Morning Buy/Sell Recommendations

Goldman Sachs:
- Reiterated Outperform on DDR, UDR, DHR, GE, DIS and GGP.

Smith Barney:
- Upgraded AIG to Buy, target $65.
- Reiterated Buy on AA, target $42.
- Downgraded Energy sector to Market Weight given unattractive valuation, extended EPS revision trends, underperformance during market rallies and massive shift in investor sentiment to near extreme levels.
- Downgraded Household & Personal industry group to Underweight due to valuation, high EPS revision trends & low beta.
- Added SCH and DJ to Recommended List.
- Reiterated Underweight on Capital Goods and Materials sectors.
- Reiterated Buy on WMT, target $65.

Morgan Stanley:
- Raised AIG to Overweight, target $59.

Merrill Lynch:
- Raised USM to Buy, target $65.
- Raised SRA to Buy.
- Downgraded ELN to Sell.

CIBC:
- Rated ALDN Sector Outperform, target $28.

Banc of America:
- Rated GNW Buy, target $36.

Lehman Brothers:
- Reiterated Overweight on KSS, target 60.

Raymond James:
- Reiterated Strong Buy on THE, target $42.

Bear Stearns:
- Rated NUCO Outperform, target $31.

JP Morgan:
- Rated BIVN Overweight.
- Added AT to Focus List, target $79.
- Raised SNN to Overweight.
- Lowered NTIQ to Underweight.

Thomas Weisel:
- Reiterated Outperform on LCRY, target $24.

Monday Watch

Weekend Headlines
Bloomberg:
- Pope John Paul II, leader of the world's Roman Catholics for more than a quarter-century, died at the age of 84.
- OPEC will resume talks in the next seven days on boosting its oil-output quota by 500,000 barrels a day in May and will add another half million barrels to the quota in the third quarter.
- Wal-Mart Stores said March sales at US stores open at least year climbed about 4.2%, the biggest gain in 10 months, led by rising grocery purchases.
- French opposition to the European Union's new constitution increased again in the past week as voters become dissatisfied with the government's failure to create jobs. The unemployment rate in France recently reached 10.1%, almost double that of the US.
- Bank of China, the nation's second-biggest lender, said a Beijing loan manager was arrested in connection with a $77 million property-loan fraud, the latest in a series of scandals pointing to lax controls in the financial-services industry.
- US Treasury notes may extend their biggest weekly gain since August on speculation a slowdown in jobs growth will keep inflation in check.
- Oil prices, which gained on average the past seven quarters, may fall in the three months ending in June as US inventories rise and China's demand growth slows, a Bloomberg survey showed.

Wall Street Journal:
- The European Commission will consider emergency restrictions on Chinese imports amid a rise in Chinese textile exports.

Financial Times:
- The European Union's financial services commissioner, Charlie McCreevy, said the US should drop rules requiring foreign companies listed in New York to report under US as well as international standards.

NY Times:
- A group of Sunni Arab imams and religious scholars issued a statement yesterday urging fellow Sunni Arabs to join Iraq's army and police to help safeguard the nation.
- Drugmakers, including France's Sanofi-Aventis SA, are seeking to develop medications targeting obesity, a market that now represents $100 billion, or 5% of overall US health-care costs.
- Wal-Mart Stores will face criticism of its business practices from a coalition of about 50 labor, environmental and other groups in the first coordinated campaign against the world's largest retailer.
- Investors in AIG Inc. may face more shocks because of holdings the insurer's subsidiaries have in the parent company and each other.
- Budget airlines such as JetBlue Airways and Southwest Airlines are now focusing on transcontinental flights, driving down prices and turning them into a "big air-fare flea market."

LA Times:
- Lions Gate Entertainment Corp., a Canadian company whose films include "Fahrenheit 9/11" and "The Blair Witch Project," is considering a bid for Hit Entertainment Plc.

San Diego Union-Tribune:
- California Insurance Commissioner John Garamendi will hold hearings tomorrow in LA to investigate potential fraud among title insurers.

Seattle Times:
- Ports along the US West Coast are hiring dockworkers as container traffic from China increases.

Sunday Telegraph:
- Elan Corp. plans to cut costs by more than half to ensure the company's survival after new evidence last week linked its Tysabri multiple sclerosis drug to a usually fatal nerve disorder.

Sunday Times:
- Fortune Brands Inc. has hired CSFB to target acquisitions in the European drinks market.

Independent on Sunday:
- HSBC Holdings Plc, Europe's biggest bank by market value, is considering a $75 billion bid for Morgan Stanley.

