Today's Headlines

Bloomberg:
- Wal-Mart Stores said April sales rose .9%, the smallest gain in five months, as record-high gas prices had more shoppers limiting purchases to food and other necessities.
- Merck named company insider Richard Clark to succeed CEO Gilmartin, whose almost 11-year tenure included losing the company’s spot as the world’s largest drugmaker and the recall of the Vioxx painkiller.
- GM and Ford had their debt ratings cut to junk by S&P.

Wall Street Journal:
- The US budget proposal for fiscal 2006 would more than double premiums paid by companies to the Pension Benefit Guaranty over the next five years.
- Some US environmentalists are breaking with longstanding opposition to cutting trees and say the best way to save forests may be by using them.
- Northrop Grumman is pondering whether to link up with the French company EADS to bid against Boeing for a contract to supply aerial-refueling tankers to the US Defense Department.
- More US executives like 87-year-old billionaire Kirk Kerkorian are staying at the desks into the seventh and eighth decades of their lives, defying common expectations that most people retire at 65.
- Massey Energy, the fourth-biggest US coal producer, and other coal mining companies are facing shortages of workers that may curtail expansion plans and cause electricity prices to rise.
- The Chicago Merc will list futures on three exchange-traded funds next month.
- More companies are being targeted by blackmailers who threaten to paralyze computer systems unless they are paid tens or hundreds of thousands of dollars.
- Lawyer Sean Coffey’s tactics have boosted demand for him in the field of class-action securities litigation, and his next target is HealthSouth.
- Royal Philips Electronics, LG Electronics and Samsung Electronics may benefit as flat-panel screen prices recover.

NY Times:
- A location committee for California stem cell research efforts will choose between San Francisco, Sacramento and San Diego as the city that will house research headquarters.

Washington Post:
- Increased US imports of Chinese textile goods hasn’t reduced purchases from US clothing makers.
- The US military is examining reports that Abu Musab al-Zarqawi, leader of the al-Qaeda network in Iraq, may be ill or wounded and was present in a hospital last week in the al-Anbar province.

Fort Worth Star-Telegram:
- American Airlines and its pilots union are opposing legislation that would increase the mandatory retirement age for commercial pilots to 65 from 60.

Modest Job Creation is a Positive

- Preliminary 1Q Non-farm Productivity rose 2.6% versus estimates of a 1.8% increase and a 2.1% gain in 4Q.
- Preliminary 1Q Unit Labor Costs rose 2.2% versus estimates of a 2.0% gain and a 1.7% increase in 4Q.
- Initial Jobless Claims for last week rose to 333K versus estimates of 323K and 322K the prior week.
- Continuing Claims rose to 2589K versus estimates of 2595K and 2551K prior.

Bottom Line: While unit labor costs, which account for two-thirds of inflation, exceeded estimates slightly, investors are focusing more on the much better-than-expected productivity number. As long as productivity remains elevated, it is unlikely we will see unit labor costs rise substantially. As a result, hiring will remain modest by historic standards and inflation will remain well in check.

The four-week moving average of jobless claims fell to 321,500. This is the lowest since April 7, 2001. Moreover, the Challenger, Gray & Christmas report released earlier in the week showed job cuts are at the lowest level in almost five years and 20% less than in April of last year. I continue to believe the US economy can create at least 100,000 to 125,000 jobs on average through year-end which will keep the unemployment rate low by historic standards.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- The South Korean won and Taiwan dollar may decline this year as traders say prices rallied too far on speculation China, the two economies' biggest export market, will allow its currency to strengthen.

NY Times:
- Kohlberg Kravis Roberts and Goldman Sachs are among US buyout firms on a German Parliament-compiled list of companies believed to have benefited excessively from investing in Germany.

AFP:
- Saudi Arabia is ready to sign key nuclear safeguard agreements.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on IBM, AMLN, NFP and DELL.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.17%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
ATVI/.01
ATK/1.25
BRL/.62
CLX/.77
CVS/.68
CNO/.41
DISH/.39
FLR/.57
G/.43
JNY/.70
MFE/.19
MCK/.73
PIXR/.47
SINA/.22
SGMS/.24
WMB/.22

Splits
None of note

Economic Releases
8:30 EST:
- Preliminary 1Q Non-farm Productivity is estimated to rise 1.8% versus a 2.1% gain in 4Q.
- Preliminary 1Q Unit Labor Costs are estimated to rise 2.0% versus a 1.3% increase in 4Q.
- Initial Jobless Claims are estimated to rise to 323K versus 320K the prior week.
- Continuing Claims are estimated to rise to 2595K versus 2555K prior.

BOTTOM LINE: Asian indices are mostly higher, spurred by gains in Taiwan on speculation of improving relations with China. I expect US equities to open modestly lower on worries over slowing retail sales. Unseasonably wet/mild weather and high energy prices likely dampened sales in April. I will look to buy this sector on weakness over the coming weeks as I believe lower energy prices, low interest rates, lower inflation, higher stock prices, modestly improving real incomes/job prospects, rising sentiment and a good housing market will provide a tailwind for these stocks in the second half of the year. The Portfolio is 100% net long heading into tomorrow.

