Monday Watch

Earnings of Note
Company/Estimate
LOW/.65
TSN/.17

Splits
None of note.

Economic Data
Empire Manufacturing for November estimated at 20.6 versus 17.43 in October.

Weekend Recommendations
Louis Rukeyser's Wall Street had guests that were positive on MMM, ADI, BMET and JOE. Wall St. Week w/Fortune had guests that were positive on PEI and SPG. Forbes on Fox had guests that were positive on ADP, TSN and mixed on BA, HET, CNX, GLW. Cashin' In had guests that were positive on MAR, negative on KMG, MVL and mixed on GPS. Bulls and Bears had guests that were positive on ZLC, FLR, BAB, HD, AMZN, ACF, INTC and mixed on HAL, CX, MSFT, BBBY, SBUX. Barron's had positive columns on FDO, NOK and CLS. Goldman Sachs reiterated Outperform on EBAY, AMD, ATYT, VLTR, MRVL, BBY and Underperform on AMCC, ELX, MMC, ATG. Banc of America upgraded MHS to Buy. Business Week had a positive column on KMRT.

Weekend News
England will limit a smoking ban to restaurants and pubs that serve food, the Financial Times said. Europe will only grow an average of 2% this year and the pace of economic expansion may rise slightly above 2% in 2005, said a board member of the European Central Bank. More than 1,000 insurgents were killed in a six-day joint U.S. and Iraqi assault to take control of the rebel stronghold of Fallujah in western Iraq, Agence France-Presse reported. The U.S. Pentagon is planning to build its own, secure Internet that will give the military real-time access to war intelligence and satellite imagery worldwide, the NY Times reported. Advanced Micro Devices CEO Hector de Jesus Ruiz expects the market for personal computers to expand by 10% in 2005, the San Francisco Chronicle reported. Nicaragua agreed to destroy its entire arsenal of portable antiaircraft missiles, which Pentagon officials say are prized by terrorists, the NY Times reported. U.S. toy retailers, including Toys "R" Us and Wal-Mart have begun dropping prices in a bid to attract more shoppers heading into the holiday season, the Washington Post reported. Schering-Plough has told its 30,500 employees it will resume paying bonuses and end a salary freeze due to its improved financial results, the Star-Ledger reported. Most technology stocks may face a slowdown in consumer and corporate demand for their products next year amid higher interest rates and oil prices, Barron's reported. Saudi Arabia's royal family has warned the U.K. it will not deal with Britain's arms industry again if its members are embarrassed by a fraud inquiry, the Sunday Telegraph reported. Fomento de Construcciones y Contratas, a Spanish builder, won a $31 million 10-year contract from the city of Boston to design and manage bus stops, Spanish newspaper ABC reported. Apple Computer faces competition in Britain to its iPod from a device build by Medion AG that will sell in a U.K. supermarket, the Business newspaper reported. U.S. Senator Harry Reid of Nevada, who is set to become the Democratic leader in the Senate, takes stands on some issues that are closer to Republicans than most members of his own party, the NY Times reported. Venture capital investments in Silicon Valley companies slid 35% in the third quarter compared with the second quarter, the San Jose Mercury News reported today. Palestinian leader Arafat allegedly diverted $2 million a month from gasoline trade in the Palestinian territories, Time magazine reported. Microsoft Chairman Gates wants to dominate the market for digital portable music in which Apple Computer set the standard with the iPod, the NY Times reported. Iran has agreed to a full suspension of uranium enrichment, Agence France-Presse reported. Inco and Phelps Dodge are considering bids for WMC Resources, the Australian Financial Review reported. New Internet-based employment services such as Monster.com may provide better insight into job growth in the U.S. than traditional economic indicators, the NY Times reported. Coca-Cola plans to make China its third-biggest market by 2008, the International Finance News reported. The number of U.S. inmates sentenced to death fell to a 30-year low last year, the AP reported. Global sales of semiconductors will growth 9.6% next year, the Economic Daily reported. China's central bank Governor Xiaochuan said the economy has avoided a hard landing, with monetary indicators returning to normal and growth remaining fast, the China Securities Journal reported. Nearly twice as many companies were subject to shareholder litigation in the third quarter of 2004 than last year, the Financial Times reported. British Prime Minister Blair will use a foreign policy speech to urge Europe to unite with the U.S. under the banner of democracy to defeat global terrorism, the Financial Times said. Dow Jones agreed to buy MarketWatch.com for about $486 million, the NY Times said. California Governor Schwarzenegger and other immigrants should be allowed to run for president, according to tv commercials that will begin airing next week, the LA Times reported. The U.S. and China have the closest relationship in more than 30 years, Secretary of State Colin Powell said. Shipping rates for oil tankers hauling crude from the Middle East to refineries worldwide may rise to records this week because of a lack of vessels for December cargoes, Bloomberg said. De Beers foresees rising prices for diamonds as production falls short of demand, Bloomberg said. China's retail sales rose 14.2% last month at their fastest pace in five months, climbing to a record as rising incomes made cars, cell phones and computers more affordable, Bloomberg reported. Perrigo agreed to buy Israel-based Agis Industries for $818 billion in cash and stock, Bloomberg said. U.S. companies including GM, DuPont and Xerox are cutting carbon dioxide emissions to remain competitive in European countries, Bloomberg reported.