London-based Times:
- Morgan Stanley's Zoe Cruz and Stephen Crawford may ask the securities firm's management to sign a letter of support for CEO Phil Purcell.

AFP:
- Syria will withdraw the last of its troops from Lebanon by the end of this month, complying with UN Security Council Resolution 1559.

Beijing News:
- Gome Electrical Appliances Holdings Ltd. will offer discounts on $232 million worth of flat-panel televisions, driving prices lower by 30%.

Beijing Antaike Information:
- Chinese copper smelters may raise their processing and refining fees again because of increasing supply of the raw material and higher copper prices.

Australian Financial Review:
- BHP Billiton is seeking to increase its iron ore prices by at least 100%.

Middle East Economic Digest:
- Saudi Arabia plans to tender out contracts to boost output at three offshore oilfields by 50% as it seeks to increase capacity to meet rising world demand.

Weekend Recommendations
Barron's:
- Had positive comments on RHHBY, PPP, UCL, TOT, STOSY, IRF, NFX, BRK/A and negative comments on MAXE, AMZN, MBI.

Goldman Sachs:
- Reiterated Outperform on WLP, MDT, TAP, KO, DIS, DELL, IBM, EMC and AET.
- Reiterated Attractive view of Metals sector, favorites are N, RIO, ABX, AL and FCX.

Night Trading
Asian indices are mostly lower, -.50% to unch. on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.14%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
CNBC Guest Schedule

Earnings of Note
Company/Estimate
None of note

Splits
FWRD 3-for-2
TIN 2-for-1

Economic Releases
None of note

BOTTOM LINE: Asian Indices are mostly lower on continuing worries that higher energy prices will further crimp growth in the region. I expect US stocks to open modestly lower in the morning as worries over higher energy prices and slowing global growth more than offset merger speculation. The Portfolio is Market Neutral heading into the week.

Weekly Outlook

There are a small number of important economic reports and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - None of note
Tues. - None of note
Wed. - None of note
Thur. - Initial Jobless Claims, Wholesale Inventories, Consumer Credit
Fri. - None of note

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

Mon. - Circuit City(CC)
Tues. - None of note
Wed. - Alcoa(AA), Bed Bath & Beyond(BBBY), Immucor(BLUD), Monsanto(MON)
Thur. - Accenture(ACN), Constellation Brands(STZ), Pier 1 Imorts(PIR)
Fri. - None of note

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

Mon. – CIBC Biotech & Specialty Pharmaceuticals Conference, Howard Weil Annual Energy Conference
Tue. – CIBC Biotech & Specialty Pharmaceuticals Conference, Howard Weil Annual Energy Conference
Wed. – DELL Analyst Meeting, Fed's Greenspan testifies on Government Sponsored Enterprises
Thur. – DELL Analyst Meeting, NOK Annual General Meeting, Fed's Santomero speaks on Monetary Policy
Fri. – Fed's Greenspan speaks at Consumer Affairs Conference

BOTTOM LINE: I expect US stocks to decline modestly this week on continuing worries over stubbornly high energy prices, corporate investigations and slowing global growth. While measures of investor anxiety are near levels normally associated with meaningful market bottoms, one more push lower in the major indices is likely. This may occur around earnings season as some companies cut forward guidance slightly. However, I continue to expect the second half of the year to be much better for US stocks than the first half as inflation decelerates, commodities prices fall, long-term interest rates decline, low valuations tempt investors, US growth remains relatively healthy, the US dollar stabilizes, employment continues to improve, merger activity persists and corporate spending accelerates. My trading indicators are still bearish and the Portfolio is market neutral heading into the week.

Economic Week in Review

ECRI Weekly Leading Index 135.00 unch.

Consumer Confidence for March fell to 102.4 versus estimates of 103.0 and a reading of 104.4 in February. Economists said gasoline, which reached an inflation unadjusted all-time high of $2.19/gallon in the past week, dimmed consumer's outlook. "The downtrend in consumer confidence could cause a new soft spot in the economy if gasoline prices continue this sharp run-up," said Christopher Rupkey, senior financial economist at the Bank of Tokyo-Mitsubishi. March was the fourth month with a reading higher than 100, compared with an average of 96.1 for all of last year, when the economy grew at the fastest pace since before the bubble burst in 1999, Bloomberg said. "The drop in confidence was not large and the level is still high, so we should expect consumer spending to continue at a decent level," said Joel Naroff, president of Naroff Economic Advisors. A cooler pace of spending may put less pressure on inflation, which may ease concerns among bond investors that the Fed will step up its pace of interest-rate increases, Naroff said. As well, Nobel Laureate Joseph Stiglitz, an economic professor at Columbia University, said "I'm not very worried about inflation at this point." Finally, the proportion of consumers who saw jobs as plentiful rose to 21.3%, the highest since September 2001, Bloomberg reported.