Stocks Finish Sharply Higher on Increasing Optimism

Indices
S&P 500 1,175.65 +1.25%
DJIA 10,384.64 +1.24%
NASDAQ 1,962.23 +1.51%
Russell 2000 595.26 +1.84%
DJ Wilshire 5000 11,562.16 +1.27%
S&P Barra Growth 567.16 +.97%
S&P Barra Value 604.15 +1.53%
Morgan Stanley Consumer 584.60 +.78%
Morgan Stanley Cyclical 714.08 +1.69%
Morgan Stanley Technology 446.44 +1.63%
Transports 3,519.69 +1.65%
Utilities 369.48 +.11%
Put/Call .95 +13.10%
NYSE Arms .50 +53.37%
Volatility(VIX) 13.85 -4.68%
ISE Sentiment 134.00 +8.06%
US Dollar 83.98 -.63%
CRB 300.97 +.43%

Futures Spot Prices
Crude Oil 50.32 +.38%
Unleaded Gasoline 147.15 +.35%
Natural Gas 6.64 +.23%
Heating Oil 145.65 +.14%
Gold 430.60 +.14%
Base Metals 121.30 -1.14%
Copper 143.25 +.24%
10-year US Treasury Yield 4.18% +.38%

Leading Sectors
Steel +2.11%
Airlines +2.09%
Gold & Silver +1.10%

Lagging Sectors
Oil Tankers -2.14%
Energy -2.33%
Oil Service -2.63%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on BC, SBUX, WON and DEX.

Afternoon/Evening Headlines
Bloomberg:
- The FBI is probing the US insurance industry to determine whether insurance fraud is “the next big one,” following the savings and loan crisis of the 1980s and the corporate fraud scandals that began in 2001.
- Kirk Kerkorian, who shook up Chrysler with a hostile takeover bid a decade ago, disclosed he is building an 8.8% stake in GM, sending GM shares to their biggest gain in more than 40 years.
- Lazard Ltd. raised $854.6 million in an IPO today.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet, Gaming and Computer longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive as the advance/decline finished at its daily highs, every sector rose and volume was average. Measures of investor anxiety were mostly lower. Overall, today’s market action was very positive considering the bounce in energy prices. The S&P 500 has now broken out of its recent trading range to the upside. Today’s action was likely the result of more investors coming around to the view that we are moving to sustainable less inflationary growth. The positive sentiment change towards GM was also a major factor today.

Stocks Sharply Higher Mid-day on Optimism Over Recent Economic Data

Indices
S&P 500 1,172.74 +.99%
DJIA 10,359.59 +1.0%
NASDAQ 1,956.57 +1.20%
Russell 2000 593.13 +1.48%
DJ Wilshire 5000 11,532.19 +1.01%
S&P Barra Growth 565.46 +.66%
S&P Barra Value 602.87 +1.31%
Morgan Stanley Consumer 583.31 +.55%
Morgan Stanley Cyclical 712.33 +1.44%
Morgan Stanley Technology 445.31 +1.38%
Transports 3,510.00 +1.37%
Utilities 368.19 -.24%
Put/Call 1.05 +25.00%
NYSE Arms .55 -48.84%
Volatility(VIX) 13.94 -4.06%
ISE Sentiment 125.00 +.81%
US Dollar 84.02 -.58%
CRB 300.26 +.19%

Futures Spot Prices
Crude Oil 50.15 +1.31%
Unleaded Gasoline 146.70 +.52%
Natural Gas 6.61 +1.61%
Heating Oil 145.10 +1.04%
Gold 430.00 unch.
Base Metals 121.30 -1.14%
Copper 144.35 -.79%
10-year US Treasury Yield 4.18% +.43%

Leading Sectors
Steel +4.45%
I-Banks +3.36%
Insurance +2.87%

Lagging Sectors
Software +.49%
Alternative Energy +.49%
Computer Services +.30%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet, Computer and Gaming longs. I added a few longs from various sectors this morning and covered a short, thus leaving the Portfolio 100% net long. One of my new longs is EBAY and I am using a $31.75 stop-loss on this position. The tone of the market is positive as the advance/decline line is higher, almost every sector is advancing and volume is decent. Measures of investor anxiety are mostly lower. Today’s overall market action is positive as stocks are maintaining gains even with the reversal in oil prices this morning. The S&P 500 and DJIA are breaking out of their recent trading ranges on decent volume and breadth. The fact that long-term interest rates are barely higher today even with the stock rally, better-than expected ISM report and speculation over a return of the 30-year long-bond is a big positive. Copper prices are falling again today as technicals for the metal continue to weaken. I expect US stocks to trade higher into the close on a moderating in energy prices, short-covering, bargain-hunting and more optimism over the US economy.