ISM Manufacturing Still Showing Expansion, Prices Paid Falls

- ISM Manufacturing for September fell to 52.0 versus estimates of 52.6 and 52.9 in August.

- ISM Prices Paid for September fell to 59.0 versus estimates of 62.0 and a reading of 63.0 in August.

BOTTOM LINE: Manufacturing in the US grew in September, Bloomberg reported. Stronger growth overseas and a weaker dollar have propelled exports, providing a source of strength that is boosting manufacturing. The New Orders component of the index fell to 53.4 from 55.3 the prior month. The Prices Paid component fell to 59 from 63 the prior month. The Unfilled Orders component rose to 51 from 50.5 the prior month. The Inventory component fell to 41.6 from 45.4 the prior month. The Employment Component of the index rose to 51.7 from 51.3 the prior month. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories.

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Monday Watch

Weekend Headlines
Bloomberg:
- US stocks rose this week to complete the steepest September advance since 1998 as the Fed’s interest-rate cut helped energy and raw-material companies lead the market’s recovery from a summer rout.
- China Investment Corp., the nation’s $200 billion sovereign wealth fund, starts operations today as the government seeks to boost returns on the world’s biggest foreign-exchange reserves.
- US high-yield bonds posted the best returns in four years this month after the Fed’s interest rate cut enticed investors back to the riskiest debt.
- US Treasuries capped their biggest quarterly rally in five years as the inflation gauge preferred by Fed policy makers showed consumer prices rose at the slowest pace in more than three years during August.
- The euro’s record-setting rally may not extend through the end of October, according to analysts who rely on market patterns for their predictions.
- Garry Kasparov, the ex-world chess champion turned politician, will run in Russia’s March 2008 presidential election as the candidate for The Other Russia, a coalition opposed to President Vladimir Putin.
- Sentiment among Japan’s largest manufacturers unexpectedly held near a two-year high last quarter as exports expanded even as US economic growth cools.

NY Times:
- China Toys a Boon to Lead-Testing Companies.
- At first blush, the iPhone from Apple(AAPL), the new microprocessor family from Intel(INTC) and the ubiquitous Google(GOOG) search engine have nothing in common. Yet all of these products depend on obscure process innovations that, while highly complex and lacking glamour, are an essential part of establishing a winning edge in commercial electronics.

CNBC.com:
- Cramer is still confident that the Dow Jones will reach his year-end target of 14,548. Eight stocks in particular, he said, should get the index there.

MarketWatch.com:
- EMC: more than just the VMware parent. Diversification has been a boon to storage-technology giant.
- Boeing Co.(BA) took the lead over Airbus in commercial airplane orders in the third quarter, according to an early tally, as both aircraft makers kept drumming up business from fast-growing Asian markets and got some late-period purchase from venerable European carriers.

Barron’s:
- London’s $2.27 billion RAB Special Situations was the top-performing hedge fund during the past three years, with a 47.7% cumulative return.
- The Dow Jones has climbed in the fourth quarter for nine consecutive years, and in 24 of the past 27 years. The S&P 500 has produced fourth-quarter rallies in 13 of the past 15 years and racked up an average 6.3% haul, according to researchers at Bespoke Investment Group.

BusinessWeek.com:
- A group of Midwest utilities is building a plant that will store excess wind power underground.

TheStreet.com:
- Coming Week: Bond Binge.

CNNMoney.com:
- 5 Ways to Slash Your Energy Bill.
- 4 Must Have Gadgets.
- 5 Blinged-out Tech Toys.

Newsweek:
- The search for renewable-energy sources is making clean-tech jobs hot.

Crain’s Chicago Business:
- Exelon Corp.(EXE) CEO John Rowe said the utility operator is interested in mergers and acquisitions.
- McDonald’s Corp.(MCD) forecasts its expanded offering of drinks will boost sales by more than $1 billion annually.

Crain’s NY Business:
- Morgan Stanley(MS) Co-President Zoe Cruz and Avon Products(AVP) Chairman and CEO Andrea Jung are among the 25 most powerful women in NY businesses.