Final 4Q GDP rose 3.8% versus estimates of a 4.0% increase and a 3.8% prior estimate. This capped the best year of growth since 1999, Bloomberg said. Final 4Q GDP Price Deflator rose 2.3% versus estimates of a 2.1% increase and a prior gain of 2.1%. Final 4Q Personal Consumption rose 4.2% versus estimates of a 4.3% rise and a 4.2% prior estimate. Consumer and corporate spending are helping keep growth above the 3.3% annual average of the past decade, even as oil and gas prices rise, Bloomberg said. "Consumers are providing good support to the economy and businesses are spending actively as well," said Michael Moran, chief economist at Daiwa Securities America. The Core PCE Index, the Fed's favorite inflation measure, rose 1.7% during the fourth quarter, Bloomberg reported. "We're dealing with relatively low levels of inflation," said Edward McKelvey, senior US economist at Goldman Sachs. The US economy outpaced other members of the Group of Seven industrialized nations last year, expanding 3.8% in the fourth quarter. The economies of Canada and the UK both grew 2.9%. In Germany, growth was .6%, while Japan's economy expanded .8%, Bloomberg reported. Last year's consumer spending growth of 3.8% was the most since 2000 and spending is forecast to rise an average 3.5% this year, Bloomberg said. Finally, spending on equipment and software during the last 6 months of 2004 grew at the fastest pace since gains totaling 39.6% in the two quarters ending in September 1997, Bloomberg reported.

Personal Income for February rose .3% versus estimates of a .4% increase and a 2.5% decline in January. Personal Spending for February rose .5% versus estimates of a .5% increase and a .1% gain in January. The PCE Core for February rose 1.6% versus estimates of a 1.6% increase and a 1.6% gain in January. US personal spending rose in February for an eighth straight month, as job growth helped propel income and sales, Bloomberg said. "Wage and salary growth is rising at a moderate pace, reflecting the recent gains in employment, hours and earnings," said Steven Wood, chief economist at Insight Economics. "These figures tend to support the Fed's measured approach in removing accommodation, and acts to calm fears that inflation is accelerating too quickly," said Ian Morris, chief US economist at HSBC. Retailers including Wal-Mart Stores and Kohl's posted their biggest sales gain in February in nine months. Same-store sales rose 4.9% from a year earlier, the International Council of Shopping Centers said March 3, Bloomberg reported.

The Chicago Purchasing Manager Index for March rose to 69.2 versus estimates of 60.5 and a reading of 62.7 in February. Chicago-area business unexpectedly expanded in March at the fastest pace in more than 16 years, and a measure of regional hiring jumped to the highest in more than two decades, Bloomberg reported. "It is encouraging and does bode well for the future trend in manufacturing activity we'll see later this year," said Anthony Chan, senior US economist at JPMorgan Fleming Asset Management. The index of prices paid by companies for materials and supplies fell for the fourth consecutive month to 68.2, the lowest in a year, Bloomberg reported. The prices paid index remains well below the 88.9 level reached in November 2004, Bloomberg said.

Factory Orders for February rose .2% versus estimates of a .5% increase and a 0.0% change in January. Factory demand for equipment and consumer goods may be starting to cool as companies face higher energy prices and borrowing costs, Bloomberg said. "The manufacturing sector hit a temporary bump in the road," said Anthony Chan, senior economist at JPMorgan Fleming Asset Management. "It isn't positive month after month but for the year as a whole it seems to have good positive momentum," Chan said. Orders for capital goods excluding aircraft, a proxy for future business investment, so far this year are still 16.3% higher than they were in the same two months last year, Bloomberg reported.

