Today's Headlines

Bloomberg:
- The decline in the US commercial paper market slowed last week, after the Fed cut rates.
- General Electric(GE) CEO Immelt said the global economy will weather a US housing recession and a tightening of the credit markets, and will record growth in 2008 and 2009.
- Crude oil is rising for a second day in NY after supplies at the delivery point for the US benchmark grade fell and speculators raised bets on a dollar decline.
- Democratic presidential candidates, already criticized by Republicans for moving too far toward a government-run health system, are being urged by advocacy groups and lawmakers to go the rest of the way. With backing from labor unions, 83 Democrats in the US House are sponsoring a measure to create a national health plan, abolish private insurers, make all hospitals nonprofit and redeploy 500,000 insurance workers, supporters said today.

Wall Street Journal:
- The Bush administration will announce a series of administrative moves to reduce air-traffic congestion and flight cancellations, particularly in the heavily clogged Northeast.
- Two new groups of bidders have emerged as Wendy’s Intl.(WEN) prepares to move into the second round of its sale process.

The Street.com:
- AT&T(T) is offering $55 a share to purchase satellite-tv provider EchoStar Communications(DISH). EchoStar is holding out for $65 per share, according to TheStreet.com.

Reuters:
- Intel Corp.(INTC) Chairman said the microchip maker is regaining market share against AMD(AMD) and its performance is looking “pretty good.”

2Q GDP Healthy, Inflation Below-Average, Initial Jobless Claims Fall, New Home Sale Decline

- Final 2Q GDP rose 3.8% versus estimates of a 3.8% gain and a prior estimate of a 4.0% increase.

- Final 2Q Personal Consumption rose 1.4% versus estimates of a 1.4% increase and a prior estimate of a 1.4% gain.

- Final 2Q GDP Price Index rose 2.6% versus estimates of a 2.7% gain and a prior estimate of a 2.7% gain.

- Final 2Q PCE Core rose 1.4% versus estimates of a 1.3% gain and prior estimates of a 1.3% increase.

- Initial Jobless Claims fell to 298K versus estimates of 316K and 313K the prior week.

- Continuing Claims rose to 2551K versus estimates of 2550K and 2540K prior.

- New Home Sales for August fell to 795K versus estimates of 825K and 867K in July.

BOTTOM LINE: The US economy grew in the second quarter at the fastest pace in more than a year, Bloomberg reported. The Fed’s preferred inflation gauge, the core pce, rose at a 1.4% annual rate in the second quarter and was up 2% year-over-year. Americans’ wages are rising at just about twice this rate. The smaller trade deficit during 2Q added 1.3 percentage points to growth, the most since 1996. Residential home construction fell at a 12% annual pace last quarter and subtracted .6 percentage points from growth. However, non-residential construction jumped 26% last quarter, the most since 1981. I continue to believe US economic growth will come in modestly below trend this quarter and next, rising around 2-2.5%. Lower inflation, booming exports, inventory rebuilding and a resilient consumer should continue to more than offset the drag from housing.

The number of US workers filing first-time claims for unemployment benefits unexpectedly fell to a four-month low, Bloomberg said. The four-week moving-average of claims dropped 3.1% to 311,500 from 321,250. “Labor market conditions overall are not deteriorating and remain pretty steady,” said Julia Coronado, senior US economist at Barclays Capital. The unemployment rate among those eligible to collect jobless benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating significant unit labor cost increases.

Sales of new homes in the US dropped more than forecast in August as the credit turmoil peaked, Bloomberg reported. The inventory of unsold homes rose to 8.2 months’ worth at the current sales pace. Sales fell 21% in the West and 15% in the South. However, sales soared 42% in the Northeast and jumped 21% in the Midwest. I still think home sales are in the process of stabilizing at lower, but relatively high by historic standards, levels. I expect home sales to bounce back a bit over the next couple of months. Home construction will remain weak over the intermediate-term as homebuilders pare down inventories.

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Thursday Watch

Late-Night Headlines
Bloomberg:
- The Doris Duke Charitable Foundation pledged $100 million in grants to help health-care providers in African countries. The NY-based foundation plans to award three to six multiyear grants of $8 million to $20 million starting in early 2009.
- China’s economic growth may slow in the fourth quarter, economists from the State Information Center said, citing a moderation in power generation, steel output and government revenue.
- South Korean consumers became the most optimistic in five years in the third quarter, indicating shoppers may step up spending and spur economic growth.
- China and Russia blocked US and European efforts in the UN Security Council to condemn Myanmar’s military-run government for its crackdown on protesters.