Late-Night Trading
Asian indices are higher, +.25% to +1.50% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.13%.

BOTTOM LINE: I expect U.S. stocks to open modestly higher in the morning on gains in Asia, falling energy prices and short-covering. The Portfolio is 125% net long heading into tomorrow.

Chart of the Week

Bottom Line: The above chart illustrates the magnitude of the stock market collapse that began in early 2000 and ended in 2002. This is one of the many reasons that investors have been "irrationally pessimistic" this year.

Weekly Outlook

There are a number of important economic reports and a few significant corporate earnings reports scheduled for release this week. Economic reports include Empire Manufacturing(Mon.), Producer Price Index(Tues.), Housing Market Index(Tues.), Consumer Price Index(Wed.), Housing Starts(Wed.), Industrial Production(Wed.), Capacity Utilization(Wed.), Leading Indicators(Thur.), Initial Jobless Claims(Thur.) and Philadelphia Fed.(Thur.). The PPI, CPI and Philly Fed all have market-moving potential.

Wal-Mart(WMT-Tue.), Lowe's(LOW-Mon.), Staples(SPLS-Tues.), Home Depot(HD-Thur.), JC Penney(JCP-Tues.), Gap(GPS-Wed.), Medtronic(MDT-Wed.), Walt Disney(DIS-Thur.), Hewlett Packard(HPQ-Fri.) and Applied Materials(AMAT-Wed.) are some of the more important companies that release quarterly earnings this week. There are also some other events that have market-moving potential. The Merrill Lynch Financial Services Conference(Mon.), Fed's Santomero speaking(Tues.), Fed's Moskow speaking(Tues.), CSFB Healthcare Conference(Wed.), UBS Communications Conference(Wed.), SEMI Book-to-Bill(Thur.) and Fed's Greenspan speaking(Fri.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week higher on strong economic reports, declining energy prices, short-covering, bargain-hunting and improvements in Iraq. New inflows into equity funds should also help boost shares. I expect long-term interest rates to move modestly higher this week as the CPI/PPI exceed estimates and investors anticipate stronger economic growth. Any pullback over the next few weeks will be mild as investors who missed the rally jump in, shorts cover to protect gains and new money is put to work on the long side. My short-term trading indicators are giving Buy signals and the Portfolio is 125% net long heading into the week.

Market Week in Review

S&P 500 1,184.17 +1.5%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: Market action last week continued to impress as the advance/decline line rose further and volume remained healthy. All the major U.S. indices have broken up through their downtrend lines that were in place since the beginning of the year. The S&P 500 is at a new high for the year and the Russell 2000 is at an ALL-TIME high. Moreover, many different sectors are showing leadership. It is also a big positive that long-term interest rates are remaining low even with a declining dollar, falling energy prices and rising stock market. Finally, the strong demand for IPOs is a very positive sign for the market and economy. I would like to see the AAII % Bulls fall from currently elevated levels.

Economic Week in Review

ECRI Weekly Leading Index 132.30 +.23%

Wholesale Inventories for September rose .5% versus estimates of a .7% increase and a 1.1% gain in August. Wholesalers had enough supplies to last 1.15 months at the sales rate for September, the same as in the prior three months and close to the all-time low of 1.12 in April. "The general expectation among a lot of customers is that inventory levels are much stronger and there's no need to place orders as far in advance, and that may lead to shortages later," said David Bowers, president of the semiconductor business at Nu Horizons Electronic.

The Import Price Index for October rose 1.5% versus estimates of a 1.0% increase and a .5% gain in September. The Commerce Department reported separately that the U.S. trade gap unexpectedly narrowed in September to $51.6 billion as oil imports fell and exports of U.S. goods and services rose to a record, Bloomberg said. Excluding oil, the prices of imported goods showed the biggest drop since August 2003, Bloomberg reported. "It's very challenging, the way it is now, for businesses to raise prices," said Wesley Beal, an economist at financial research firm IDEAglobal.

