4Q GDP Slows, Jobless Claims Still Low

- Final 4Q GDP rose 1.7% versus estimates of a 1.7% gain and a prior estimate of a 1.6% rise.
- Final 4Q GDP Price Index rose 3.5% versus estimates of a 3.3% increase and a prior estimate of a 3.3% increase.
- Final 4Q Personal Consumption rose .9% versus estimates of a 1.2% increase and a prior estimate of a 1.2% gain.
- Initial Jobless Claims for last week fell to 302K versus estimates of 305K and 312K the prior week.
- Continuing Claims rose to 2483K versus estimates of 2475K and 2463K prior.

BOTTOM LINE: The US economy grew at an annual rate of 1.7% last quarter, Bloomberg reported. Corporate earnings adjusted for the value of inventories and depreciation of capital expenditures rose 14.4% to an annual rate of $1.48 trillion. The core pce index, the Fed’s favorite inflation measure, rose 2.4% last quarter. Spending on commercial construction as well as equipment and software grew at an annual pace of 4.5% last quarter versus an 8.5% rise in the 3rd quarter. Inventory rebuilding added 1.89 percentage points to economic growth last quarter as companies gained confidence in the durability of the current expansion. Residential construction rose 2.8% last quarter versus a 7.3% gain the prior quarter. I expect GDP growth to come in a brisk 4-4.5% this quarter, which should be the peak for the year. Growth should slow to average levels through year-end. Long-term interest rates should also peak for the year around the time of the 1Q GDP release.

First-time claims for US jobless benefits unexpectedly fell last week as a buoyant labor market gave consumers the income to keep spending, Bloomberg said. The four-week moving-average fell to 310,750 from 312,250 the prior week. Solid job growth and rising incomes are boosting consumer confidence, which surged in March to the best level in almost 4 years. I continue to believe the labor market will remain relatively healthy over the intermediate-term without generating substantial unit labor costs increases.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Japan’s industrial production unexpectedly fell, snapping the longest expansion in nine years, as companies scaled back output from record levels.
- PIMCO the biggest buyer of emerging-market debt, plans to start an Asian bond fund within six months to capitalize on demand for the region’s debt.
- General Motors(GM) said it is in talks to sell part of its stake in Japanese truckmaker Isuzu Motors to raise cash.

Commercial Times:
- Taiwan’s Advanced Semiconductor Engineering and Siliconware Precision Industries reached their maximum utilization capacity in the first quarter.

Financial Times:
- Alcatel SA(ALA) and Lucent Technologies(LU) may agree on a merger within days.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
- (AGE)/.76
- (BBY)/1.29
- (KMX)/.38
- (CMVT)/.19
- (PTEN)/.73
- (SRR)/.25
- (TXI)/.12

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 4Q GDP is estimated to rise 1.7% versus a prior estimate of a 1.6% increase.
- Final 4Q GDP Price Index is estimated to rise 3.3% versus a prior estimate of a 3.3% rise.
- Final 4Q Personal Consumption is estimated to rise 1.2% versus a prior estimate of a 1.2% increase.
- Initial Jobless Claims for last week are estimated to rise 305K versus 302K the prior week.
- Continuing Claims are estimated to rise to 2475K versus 2472K prior.

BOTTOM LINE: Asian indices are higher, boosted by technology shares in the region. I expect US equities to open mixed and to trade modestly higher into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs, Led by Tech and Small-cap Shares

Indices
S&P 500 1,302.89 +.75%
DJIA 11,215.70 +.55%
NASDAQ 2,337.78 +1.45%
Russell 2000 764.17 +1.72%
Wilshire 5000 13,175.60 +.88%
S&P Barra Growth 613.56 +.68%
S&P Barra Value 686.12 +.81%
Morgan Stanley Consumer 613.76 +.45%
Morgan Stanley Cyclical 818.82 +1.02%
Morgan Stanley Technology 545.20 +1.60%
Transports 4,568.49 +.80%
Utilities 397.08 +.80%
Put/Call .81 -19.80%
NYSE Arms .66 -50.36%
Volatility(VIX) 10.95 -5.44%
ISE Sentiment 137.00 -2.84%
US Dollar 90.20 -.06%
CRB 332.92 +.38%

Futures Spot Prices
Crude Oil 66.42 -.05%
Unleaded Gasoline 196.50 +.55%
Natural Gas 7.50 +.59%
Heating Oil 185.30 +.05%
Gold 573.00 -.05%
Base Metals 177.31 -.49%
Copper 245.65 unch.
10-year US Treasury Yield 4.80% +.51%

Leading Sectors
Internet +4.02%
Steel +3.73%
Disk Drives +3.49%

Lagging Sectors
Drugs -.03%
Oil Tankers -.43%
Broadcasting -.52%

Evening Review
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Afternoon Recommendations
Morgan Stanley:
- Rated CME Overweight, target $475
- Rated ICE Overweight, target $75.

