Today's Headlines

Bloomberg:
- Avigdor Lieberman, who may become Israel’s next internal security minister, said the country must consider taking unspecified “unilateral” action to stop Iran from developing nuclear weapons.
- The Russian government should invest some of the windfall oil revenue held in its Stabilization Fund in foreign stocks to reduce the economy’s dependence on high oil prices, the World Bank said.
- Wal-Mart Stores(WMT) is roiling major suppliers with a plan to cut inventories.
- The US dollar declined the most since January versus the euro and posted its biggest loss in a month against the yen as traders pared bets that the Fed will raise its benchmark interest rate twice more this year.
- Joshua Bolten, the new White House chief of staff, indicated he’s preparing to make changes in the Bush administration, telling senior aides today to “refresh, re-engage or quit now.”
- The bidding contest for Aztar Corp.(AZR) intensified as Columbia Sussex Corp. offered $1.68 billion for the owner of the Tropicana casino in Las Vegas, topping three rival offers.
- Crude oil is rising, touching $70/bbl. in NY for the first time since Hurricane Katrina, on speculation the dispute over Iran’s nuclear program may disrupt shipments.

Wall Street Journal:
- Corning Inc.(GLW) has staged a spectacular recovery and now has a market capitalization of $42 billion and debt that’s rated investment-grade.
- General Electric’s USA Network unit and Major League Gaming Inc. have reached an agreement to provide video game tournaments over cable television.
- China Construction Bank is in early talks with Bear Stearns(BSC) that might result in the Chinese state-owned bank buying a minority stake in the securities firm.
- General Mills(GIS), Kraft Foods and other consumer-product companies are boosting Internet advertising as more people turn to online media.
- More US states are approving restrictions on using cell phones while driving to prevent distractions that can lead to accidents.

MoneyToday:
- Samsung and IBM(IBM) agreed to team up to sell printers.

NY Times:
- Many European governments, including some that have criticized US anti-terrorism measures, are now broadening their surveillance and prosecuting powers.
- Hasbro(HAS) expects to begin selling a toy line of six Pussycat Dolls, modeled after the rhythm-and-blues-influenced pop group.
- US Representative Steve Buyer, an Indiana Republican, is co-sponsoring a bill to limit anti-war demonstrations at military funerals.

AP:
- Time Warner’s(TWX) AOL has joined Shanghai Media & Entertainment Group’s broadband unit to broadcast more than three hours of daily Chinese programming.

Financial Times:
- A surge in hiring by investment banks as they report record profits is pushing up salary levels for bankers.
- Multi-strategy hedge funds, which offer the same diversification benefits, for lower fees, as funds of funds, are putting pressure on the latter to prove they add value.

NY Manufacturing Slows, Prices Paid Falls Again, Foreign Demand for US Assets Still Very Strong

- Empire Manufacturing for April fell to 15.8 versus estimates of 24.3 and a reading of 29.0 in March.
- Net Foreign Security Purchases for February rose to $86.9 billion versus estimates of $60.0 billion and an upwardly revised $69.1 billion in January.

BOTTOM LINE: Manufacturing in New York State expanded at a slower pace in April as growth in sales and orders eased, Bloomberg reported. The component of the index measuring the outlook for the next six months rose to 42.7 versus 38.1 the prior month. The employment component of the index fell to 17.4 versus 20.1 in March. The New Orders component of the index fell to 14.1 versus 27.0 the prior month. The Index of Prices Paid fell to 37.9 versus 39.3 in March. The Prices Paid Index has now fallen 37.4% from November 2005 highs. Manufacturing will likely decelerate over the coming months, but continue to add to US economic growth.

International investors increased their net holdings of US assets by $86.9 billion in February amid strong demand for US bonds and faster economic growth, Bloomberg said. The UK, China and OPEC countries all increased their holdings of US Treasuries in February. Caribbean banking centers, which are considered a barometer of hedge fund activity, cut their Treasury holdings by $11 billion. Foreigners’ holdings of US stocks rose $16.5 billion. I expect foreign demand for US assets to remain very strong over the intermediate-term.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
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

Monday Watch

Weekend Headlines
Bloomberg:
- President Bush urged Congress to extend tax cuts enacted in his first term and asked lawmakers to address rising energy and health-care costs.
- China plans to let investors buy stocks using margin and sell shares short, seeking to channel more of the nation’s $4 trillion of bank deposits into the stock market and boost trading.
- The global takeover boom shows no sign of peaking. If anything, buyout firms are setting their sights on bigger targets, and corporations are stepping up the pace of purchases while financing remains cheap.
- Flextronics Intl.(FLEX) said it agreed to sell its software unit to a Kohlberg Kravis Roberts affiliate for about $900 million.
- BAA Plc, the target of a hostile takeover from Spain’s Grupo Ferrovial SA, said it rejected a bid led by Goldman Sachs Group(GS) that valued the world’s largest airports operator at $16.5 billion.
- China’s economic growth rose an estimated 10.2% in the first quarter, President Hu Jintao said, as manufacturing investment and exports surged.