MarketWatch.com:
- Robert Powell: Meet one guru who is “wildly optimistic” about boomer retirement.
- Housing inventory peak?(video)
- Monsanto(MON) expects to triple its international acreage.
- Dell(DELL) sells idea of green technology. Computer guru touts conservation, innovation.
- Ahead of the (yield) curve. Post-Fed curve much steeper, a good sign for the economy.
- A smirking Ahmadinejad suckers the US media.

NY Times:
- Bear Stearns(BSC), its shares and reputation beaten down after the collapse of two hedge funds, has held talks with several investors, including Warren E. Buffett, concerning a possible sale of as much as 20% of the firm, people briefed on the discussions said yesterday.

USA Today.com:
- Medicare’s new policy strains small firms.
- More Chinese-made jewelry and toys recalled.

Financial Times:
- Microsoft(MSFT) said on Wednesday that its Halo 3 video game had lived up to its expectations of being “the biggest entertainment launch in history”, with $170 million in sales recorded in the US alone on the first day of sales.

Reuters:
- The SEC is conducting more than 30 investigations into potential hedge fund manager misconduct in the northeast US alone, with more in other parts of the country, officials said on Wednesday.
- US home goods retailer Bed Bath & Beyond(BBBY) posted a slightly higher quarterly profit on Wednesday on increased sales and a one-time tax benefit and said its board of directors approved a $1 billion share buyback program.
- Paychex Inc.(PAYX), a payroll services company, said on Wednesday that quarterly earnings rose 12%, as it added customers, its check volume grew and it raised prices.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BBY), target $55.
- We lowered our September same-store-sales estimates for (FDO), (JCP), (KSS), (M) and (TGT) based on unfavorable weather conditions as well as higher gas prices, which likely dampened and weighed on retail spending at the Broadlines retailers in September. Week 1 of this month ranked at the warmest Labor Day week in at least 15 years and Week 3 ranked as the 3^rd warmest in 15 years, while September 2006 was the coolest in several years and the wettest in over a decade, making for difficult compares.

Night Trading
Asian Indices are +.75% to +2.0% on average.
S&P 500 futures +.13%.
NASDAQ 100 futures +.20%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (CHTT)/.74
- (KBH)/-.74
- (MKC)/.43
- (MTN)/-.89
- (ACN)/.48
- (BE)/.05
- (PLL)/.55
- (TXI)/.89
- (CBK)/.11
- (JBL)/.28
- (CTAS)/.53
- (FINL)/.13
- (FMCN)/.35
- (GPN)/.51

Upcoming Splits
- (FCSX) 3-for-2
- (LPHI) 5-for-4
- (NOV) 2-for-1

Economic Releases
8:30 am EST
- Final 2Q GDP is estimated to rise 3.8% versus prior estimates of a 4.0% gain.
- Final 2Q Personal Consumption is estimated to rise 1.4% versus a prior estimate of a 1.4% increase.
- Final 2Q GDP Price Index is estimated to rise 2.7% versus a 2.7% prior estimate.
- Final 2Q PCE Core is estimated to rise 1.3% versus a prior estimate of a 1.3% gain.
- Initial Jobless Claims for last week are estimated to rise to 316K versus 311K the prior week.
- Continuing Claims are estimated to rise to 2550K versus 2544K prior.

10:00 am EST
- New Home Sales for August are estimated to fall to 825K versus 870K in July.

Other Potential Market Movers
- The Fed’s Rosengren speaking, Fed’s Evans speaking, Fed’s Mishkin speaking, weekly EIA natural gas inventory report, Help Wanted Index, (INTU) investor day, (FCS) analyst meeting, CSFB Chemical Conference and UBS Global Life Sciences Conference could also impact trading today.