USA Today:
- Returns from large-capitalization growth funds far outpaced those of other diversified equity funds in the July-September period as investors sought the safety and growth potential of big companies following the return of volatility and the stock market’s pullback from its mid-July highs.
- Advertisers who wanted to know more about radio listeners are finally getting an electronic audience measurement system that’s not only delivering more accurate results but also shaking up the broadcasting business.

Washington Post:
- In their debate Wednesday night in Hanover, NH, none of the three top Democratic presidential candidates would promise to have the US military out of Iraq by January 2013 – more than five years from now.

AP:
- Former Republican House Speaker Newt Gringrich won’t run for president in 2008 because exploring a bid would clash with his role as the head of a tax-exempt group.
- Iraq is seeking to replace a UN Security Council mandate for the US-led force in their country with a long-term security agreement, citing Foreign Ministry officials. Iraq wants to establish a bilateral agreement similar to ones the US has with Saudi Arabia, Kuwait, the UAE, Bahrain, Qatar and Egypt.

Financial Times:
- FT.com, the internet arm of the Financial Times, will on Monday announce an innovative charging system and a major expansion of the site, fueling debate about newspapers’ online business models.
- The UAW union could become General Motors’ biggest shareholder under a deal to transfer the carmaker’s healthcare obligations to a huge union-managed trust.

Times:
- Goldman makes $370 million after saving its black box hedge fund.

Sunday Telegraph:
- The UK Treasury has given the go-ahead to JC Flowers & Co. and Cerberus Capital to proceed with their bids for Northern Rock Plc.

Commercial Times:
- Taiwan Semiconductor Manufacturing’s chip shipments in the fourth quarter will rise between 7% and 10% from the third quarter. Taiwan Semi received orders to make more chips fro clients such as Qualcomm Inc.(QCOM), Nvidia Corp.(NVDA), and Broadcom(BRCM).

Tehran Emrooz:
- Iran plans to build hotels for women only in each of the 30 provinces of the Islamic Republic, citing deputy head of Iran’s cultural heritage and tourism organization, Mohammad Sharif Malekzadeh. Women are now required to explain the reason for their hotel trips to a specialized unit of the of the local police station and get official permission prior to booking a room.

Weekend Recommendations
Barron's:
- Made positive comments on (BWA), (AMR) and (NDSN).

Citigroup:
- West Texas Intermediate crude rebounded from a mid-week breach below $80 to finish the week at $81.77. However, support from financial speculators and refining margins has declined, leaving our model delta about $6. Against a backdrop of deteriorating storm concerns, downside risk to oil prices looks like a reality. Open interest fell 1%, almost entirely on higher non-commercial short positions. This follows the 6% decline that accompanied the 9/20 contract expiration and contrasts with the post expiration rebound seen typically in recent months. Our technical team remains cautious, targeting support around $74/bbl.

Night Trading
Asian indices are +.25% to +.75% on average.
S&P 500 futures +.06%.
NASDAQ 100 futures -.07%

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Earnings of Note
Company/Estimate
- (WAG)/.47
- (PALM)/.08

Upcoming Splits
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Economic Releases
10:00 am EST
- ISM Manufacturing for September is estimated to fall to 52.5 versus 52.9 in August.
- ISM Prices Paid for September is estimated to fall to 62.3 versus 63.0 in August.

Other Potential Market Movers
- The Jeffries Technology Conference could also impact trading today.

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

Weekly Outlook

Click here for a weekly preview by MarketWatch.com.