Initial Jobless Claims for last week were 333K versus estimates of 337K and 331K the prior week. Continuing Claims were 2813K versus estimates of 2800K and 2794K prior. The four-week moving average of claims, a less-volatile indicator, dropped to the lowest level since July, Bloomberg said. With productivity slowing in the third quarter, hiring accelerated last month, suggesting stronger demand will lead to more jobs, Bloomberg reported. "Growth has been very strong and you've probably seen as much productivity gains as you are going to," said Gary Bigg, an economist at Banc of America. "From now on, you are going to have to hire employees to increase your output."

Federal Reserve policy makers raised the benchmark U.S. interest rate for a fourth straight time and restated a plan to carry out further increases at a "measured" pace. The FOMC raised the overnight bank lending rate by a quarter of a point to 2%, saying the labor market improved and the economy is showing "moderate" growth even amid higher oil prices, Bloomberg said. "This shows they're satisfied at the moment that the economy is growing nicely and that inflation is under very good control," said Lyle E. Gramley, former Fed governor and now an adviser at Washington Research Group.

Advance Retail Sales for October rose .2% versus estimates of a .1% increase and a 1.6% rise in September. Retail Sales Less Autos for October rose .9% versus estimates of a .6% increase and a .8% rise in September. "It's a very positive sign for the holiday season," said Tim McGee, chief economist at U.S. Trust Corp. "With job growth picking up and wage and salary gains accelerating, all the pieces are in place for the consumer to keep spending." Spending at clothing and accessory stores jumped 3%, the biggest increase in two years, Bloomberg reported.

The preliminary Univ. of Mich. Consumer Confidence reading for November was 95.5 versus estimates of 93.1 and a reading of 91.7 in October. U.S. consumer confidence rose in early November as President Bush won undisputed re-election, stocks climbed, energy prices fell and job creation surged, Bloomberg reported. The University's current conditions index, which reflects Americans' perception of their finances and whether it's a good time to buy big-ticket items, rose to 106.2 from 104 in October. The expectations index, based on optimism about the next one to five years, rose to 88.7 from 83.8 last month, Bloomberg said.

Business Inventories for September rose .1% versus estimates of a .5% gain and a .7% increase in August. "What we see is very , very little inventory build at our customers, very little build within our own company and our industry, and significant accumulation of inventory at our suppliers," said Roy Vallee, CEO of Avnet. The overall increase in sales at U.S. retailers, wholesalers and manufacturers in September brought the level to $956.8 billion. The inventory-to-sales ratio held at 1.32 months, Bloomberg reported.

Bottom Line: Overall, last week's economic data were positive. Inventories, while falling recently, will likely increase over the next few months as companies anticipate rising demand. This will also help boost U.S. GDP growth. Measures of inflation for October will show a temporary acceleration in inflation, however the recent fall in energy prices bodes well for inflation readings in the intermediate-term. Job creation is accelerating to more typical levels as productivity falls, confidence improves and demand strengthens. The Fed raised rates 25 basis points, as expected, and will likely hike rates another 25 basis points in December as economic growth accelerates and job creation improves. Retail sales should be surprisingly strong during the holiday season as the U.S. consumer is in better shape than is commonly perceived. Furthermore, consumer sentiment is already improving as a result of the election and declining energy prices. Consumer Confidence should reach new highs for this cycle over the next couple of months on improving job prospects, a further decline in energy prices, a rising stock market, less negative political/media rhetoric, improvements in the big picture in Iraq and decelerating inflation readings.

Weekly Scoreboard*

Indices
S&P 500 1,184.17 +1.5%
Dow 10,539.01 +1.5%
NASDAQ 2,085.34 +2.3%
Russell 2000 621.98 +2.9%
S&P Equity Long/Short Index 991.06 +1.0%
Put/Call .75 +7.1%
NYSE Arms .83 +7.8%
Volatility(VIX) 13.33 -4.6%
AAII % Bulls 62.50 +9.4%
US Dollar 83.78 -.1%
CRB 283.29 -.1%

Futures Spot Prices
Gold 438.30 +.9%
Crude Oil 47.32 -4.5%
Unleaded Gasoline 125.69 -2.3%
Natural Gas 7.18 -9.7%
Heating Oil 136.36 -1.0%
Base Metals 118.30 +.8%
10-year US Treasury Yield 4.18% +.1%
Average 30-year Mortgage Rate 5.8% +1.0%

Leading Sectors
Iron/Steel +7.4%
Homebuilders +6.2%
HMOs +5.5%

Lagging Sectors
Insurance +.65%
Energy +.35%
Drugs -.39%

*% Gain or loss for the week