Wall Street Journal:
- The Chicago Mercantile Exchange(CME) and the Chicago Board of Trade(BOT) are closing a loophole that had undermined the anonymity of electronic trading.

NY Times:
- LensCrafters will spend an estimated $312 million to upgrade its stores, aiming to distance itself from low-priced competitors.
- Toyota Motor(TM) is considering building its eighth North American assembly plant and is looking at four southern US states for the site.
- Three top Israeli generals warned in separate interviews this week that the army is ready to invade the Gaza Strip to put an end to Palestinian rocket attacks if ordered.
- The US baby boom generation has heeded the advice to stay physically active and is also experiencing more injuries requiring surgery.
- News Corp. (NWS) is introducing a poker show even as the Travel Channel’s “World Poker Tour” has lost 36% of its viewers since its debut and online-poker revenue increases may slow.

Washington Post:
- The administration of President Bush will award as much as $3 billion in contracts in coming weeks to develop new radiation monitors to detect nuclear weapons crossing the country’s borders.

LA Times:
- Sales of wristwatches to young US consumers are falling as trendier accessories including cellular phones and portable music players also indicate the time, citing marketing studies.

Crain’s Chicago Business:
- Sears Holdings(SHLD) is testing its Sears Auto Centers at Kmart stores in a move that could double the size of its car-repair business.

Financial Times:
- Nasdaq Stock Market’s(NDAQ) ability to pay for a takeover bid for London Stock Exchange Plc has been called into question, citing credit rating companies and the newspaper’s own analysis.
- Oracle Corp.(ORCL) is contemplating introducing its own version of the Linux operating system and it considered purchasing Linux distributor Novell Inc.(NOVL), citing CEO Ellison.
- The Nobel Foundation, which funds the Nobel Prizes, invested in Corbin Capital Partners, Rock Creek Potomac fund and the Carnegie Worldwide Long/Short fund in its first hedge fund investments.

AP:
- Television broadcasters are challenging a FCC ruling that found three shows “indecent” because of obscene language.

Sunday Times:
- The NYSE is expected to build a stake in the London Stock Exchange after the Nasdaq Stock Market(NDAQ) bought a holding this month.

Xinhua News Agency:
- Wal-Mart Stores(WMT) will build the company’s sixty-eighth store in China in the southern province of Hainan, citing the retailer’s Chinese partner.

Weekend Recommendations
Barron's:
- Had positive comments on (SEPR), (HPQ), (UNH) and (PDCO).
- Had negative comments on (HRB).

Night Trading
Asian indices are -.50% to unch. on average.
S&P 500 indicated +.17%.
NASDAQ 100 indicated -.03%.

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/Estimate
- (BRO)/.36
- (CBI)/.01
- (C)/1.02
- (ETN)/1.32
- (GPC)/.66
- (JBHT)/.31
- (KRI)/.59
- (MI)/.77
- (RF)/.62
- (STI)/1.43
- (WB)/1.12

Upcoming Splits
- (AVD) 4-for-3
- (NBR) 2-for-1

Economic Releases
8:30 am EST
- Empire Manufacturing for April is estimated to fall to 24.3 versus a reading of 31.2 in March.

9:00 am EST
- Net Foreign Security Purchases for February are estimated to fall to $60.0 billion versus $66.0 billion in January.

1:00 pm EST
- The NAHB Housing Market Index for April is estimated to come in at 55 versus a reading of 55 in March.

BOTTOM LINE: Asian Indices are mostly lower, weighed down by exporting shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

There are some economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Empire Manufacturing, Net Foreign Security Purchases, NAHB Housing Market Index
Tues. - Producer Price Index, Housing Starts, Building Permits, March 28 FOMC Minutes
Wed. - Consumer Price Index
Thur. - Initial Jobless Claims, Leading Indicators, Philly Fed
Fri. - None of note

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Brown & Brown(BRO), Citigroup(C), Eaton Corp.(ETN), Genuine Parts(GPC), JB Hunt(JBHT), Knight Ridder(KRI), Marshall & Ilsle(MI), SunTrust Banks(STI), Wachovia Corp.(WB)

Tues. - Adtran(ADTN), Allstate(ALL), Amgen Corp.(AMGN), AmSouth Bancorp(ASO), Boston Scientific(BSX), CR Bard(BCR), DR Horton(DHI), Everest Re(RE), Fifth Third(FITB), Freeport-McMoRan(FCX), Gilead Sciences(GILD), IBM(IBM), Johnson & Johnson(JNJ), Keycorp(KEY), Linear Tech(LLTC), Mattel(MAT), Merrill Lynch(MER), Motorola(MOT), Peabody Energy(BTU), Seagate Technology(STX), State Street(STT), Texas Instruments(TXN), UnitedHealth(UNH), Washington Mutual(WM), Wells Fargo(WFC), Yahoo!(YHOO)