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

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

Economic reports for the week include:

Mon. – ISM Manufacturing, ISM Prices Paid

Tues. – Pending Home Sales, Total Vehicle Sales, weekly retail sales

Wed. – Weekly MBA Mortgage Applications report, weekly EIA energy inventory report, Challenger Job Cuts, ADP Employment Change, ISM Non-Manufacturing

Thur. – Initial Jobless Claims, Factory Orders

Fri. – Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, Consumer Credit

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

Mon. – Walgreen(WAG), Palm Inc.(PALM)

Tues. – Pepsi Bottling(PBG), Micron Tech(MU)

Wed. – Wolverine Worldwide(WWW), Immucor Inc.(BLUD), Arrow Intl.(ARRO), Gerber Scientific(GRB), IDT Corp.(IDT)

Thur. – Constellation Brands(STZ), Marriott Intl.(MAR), Acuity Brands(AYI), Family Dollar(FDO), Research In Motion(RIMM), Solectron(SLR)

Fri. – None of note

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

Mon. – Jeffries Technology Conference

Tue. – Citigroup Ethanol Conference, CIBC Industrials Conference, (IRM) analyst meeting, (KSS) investor day, (CIEN) analyst day, Deutsche Bank Leveraged Finance Conference, Jeffries Technology Conference

Wed. – Deutsche Bank Leveraged Finance Conference, William Blair Small-cap Growth Conference, CIBC Industrials Conference, BOE Policy Meeting, (CBRL) analyst meeting, (NSM) analyst meeting, (RENT) analyst presentation

Thur. – Fed’s Mishkin speaking, Fed’s Fisher speaking, ThinkEquity Healthcare Forum, (FLO) analyst meeting, Deutsche Bank Leveraged Finance Conference, BOE Policy Meeting, ECB Policy Meeting, (PRX) analyst meeting, (AEP) analyst meeting, (NSTK) analyst meeting

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on less economic pessimism, diminishing credit market fears, lower energy prices, investment manager performance anxiety, a stronger US dollar and short-covering. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

S&P 500 1,526.75 +.07%*

Click here for the Weekly Wrap by Briefing.com.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,526.75 +.07%
DJIA 13,895.63 +.55%
NASDAQ 2,701.50 +1.13%
Russell 2000 805.45 -.94%
Wilshire 5000 15,317.90 +.11%
Russell 1000 Growth 618.52 +.71%
Russell 1000 Value 851.0 -.34%
Morgan Stanley Consumer 747.03 +.81%
Morgan Stanley Cyclical 1,061.49 +.55%
Morgan Stanley Technology 667.98 +1.63%
Transports 4,836.32 +.19%
Utilities 501.54 -1.32%
MSCI Emerging Markets 149.47 +3.37%

Sentiment/Internals
NYSE Cumulative A/D Line 69,560 +2.01%
Bloomberg New Highs-Lows Index +250 +70.0%
Bloomberg Crude Oil % Bulls 16.0 -27.3%
CFTC Oil Large Speculative Longs 243,458 +2.2%
Total Put/Call 1.09 +26.7%
NYSE Arms 1.24 +49.4%
Volatility(VIX) 18.0 -5.26%
ISE Sentiment 110.0 -32.1%
AAII % Bulls 49.4 +25.8%
AAII % Bears 34.2 +8.0%

Futures Spot Prices
Crude Oil 81.62 -.01%
Reformulated Gasoline 204.25 -2.1%
Natural Gas 6.88 -1.38%
Heating Oil 222.55 -2.06%
Gold 749.70 +1.49%
Base Metals 250.74 +1.31%
Copper 363.05 +1.29%

Economy
10-year US Treasury Yield 4.58% -4 basis points
4-Wk MA of Jobless Claims 311,500 -3.1%
Average 30-year Mortgage Rate 6.42% +8 basis points
Weekly Mortgage Applications 654.20 -2.82%
Weekly Retail Sales +2.2%
Nationwide Gas $2.80/gallon unch.
US Cooling Demand Next 7 Days 15.0% above normal
ECRI Weekly Leading Economic Index 141.10 +.28%
US Dollar Index 77.75 -1.12%
CRB Index 333.67 +.16%

Best Performing Style
Mid-cap Growth +.72%

Worst Performing Style
Small-cap Value -1.75%

Leading Sectors
Steel +4.62%
Wireless +2.70%
Networking +2.56%
Defense +2.39%
Computer Hardware +2.23%

Lagging Sectors
Banks -2.29%
Oil Tankers -2.47%
Airlines -3.52%
Homebuilders -4.84%
Foods -5.5%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change