The Unemployment Rate for March fell to 5.2% versus estimates of 5.3% and a 5.4% rate in February. Average Hourly Earnings for March rose .3% versus estimates of a .2% rise and a .1% increase in February. The Change in Non-farm Payrolls for March was 110K versus estimates of 213K and 243K in February. The Change in Manufacturing Payrolls for March was -8K versus estimates of 8K and 15K in February. Businesses had to pay more for crude oil and other raw materials, diverting cash that could otherwise have been used to hire more workers, Bloomberg said. The report may help curb speculation that the Fed will need to raise interest rates at a faster pace, said Susan Phillips, dean of the business school at George Washington Univ. and a former Fed governor. "The Fed will still go with raising the fed funds rate by another 25 basis-points at its May meeting, but this suggests it can hold the 'measured-pace' language for a while longer," said former Fed governor Lyly Gramley. An economist at the Federal Reserve Bank of Atlanta, in an article published in the bank's quarterly review, said changes in the labor force participation rate suggest the US only needs to add about 93,000 jobs a month, less than the 150,000 often cited, to lower the unemployment rate, Bloomberg reported. "Consumer spending and business investment would now be something that we have to be cautious about," said Tim Rogers, chief economist at Briefing.com in Boston. "That takes away all the fear of more aggressive tightening" by the Fed, Rogers said.

The Final Univ. of Mich. Consumer Confidence for March fell to 92.6 versus estimates of 92.7 and prior estimate of 92.9. The index has averaged a reading of 88.1 since 1978. "It seems that despite the improvement in labor market conditions the consumer is worried about the rising gasoline prices," said Elisabeth Denison, a US economist at Dresdner Kleinwort Wasserstein. The university's index of current conditions, which reflects Americans' perceptions of their financial situation and whether it's a good time to make big purchases, fell to 107.3 from 109.2, Bloomberg reported. "The economy appears to have started 2005 with more momentum than anticipated," said Drew Matus, senior economist at Lehman Brothers. "But the growth kick is likely to be temporary. Activity should start to cool this summer," Matus said.

Construction Spending for February rose .4% versus estimates of a .6% increase and a .6% gain in January. The stretch of increases is the longest since records began in 1993, Bloomberg said. An expected slowdown in residential construction, which was to be offset by more commercial and government projects, has yet to materialize, Bloomberg reported. "Higher mortgage rates will cause housing to level off as we move through the year. At the same time, private non-residential construction is likely to become more active as vacancy rates continue to decline and public construction continues to be relatively well funded by higher tax revenues," said Lynn Reaser, chief economist at Banc of America Capital Management.

ISM Manufacturing for March fell to 55.2 versus estimates of 55.0 and a reading of 55.3 in February. The index averaged 60.5 last year, the highest annual average since 1973, Bloomberg said. ISM Prices Paid for March rose to 73.0 versus estimates of 66.0 and a reading of 65.5 in February. The Prices Paid Index is still well below the reading of 88.0 in March of 2004, Bloomberg said. "Nationwide, manufacturing activity grew at a moderate pace in March, albeit slower than in late 2003 or for 2004," said Steven Wood, president of Insight Economics. The factory institute's employment index dropped to 53.3 from 57.4 and the group's new orders gauge rose to 57.1 from 55.8 in February, Bloomberg reported.

ISM Non-Manufacturing for March rose to 63.1 versus estimates of 59.0 and a reading of 59.8 in February. The ISM Non-Manufacturing report had been scheduled for release on April 5, but was inadvertently sent early by Business Wire, said a spokesman for the Institute. The increase was the fifth in six months, Bloomberg said.

Total Vehicle Sales for March rose to 16.8M versus estimates of 16.7M and 16.3M in February. Domestic Vehicle Sales for March rose to 13.5M versus estimates of 13.2M and 13.0M in February. US sales of cars and light trucks rose 4.5% in March, paced by General Motor's first increase this year and gains at Toyota Motor Corp., Nissan Motor Co. and DaimlerChrysler AG, Bloomberg reported. GM sold more pickup trucks last month than in any March since 1978 after it added rebates of $1,000 on models sitting unsold at dealers more than four months, Bloomberg said. "This is a much-needed positive for the industry overall, and GM in particular," said Rebecca Lindland, an analyst at Lexington, Massachusetts-based consulting firm Global Insight. US auto industry sales of sport-utility vehicles, trucks and minivans dropped in the first two months of this year as fuel prices rose. Even with their gains, GM and DaimlerChrysler's Chrysler unit still lost market share to Asian automakers, which took 36.2% of the US auto sales in March, up from 34.1% a year earlier, Bloomberg reported.

