Ford’s Volvo division are among the growing number of automaker units led by women.
- Novell said that it purchased a set of electronic commerce patents in a bankruptcy auction on Dec. 6.

NY Post:
- AOL Music has signed a sponsorship agreement with GM’s Chevrolet, the online service’s largest advertising deal.

Boston Globe:
- Executives of medical device companies in Massachusetts said they plan to hire as many as 5,000 people within three years.

Financial Times:
- High oil prices have reduced the incentive for divestments in the North Sea oil business and companies are now developing assets rather than selling them.

Le Parisien:
- France’s Industry Minister Devedjian said EU countries should sell some of their oil reserves when speculators boost prices.

eHomeday.com:
- New home prices in Shanghai, China’s biggest commercial city, fell last month after the government raised interest rates and tightened rules for mortgages.

Construction Booming, ISM Still Healthy

- Construction Spending for March rose .5% versus estimates of a .3% increase and an upwardly revised .5% increase in February.
- ISM Manufacturing for April fell to 53.3 in April versus estimates of 55.0 and a reading of 55.2 in March.
- ISM Prices Paid for April fell to 71.0 versus estimates of 71.2 and a reading of 73.0 in March.

Bottom Line: The rise in construction spending to a record $1.052 trillion annual rate was driven by increased work on new homes, factories and commercial buildings. Construction spending has risen every month since January of last year, the best performance on record. The record pace of new home sales and rising builder backlogs will spur further gains in construction. This should cushion any economic weakness over the coming months. For the first quarter, construction is up 9.3%(YoY).

The modest decline in the ISM should have been anticipated after the GDP report. The production index component of the ISM, a measure of the work being performed, actually rose to 56.7 versus estimates of 56.5. As well, the new export orders component of the index rose to 57.2 from 55.4. Considering the rise in commodity prices during the first part of the year, the decline in the prices paid index is a big positive and corresponds with the drop in the Chicago Purchasing Manager’s prices paid component. The first quarter rise in inventories may limit factory demand over the next few months.

Links of Interest

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Monday Watch

Weekend Headlines
Bloomberg:
- French voters planning to endorse the EU constitution in a referendum May 29 regained the lead against opponents of the proposed treaty for the first time in more than a month, a poll by TNS-Sofres showed.
- Wal-Mart Stores said US sales rose about .9% in April as shoppers bought more food.
- Berkshire Hathaway Chairman Warren Buffett is maintaining his bet against the US dollar after his company had about $310 million in first-quarter losses from his foreign currency bets.
- Warren Buffett praised Maurice "Hank" Greenberg, the ousted CEO of AIG, and defended the use of a type of reinsurance that has come under regulatory scrutiny.
- Warren Buffett, who campaigned for John Kerry, said he opposes President Bush's plan for small private accounts as part of the solution to the Social Security problem.
- Asian technology stocks, the region's worst performers in the past year, may rebound as forecasts by companies such as Taiwan Semiconductor Manufacturing and Elpida Memory show an industry-wide slump may be ending.
- Morgan Stanley said its board decided to keep Philip J. Purcell as Chairman and CEO, rejecting demands by former executives that he be ousted.
- Crude oil feel to a two-month low on speculation slower economic growth in the US, Europe and Japan and an increase in inventories will curb demand.
- North Korea's reported missile launch yesterday may be an effort to force the US into direct talks over the communist country's nuclear program.
- AIG prolonged a review of improper accounting and said corrections will lower its net worth by about $2.7 billion, $1 billion more than an earlier estimate.

Wall Street Journal:
- Washington Mutual received a letter from NY Attorney General Spitzer in connection with an investigation into mortgage lending practices.
- Private-equity firms Warburg Pincus and Texas Pacific Group are close to an agreement to buy retailer Neiman Marcus Group for $100 a share, or about $5 billion.

New York Times:
- Managers at AIG artificially boosted sales by booking insurance premiums before clients have formally agreed to purchase them.
- China's yuan appreciated for about 20 minutes yesterday to the strongest in a decade, boosting speculation the country's government may allow the currency to trade more freely.
- John Wiley & Sons doubled the initial printing of an unauthorized biography of Apple Computer's Steve Jobs to 100,000 because of increased interest in the book, "iCon: Steve Jobs, The Greatest Second Act in the History of Business."

Washington Post:
- US reports of credible terrorist threats against domestic targets have decreased by as much as 50% on average and are at their lowest level since before Sept. 11, 2001.

Rocky Mountain News:
- Lockheed Martin's Space Systems may win part of a $500 million contract to design and build the National Aeronautics and Space Administration's Mars Telecommunications Orbiter.

LA Times:
- Walt Disney is introducing interactive attractions at its theme parks designed to appeal to children raised on computer games, digital effects and mobile phones.

MLB.Com:
- Baseball commissioner Bud Selig wants a player caught using steroids for the first time to receive a 50-game suspension.

Newsweek:
- Billionaire Ken Langone expects to deliver the details of his proposal to buy the NYSE this week.

Sunday Times:
- Marconi Corp. is accelerating efforts to sell itself to a US, European or Chinese competitor.

Nihon Keizai:
- Toyota Motor will start producing Camry cars that run on both gasoline and battery-supplied electricity in the US next year.

Times of London:
- UK Prime Minister Toy Blair is headed for a majority of between 90 and 100 seats in the May 5 general election.

Estado de S. Paulo:
- Saudi Arabia is ready to use its spare capacity of 1.5 million barrels a day to ease prices when needed, said Abdallah S. Jum'ah, chief executive of Saudi Aramco.

Financial Mail:
- IBM will next month cut 15,000 jobs across Europe as part of a companywide reorganization.

Xinhua News Agency:
- China's phone-revenue growth slowed to 8.8% in the first quarter after companies offered cheaper rates amid competition.

South China Morning Post:
- Walt Disney is considering opening a theme park in India.

El Pais:
- Sun Microsystems plans to acquire companies to boost revenue, citing an interview with CEO Scott McNealy.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on PA, MOT, JNPR, CSCO and mixed on FDG, EBAY, MXIM, CMCSA, SBUX, HPQ.

Forbes on Fox:
- Had guests that were positive on SIRI, F, AW, NOVL, FEIC and SMMX.

Cashin' In:
- Had guests that were positive on CP, DYN, UPS, EBAY, mixed on BA, NKE, ERTS and negative on DTPI.

Cavuto on Business:
- Had guests that were positive on WLP, RAD, VZ and mixed on GLW, EEM and ABB.

Barron's:
- Had positive comments on SOV, NWS, IACI, AZR, IGT and HLT.
- Had negative comments on TM and SHRP.

Goldman Sachs:
- Reiterated Outperform on CCU and AMLN.

Night Trading
Asian indices are +.25% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.04%.

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Earnings of Note
Company/Estimate
AVP/.35
CECO/.51
EDS/.03
HUM/.48
OSIP/-.67
PDLI/-.11
TSN/.17

Splits
CLC 2-for-1

Economic Releases
10:00 EST
- Construction Spending for March is estimated to rise .3% versus a .4% increase in February.
- ISM Manufacturing for April is estimated to fall to 55.0 versus a reading of 55.2 in March.
- ISM Prices Paid for April is estimated to fall to 72.1 versus a reading of 73.0 in March.

BOTTOM LINE: Asian Indices are mostly higher on optimism over earnings and lower energy prices. I expect US stocks to open modestly higher in the morning on bargain-hunting, short-covering and lower energy prices. The Portfolio is 100% net long heading into the week.