Afternoon/Evening Headlines
Bloomberg:
- The drop in the US jobless rate is a correct signal that the labor market is tightening, a study by economists at the Fed showed.
- A proposed condominium and hotel tower that would be the tallest building in North America won approval from the Chicago City Council today, clearing the way for construction to start later this year.
- The five permanent members of the UN Security Council agreed on a draft statement demanding that Iran curb its nuclear program and cooperate with inspectors.
- Whirlpool(WHR) can complete its $1.68 billion takeover of Maytag(MYG), the US Justice Dept. decided as it rejected concerns from its own lawyers that the combination might hurt competition.
- Google(GOOG) plans to sell 5.3 million more shares to satisfy demand for the stock as the company joins the S&P 500.
- Boeing(BA) said it received an order for at least thirty 737 jets valued at about $2 billion from GE’s(GE) aircraft leasing unit.
- The US Senate approved its first revision of ethics rules in more than a decade, banning all gifts and meals from lobbyists, forcing greater disclosure, and doubling to two years the time that departing lawmakers must wait before lobbying former colleagues.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Semi longs and Internet longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was very bullish. The Russell 2000 is now up 14% for the year. The average stock, as measured by the VGY Index, is 8.3% higher year-to-date. I sense that today's action is a harbinger of things to come on the Naz. Sustained p/e multiple expansion appears to have begun as investors gain confidence in the durability of the expansion. It appears to me that a portion of the capital that has been flooding into everything else is finding its way into U.S. equities.

Stocks Sharply Higher Into Final Hour, Led by Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Semi longs. I exited my (IWM) and (QQQQ) shorts today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Apple (AAPL) looks like it found support around the 200-day moving average. I expect the stock has bottomed and will trade substantially higher before year's end. I am still long (AAPL). One by one, the Nasdaq is getting its leadership back. I expect the index to substantially outperform during the second quarter. I expect US stocks to trade mixed into the close from current levels as short-covering offsets profit-taking.

Today's Headlines

Bloomberg:
- Airline bonds are staging their biggest rally in nine years as demand for travel rises and carriers emerge from bankruptcy with less debt.
- Angola passed Saudi Arabia to become China’s top oil supplier in February.
- The US government raised fuel-economy standards for light trucks such as sport-utility vehicles an average 11% over four years starting in 2008 and for the first time included the biggest SUVs.
- Apple Computer(AAPL), which has sold more than 42.2 million iPod players since October 2001, released software that lets parents set the volume on the music devices to protect their children’s hearing.

Wall Street Journal:
- Citigroup(C) will start today Citibank Direct, an Internet bank offering online, high-yield savings accounts.
- The SEC said it expects to take action this year to stop late trading in mutual funds and will decide whether to make proposals stipulating the use of interactive data for corporate reports.
- Japan’s economy is getting new and more sustainable support from an increase in household spending, a shift that could have important implications for global trade.
- Southwest Air(LUV) may be one of the weaker prospects for investors hoping to profit from a rebound in the aviation business.
- GlaxoSmithKline Plc(GSK) and Colgate-Palmolive(CL) are among companies that are expected to present bids for Pfizer’s(PFE) consumer products unit in first-round auctions today.
- EBay(EBAY) plans today to contest a 19th-century Supreme Court ruling that infringement of a patent could lead to an injunction against using an invention even if the patent holder never did.
- Time Warner(TWX) is changing the way it manages publishing, to focus more on the Internet.

AP:
- A plan to expand a guest worker program for immigrants who want jobs in the US is a “bad idea,” AFL-CIO labor union President Sweeney said.
- The Bluetooth wireless telecom standard will adopt a new radio technology known as ultra-wideband, allowing it to accommodate high-definition video and files for digital music players.