BOTTOM LINE: Overall, last week's economic data were modestly positive. The fact that Consumer Confidence only fell slightly is remarkable considering the media's and bears' attempts to spin almost everything in a negative light, high-profile acts of violence around the country, Terri Schiavo's Case, the Social Security debate, higher energy prices and lower stock prices. US GDP growth, the strongest of all industrialized nations, will likely slow from around 4.0% this quarter to a more sustainable 3.0% over the next couple of quarters. While the employment report was a bit disappointing, it was positive for the overall health of the US economy and stock market. Modest improvements of around 125,000-175,000 jobs would be optimal to keep unit labor costs low, while allowing the unemployment rate to improve slowly, thus holding inflation in check. Measures of inflation were mixed last week, which is a big positive considering the steep rise in commodity prices so far this year. I continue to expect inflation readings to begin to decelerate again during the second half of the year. Consumer prices for 2005 will likely rise around the 3.0% average of the last 40 years and below the 3.3% increase in 2004. The Fed's favorite inflation gauge, the PCE Core Index, will only rise around 1.75% for the year. I continue to believe that with the US dollar strengthening, foreign purchases of US assets remaining strong, the CRB Index turning lower, inflation only near average rates, global economic growth slowing and significant problems at a few major US companies, it is highly unlikely the Fed will actually raise rates 50 basis points at any meeting in the foreseeable future. Measures of manufacturing activity were mixed, however the exceptional Chicago Purchasing Manager's report bodes well for future activity. Construction will likely slow from very strong levels to more sustainable levels over the coming quarters. However, relatively low long-term interest rates will prevent any substantial decline. The fact that GM had the best March for pickups since 1978 may be evidence that higher gas prices continue to be offset by other positive factors. I am watching Wal-Mart's weekly sales figures closely. Their target market should show the first signs of any negative impact on consumer spending from higher gas prices. Finally, the ECRI Weekly Leading Index remained unchanged at 135.0, near cycle highs.

Market Week in Review

S&P 500 1,172.92 +.13%


Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was modestly negative. The advance/decline line fell, sector performance was mixed and volume was moderate. Small-caps and Cyclicals underperformed for the week as worries over slowing economic growth increased. The fact that the Bloomberg Crude Oil % Bulls is only 29.0 is a negative, as this not a level I would expect to see at a meaningful top. On the positive side, long-term interest rates fell as investors became less concerned about inflation, notwithstanding the media's and bears' attempts to suggest otherwise. The ECRI Future Inflation Gauge is still below levels seen in Feb. 2003. Moreover, the Weekly Growth Rate of the ECRI Future Inflation Gauge has been in a downtrend since Dec. of 2004. The CPI will likely rise 3.0% this year, below last year's 3.3% rate and right at the 40-year average. The PCE Core Index, the Fed's favorite measure of inflation, will only rise around 1.75% this year. All the talk of "run away inflation" is not commensurate with reality as is illustrated by this chart. In my opinion, the markets' recent poor performance is not a result of worries over inflation. However, investors are concerned that high energy prices, slowing global growth, a substantial increase in corporate lawsuits/investigations, lingering overcapacity from the 90s and a hawkish Fed will result in significantly lower US economic growth. Finally, measures of investor anxiety were higher on the week and are finally near levels associated with meaningful market bottoms.

Weekly Scoreboard*

Indices
S&P 500 1,172.92 +.13%
DJIA 10,404.30 -.37%
NASDAQ 1,984.81 -.31%
Russell 2000 611.55 -.61%
DJ Wilshire 5000 11,569.79 +.10%
S&P Equity Long/Short Index 1,018.78 -.41%
S&P Barra Growth 565.06 -.15%
S&P Barra Value 603.56 +.40%
Morgan Stanley Consumer 572.08 -.32%
Morgan Stanley Cyclical 741.75 -1.08%
Morgan Stanley Technology 452.24 -.26%
Transports 3,686.61 -1.55%
Utilities 360.30 +1.79%
Bloomberg Crude Oil % Bulls 29.0 +3.91%
Put/Call 1.04 +55.22%
NYSE Arms 1.93 +74.46%
Volatility(VIX) 14.09 +4.99%
ISE Sentiment 110.00 -36.42%
AAII % Bulls 28.43 +22.38%
US Dollar 84.43 +.31%
CRB 311.88 +1.63%

Futures Spot Prices
Crude Oil 57.27 +4.79%
Unleaded Gasoline 173.10 +6.92%
Natural Gas 7.75 +8.08%
Heating Oil 166.38 +8.75%
Gold 428.50 unch.
Base Metals 127.93 +.32%
Copper 147.90 +1.65%
10-year US Treasury Yield 4.45% -3.18%
Average 30-year Mortgage Rate 6.04% +.50%

Leading Sectors
Oil Service +5.08%
Energy +4.49%
Hospitals +4.12%

Lagging Sectors
Gaming -1.79%
Insurance -2.49%
Biotech -3.71%

*% Gain or loss for the week