Weekly Outlook

Click here for Economic Preview by MarketWatch.com.

Click here for Stocks in Focus for Monday by MarketWatch.com.

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

Economic reports for the week include:

Mon. – None of note

Tues. – Personal Income, Personal Spending, PCE Deflator, 2Q Employment Cost Index, S&P/CS Composite Home Price Index, Chicago Purchasing Manager, Consumer Confidence, Construction Spending, weekly retail sales

Wed. – Weekly MBA Mortgage Applications report, weekly EIA energy inventory report, Challenger Job Cuts, ADP Employment Change, Pending Home Sales, ISM Manufacturing, ISM Prices Paid, Total Vehicle Sales

Thur. – Initial Jobless Claims, Factory Orders

Fri. – Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, ISM Non-Manufacturing

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

Mon. – Anadarko Petroleum(APC), Andrew Corp.(ANDW), Archer-Daniels-Midland(ADM), CB Richard Ellis(CBG), CNA Financial(CNA), Humana(HUM), Loews Corp.(LTR), Monster Worldwide(MNST), Pitney Bowes(PBI), Post Properties(PPS), RadioShack(RSH), Tyson Foods(TSN), Verizon Communications(VZ), Vulcan Materials(VMC)

Tues. – Automatic Data Processing(ADP), Avon Products(AVP), Buffalo Wild Wings(BWLD), Cephalon(CEPH), Chipotle Mexican Grill(CMG), Coach Inc.(COH), Diebold(DBD), DreamWorks(DWA), General Motors(GM), Hilton Hotels(HLT), IAC/InterActiveCorp.(IACI), ImClone Systems(IMCL), Liz Claiborne(LIZ), Marathon Oil(MRO), Masco Corp.(MAS), MetLife Inc.(MET), Nymex Holdings(NMX), Ruth’s Chris(RUTH), Safeco(SAF), Shaw Group(SGR), St. Joe(JOE), Under Armour(UA), Valero Energy(VLO), WebMD Health(WBMD), Whole Foods(WFMI)

Wed. – Administaff(ASF), Alltel Corp.(AT), Applebees(APPB), Boyd Gaming(BYD), CA Inc.(CA), Cigna(CI), Computer Sciences(CSC), Devon Energy(DVN), Dolby Labs(DLB), Dominion Resources(D), Electronic Arts(ERTS), Garmin(GRMN), Given Imaging(GIVN), GlobalSanataFe(GSF), Kraft(KFT), Martha Stewart(MSO), Mastercard(MA), OfficeMax(OMX), Prudential Financial(PRU), Starbucks(SBUX), Time Warner(TWX), Transocean(RIG), Walt Disney(DIS), Wynn Resorts(WYNN)

Thur. – Barnes Group(B), Clorox(CLX), Eastman Kodak(EK), Expedia(EXPE), Intl. Rectifier(IRF), International Paper(IP), Lear(LEA), MGM Mirage(MGM), Newmont Mining(NEM), NYSE Euronext(NYX), Rowan Cos(RDC), Starwood Hotels(HOT), Timberland(TBL)

Fri. – Armor Holdings(AH), Procter & Gamble(PG), Weyerhaeuser(WY)

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

Mon. – None of note

Tue. – Keefe, Bruyette & Woods Community Bank Investor Conference, (LSI) Analyst Day

Wed. – Keefe, Bruyette & Woods Community Bank Investor Conference, BOE Policy Meeting

Thur. – CIBC Communication Tech Conference, ThinkEquity Partners ThinkBIG Conference, BOE Policy Meeting, ECB Policy Meeting

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on better-than-expected earnings reports, mostly positive economic data, bargain-hunting, lower energy prices and short-covering. My trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,458.95 -4.90%*

Click here for What a Week by TheStreet.com.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,458.95 -4.90%
DJIA 13,265.47 -4.22%
NASDAQ 2,562.24 -4.66%
Russell 2000 777.83 -7.0%
Wilshire 5000 14,663.63 -5.14%
Russell 1000 Growth 591.22 -3.79%
Russell 1000 Value 825.97 -4.78%
Morgan Stanley Consumer 707.25 -3.19%
Morgan Stanley Cyclical 1,033.69 -6.87%
Morgan Stanley Technology 637.95 -2.33%
Transports 5,039.17 -5.98%
Utilities 474.79 -7.24%
MSCI Emerging Markets 133.14 -5.80%

Sentiment/Internals
NYSE Cumulative A/D Line 68,092 -10.50%
Bloomberg New Highs-Lows Index -1056 -340.0%
Bloomberg Crude Oil % Bulls 35.0 -3.9%
CFTC Oil Large Speculative Longs 252,944 +2.5%
Total Put/Call 1.3 +5.7%
NYSE Arms 1.37 -35.98%
Volatility(VIX) 24.17 +42.60%
ISE Sentiment 132.0 unch.
AAII % Bulls 44.2 +5.8%
AAII % Bears 36.8 +.4%

Futures Spot Prices
Crude Oil 76.96 +1.84%
Reformulated Gasoline 211.25 -2.29%
Natural Gas 6.23 -4.83%
Heating Oil 207.32 -.95%
Gold 673.0 -3.64%
Base Metals 253.66 -5.1%
Copper 354.60 -4.46%