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

Stocks Finish Higher, Propeled by Gains in the Financial Sector

Indices
S&P 500 1,525.42 +.54%
DJIA 13,878.15 +.72%
NASDAQ 2,699.03 +.58%
Russell 2000 809.12 +.76%
Wilshire 5000 15,269.52 +.56%
Russell 1000 Growth 616.77 +.52%
Russell 1000 Value 850.47 +.60%
Morgan Stanley Consumer 744.88 +.90%
Morgan Stanley Cyclical 1,055.17 +1.02%
Morgan Stanley Technology 664.29 +.12%
Transports 4,834.12 +.57%
Utilities 512.04 +.67%
MSCI Emerging Markets 147.30 +.87%

Sentiment/Internals
Total Put/Call .85 -26.09%
NYSE Arms .81 -15.56%
Volatility(VIX) 17.63 -5.22%
ISE Sentiment 134.0 -11.84%

Futures Spot Prices
Crude Oil 80.50 +1.22%
Reformulated Gasoline 202.46 -.65%
Natural Gas 6.42 +.99%
Heating Oil 218.25 +.06%
Gold 735.70 -.42%
Base Metals 251.59 +1.79%
Copper 361.90 -.28%

Economy
10-year US Treasury Yield 4.62% unch.
US Dollar 78.52 +.27%
CRB Index 331.92 +.07%

Leading Sectors
I-Banks +2.13%
Biotech +1.36%
Restaurants +1.30%

Lagging Sectors
Oil Tankers -1.19%
Gold -1.61%
Homebuilders -2.42%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US stocks rallied the most in a week after GM(GM) agreed on a contract with the UAW and investors speculation billionaire Warren Buffett will buy a stake in Bear Stearns(BSC).
- US Treasury Secretary Henry Paulson called on Congress to pass legislation that would permanently bar taxes on Internet access services.

NY Times:
- Buffett, Others Said to Consider Bear Stearns Stake.

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was around average. Measures of investor anxiety were around average into the close. Today's overall market action was bullish. Semis, homebuilders and oil service didn't participate, however, airlines, restaurants, retail, biotech, investment banks, wireless, steel and alternative energy all posted 1%+ gains. Under Armour (UA) fell over 6% today on a downgrade from UBS. Their rationale basically revolved around unusually warm weather this month. I will use any further meaningful weakness in the shares to add to my long position. Cyclicals outperformed today, rising 1.02%, even as many pointed to the durable goods report as evidence of economic weakness. I expect durable goods orders to bounce back next month. Growth stock leaders underperformed today, which isn't surprising given recent outsized gains. Investors Intelligence showed an increase in bullishness today, however, as I have posted many times before, I don't believe this sentiment indicator has a very good track record as a contrary indicator. I look at dozens of gauges of investor sentiment. I usually highlight the AAII numbers because they are a much better contrary indicator, in my opinion. I still argue that overall investor sentiment toward U.S. stocks has never been this bad in history with the S&P 500 just off a record high, which bodes very well for an extension of the huge gains we have seen since the bottom in 2002.We could get some early morning weakness tomorrow on more weak housing data and profit-taking, however I still believe pullbacks will remain muted and short-term in nature.

Stocks Surging into Final Hour as Tech Sector Index Approaches 7-year High and Financials Jump

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, sector performance is positive and volume is about average. The I-bankers are jumping 3% on news that Warren Buffett may take a stake in Bear Stearns(BSC). Google (GOOG) and Apple (AAPL) opened weaker, but I wouldn't read too much into that considering their recent explosion higher and relatively low correlation with the S&P 500. Google is now 23% higher and Apple 79% higher year-to-date. These two remain my largest long positions, just ahead of Intuitive Surgical (ISRG), which is 140% higher for the year. I remain very long-term bullish on all three. AppleInsider is reporting today that Apple (AAPL) may release a new PDA device by the middle of next year. Apple is selling off slightly today after its recent strong run. I think it still isn't too late for longer-term investors to build positions in Apple on pullbacks. As with Google (GOOG), I think the stock can grow at a relatively high rate for much longer than many investors expect. I think the stock also will see multiple expansion as it continues to beat estimates, growth-stock outperformance continues and interest rates remain low. The Morgan Stanley Tech Index is making a 52-week high today. It is now at the highest level since February 2001. It is up 17.8% for the year and 25.3% higher over the last 12 months. This is a huge story that is mostly ignored in favor of 24/7 coverage of the "housing depression." I think that the fundamentals and technicals are in place for tech's outperformance to continue over the intermediate term. The NYSE Arms has been above average most of the day, despite gains in the major averages, which is a positive. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, strength in the financial sector and investment manager performance anxiety.