Wed. - Abbott Labs(ABT), AMR Corp.(AMR), Apple Computer(AAPL), Comerica(CMA), CDW Corp.(CDWC), CIT Group(CIT), Coca-Cola(KO), Comerica(CMA), CSX Corp.(CSX), E*Trade(ET), eBay(EBAY), General Dynamics(GD), Intel Corp.(INTC), JPMorgan(JPM), Juniper Networks(JNPR), Kinder Morgan(KMI), Novellus Systems(NVLS), Pfizer Inc.(PFE), Qualcomm(QCOM), St Jude Medical(STJ), United Technologies(UTX)

Thur. - Altria Group(MO), Bank of America(BAC), Baxter Intl.(BAX), BellSouth(BLS), Broadcom Corp.(BRCM), Cerner Corp.(CERN), Eli Lilly(LLY), EMC Corp.(EMC), First Data(FDC), General Motors(GM), Google(GOOG), Hershey Co.(HSY), Linens ‘n Things(LIN), Merck(MRK), Newmont Mining(NEM), Outback Steakhouse(OSI), Ryland Group(RYL), Southwest Air(LUV), Sprint Nextel(S), United Parcel(UPS)

Fri. - 3M Co.(MMM), Ford Motor(F), Fortune Brands(FO), Genzyme(GENZ), Guidant Corp.(GDT), Halliburton(HAL), Ingersoll-Rand(IR), Maytag(MYG), McDonald’s(MCD), Royal Caribbean(RCL), Schlumberger(SLB), Wyeth(WYE)

Other events that have market-moving potential this week include:

Mon. - World Health Care Congress
Tue. - World Health Care Congress
Wed. - World Health Care Congress, Morgan Stanley Retail Conference
Thur. - Morgan Stanley Retail Conference
Fri. - Morgan Stanley Retail Conference

BOTTOM LINE: I expect US stocks to finish the week mixed as better-than-expected earnings reports offset conservative forward earnings guidance, higher long-term rates and mixed economic data. My trading indicators are giving mostly bullish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,289.12 -1.52%*

BOTTOM LINE: Overall, last week's market performance was mildly bearish. The advance/decline line fell, almost every sector fell and volume was about average on the week. Measures of investor anxiety were mostly higher. The AAII % Bulls fell to 45.36% and is still only around average levels, which is a positive considering this year’s gains. The average 30-year mortgage rate rose to 6.49% which is 128 basis points above all-time lows set in June 2003.

I continue to believe housing is slowing to more healthy sustainable levels. This will also likely result in the slowing of consumer spending back to around average levels. The benchmark 10-year T-note yield rose 7 basis points on the week even as the Import Price Index fell. I expect inflation concerns to begin declining again later this quarter as economic growth slows to average levels, unit labor costs remain subdued and commodity prices weaken from current levels.

Unleaded Gasoline futures rose again this week, but are still 27.6% below September 2005 highs even as refinery utilization remains below normal as a result of the hurricanes last year, 22.7% of Gulf of Mexico oil production remains shut-in and fears over Iranian/Nigerian production disruptions persist. Natural gas inventories rose less than expected this week. However, supplies are now 63.4% above the 5-year average, near an all-time record high for this time of year, even as 13.6% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 54.5% since December 2005 highs.

OPEC said recently that global oil demand will average 84.5 million barrels/day for the remainder of the year. The most recent data from Energy Intelligence shows global oil supplies at 85.6 millions barrels/day. Since Dec. 2003, global oil supplies have risen 13.1% while demand has risen 5.0%. U.S. oil inventories are now close to 8-year highs. I continue to believe oil is priced above $60/bbl. on fear and record speculation, not fundamentals. Demand for oil can and will fall, even with healthy economic growth, as we saw in the U.S. last year. As the fear premium in oil dissipates back to more reasonable levels and supplies continue to rise, crude should head meaningfully lower over the intermediate-term.

Gold rose modestly for the week as higher energy prices and mostly positive economic data more than offset the unexpected decline in the Import Price Index. The US dollar rose as speculation increased that the Fed will continuing hiking rates as a result of rising commodity prices and a strong US economy.

Interest rate sensitive stocks such as Homebuilders, REITs and Utilities underperformed for the week as long-term interest rates rose. The average US stock, as measured by the Value Line Geometric Index(VGY), is still up a strong 7.2% so far this year. Moreover, the Russell 2000 Index is up 11.9% year-to-date. I still believe US economic growth peaked for the year during the first quarter and will decelerate back to around average levels through year-end.

I expect stocks to continue trading mixed-to-lower over the next few weeks. Subsequently, a reversal lower in long-term rates and/or energy prices should provide the catalyst for another push higher by the major averages. The ECRI Weekly Leading Index fell slightly this week and is still forecasting healthy, but decelerating, US economic activity.

*5-day % Change