Economy
10-year US Treasury Yield 4.76% -19 basis points
4-Wk MA of Jobless Claims 308,500 -1.3%
Average 30-year Mortgage Rate 6.69% - 4 basis points
Weekly Mortgage Applications 609.0 -3.6%
Weekly Retail Sales +2.80%
Nationwide Gas $3.92/gallon -.08/gallon
US Cooling Demand Next 7 Days 12.0% above normal
ECRI Weekly Leading Economic Index 143.70 -.14%
US Dollar Index 81.0 +.82%
CRB Index 319.61 -1.49%

Best Performing Style
Large-Cap Growth -3.79%

Worst Performing Style
Small-Cap Value -6.64%

Leading Sectors
Telecom -.67%
Computer Services -1.57%
HMOs -1.67%
Defense -1.96%
Internet -2.30%

Lagging Sectors
Papers -8.65%
Gold -9.0%
Engineering & Construction -9.2%
Homebuilders -9.7%
Coal -10.4%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day Change

Stocks Lower into Final Hour as Lingering Credit Worries Offset Positive Economic Data

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Medical longs and Retail longs. I added slightly to my (GILD), (UA) and (PWR) longs, covered my (IWM)/(QQQQ) hedges and took some profits in my (EEM) short today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, most sectors are declining and volume is very heavy. My intraday gauge of investor angst is at an elevated level. Money market funds saw inflows of $12.57 billion, reaching another record high of $2.54 trillion. Recent market action makes me more convinced than ever that the secular trend of disinflation is still firmly intact. It is interesting to note the Baltic Dry Index hit another new high yesterday. As well, U.S. rail carload traffic has been trending higher since bottoming in February. The gasoline crack spread is dropping another 7.5% today. It has now collapsed 72.4% from May highs. I still expect oil to start a meaningful decline over the next month, and I plan to further increase my energy short exposure over the coming weeks. I can't stress enough how important the shift is away from “value” stocks and into “growth” stocks over the last two days. It is massive, and I barely hear it mentioned. If you are in a broad array of quality growth stocks, you very well may be even over the last two days, with the broad market down meaningfully. I believe this year marks the beginning of a shift toward the “growth style” that will last for years. There are literally hundreds of growth stocks I monitor up over 1% today with the DJIA down 100. Google (GOOG), my largest long position, is 7 points higher. I still view this stock as egregiously undervalued relative to other high-quality growth stocks and its Internet peers. If the major U.S. averages are able to close around current levels or higher, I wouldn't be surprised to see a sharp rally in Asia on Sunday night and Europe Monday morning, given how oversold those indices have become. Many are even more oversold than the U.S. averages. A sharp rally overseas would likely lead to strength here in the U.S. on Monday. I plan to finish the day 100% net long. I expect US stocks to trade higher into the close from current levels on bargain-hunting, lower long-term rates, more economic optimism and short-covering.

GDP Surges Above Trend, Inflation Decelerates Meaningfully, Confidence Rises

- Advance 2Q GDP rose 3.4% versus estimates of a 3.2% gain and a .6% increase in 1Q.

- Advance 2Q Personal Consumption rose 1.3% versus estimates of a 1.5% gain and a 3.7% increase in 1Q.

- Advance 2Q GDP Price Index rose 2.7% versus estimates of a 3.4% increase and a 4.2% gain in 1Q.

- Advance 2Q Core PCE is estimated to rise 1.4% versus estimates of a 1.4% increase and a 2.4% rise in 1Q.

- Final July Univ. of Mich. Consumer Confidence came in at 90.4 versus estimates of 91.2 and a prior estimate of 92.4.

BOTTOM LINE: The US economy grew more than forecast last quarter, propelled by rising exports, commercials construction and government spending, Bloomberg said. The 3.4% gain in GDP was the best showing in more than a year. The Advance 2Q PCE Core, the Fed’s favorite gauge of inflation, rose only 1.4%, a meaningful decline from first quarter and the smallest increase in four years, even with oil in the $70s. Fed policy makers, including Bernanke, have said they prefer for the core pce to rise between 1-2%. Business Fixed Investment, which includes spending on commercial construction as well as equipment and software, rose at an 8.1% annual rate versus a 2.1% rate in 1Q. As I forecast back in March, when talk of an imminent recession was all the rage, growth came in above trend this quarter. I suspect growth will average around 3% for the remainder of the year as this quarter comes in slightly below trend and fourth quarter comes in slightly above trend. As well, inflation measures should continue to decelerate meaningfully, thus providing a very positive backdrop for stocks.

Confidence among US consumers rose in July as gasoline prices dropped from record highs and the labor market continued to show strength, Bloomberg said. The final index of confidence rose to 90.4 from 85.3 in June. The current conditions component of the index rose to 104.5 from 101.9 the prior month. The average price of a gallon of regular gas has fallen from $3.23 on May 23 to $2.92/gallon yesterday. I continue to believe both main gauges of consumer sentiment will reach new cycle highs over the intermediate-term as stocks rise further, gas prices fall meaningfully, inflation decelerates further, housing-related fears subside, wages continue to substantially outpace inflation and unemployment remains historically low.

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