Stocks Finish Sharply Higher on Bargain-Hunting and Short-Covering

Indices
S&P 500 1,272.87 +2.16%
DJIA 11,190.80 +1.98%
NASDAQ 2,174.38 +2.96%
Russell 2000 714.32 +3.82%
Wilshire 5000 12,808.90 +2.32%
S&P Barra Growth 588.56 +2.11%
S&P Barra Value 682.62 +2.20%
Morgan Stanley Consumer 609.99 +1.68%
Morgan Stanley Cyclical 824.80 +2.83%
Morgan Stanley Technology 496.30 +3.14%
Transports 4,890.23 +3.37%
Utilities 412.85 +1.03%
Put/Call .66 -20.48%
NYSE Arms .44 -43.94%
Volatility(VIX) 13.03 -17.48%
ISE Sentiment 105.00 -27.59%
US Dollar 86.00 -.73%
CRB 342.30 +1.22%

Futures Spot Prices
Crude Oil 73.64 +.15%
Unleaded Gasoline 229.10 -.17%
Natural Gas 6.11 -.33%
Heating Oil 198.76 +2.59%
Gold 600.10 +1.90%
Base Metals 214.04 +4.37%
Copper 333.65 +.47%
10-year US Treasury Yield 5.19% -.94%

Leading Sectors
Gold & Silver +6.97%
Restaurants +4.52%
Networking +4.30%

Lagging Sectors
Foods +1.05%
Utilities +1.03%
Hospitals +.97%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Microsoft(MSFT) delayed the release of its new Office word processing, e-mail and spreadsheet program to make improvements to its performance and design.
- Futures traders trimmed bets that the Fed will continue lifting its target rate for overnight loans to 62% from 83% yesterday after policy makers increased the rate a quarter of a point for the 17th straight time.
- Apple Computer(AAPL) announced they were launching an internal probe into the backdating of stock options.
- Palm Inc.(PALM) maker of the Treo e-mail phones, said fourth-quarter profit rose 53% as demand for devices with full keyboards and business features increases.
- US Treasuries climbed as the Fed raised the benchmark interest rate as investors speculated inflation would remain contained.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet longs, Semi longs, Networking longs, Retail longs and Biotech longs. I covered some of my (EEM) shorts and all of my (IWM) and (QQQQ) shorts earlier in the day, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, every sector rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was very bullish. The ISE Sentiment Index plunged 28% to 105.0, a depressed level, which is a big positive. Moreover, the 10-year yield finished near session lows. I sense many bears are trapped and bulls are underinvested, which should lead to more buying tomorrow as they scramble to stay ahead of benchmarks. The S&P 500 chart looks very similar to the pattern during the bottom last October. Subsequently, the index rose about 14% in less than seven months. Many of the exact same bear arguments were espoused during that October bottom. While I do expect another period of weakness over the coming months as the U.S. economy decelerates to average rates, I continue to believe most stocks have bottomed for the year and the major averages have put in place a meaningful bottom.

Today's Headlines

Bloomberg:
- Intel Corp.(INTC) CEO Paul Otellini, pressured by investors to fix the chipmaker’s flagging fortunes, is scrapping his old boss’s biggest projects.
- Venture Capital firms are betting big on solar and biofuel companies in a green energy frenzy.
- UK house prices rose for a fourth consecutive month in June, suggesting a revival in the $6 trillion property market may continue into the second half.
- Iran’s top nuclear negotiator Ali Larijani dismissed US and European calls to accelerate its decision over whether to accept trade and technology incentives in return for suspending its uranium enrichment program.
- US senators, hearing testimony yesterday that fraud is widespread in the $1.2 trillion hedge-fund industry, said the private investment partnerships may need more scrutiny form federal regulators and law enforcement.
- The US Supreme Court ruled that President Bush lacks authority to try Guantanamo Bay inmates before military tribunals, a blow to the administration’s anti-terrorism strategy that scales back presidential wartime powers.

Wall Street Journal:
- Symantec(SYMC) is in a $1 billion legal dispute with the IRS involving dealings with two related companies.
- Google(GOOG) will start operating in Cairo with a view to that city becoming the company’s hub for the Arabic-speaking Middle East.
- European politicians who criticize the US for allegedly violating the rights of “jihadist terrorists” at Guantanamo Bay in Cuba are more concerned with attacking America than in helping to fight terrorism, said Denis MacShane, British Labour Party Member of the Parliament.
- Pfizer Inc.(PFE) plans to produce a discounted generic version of Zoloft after the antidepressant loses its domestic patent protection tomorrow.

AP:
- Japan wants all its cars to run on ethanol-blended gasoline by 2030 to mitigate crude oil costs.

NY Times:
- RSA Security(RSAS) is close to an agreement to be bought by either data storage company EMC Corp.(EMC) or at least one other company in a transaction that may top $1.8 billion.

LA Times:
- Officials for the ports of LA and Long Beach have introduced an air pollution control plan that could reduce diesel pollution from cargo ships, trains, and trucks by more than half.

Financial Times:
- Many hedge funds have seen gains made earlier this year wiped out in June’s global market declines, citing performance figures obtained from funds and investors.

La Tribune:
- Dell Inc.(DELL) will grow faster than its industry in the long term and profitability will remain higher than that of competitors, CEO Rollins said.

1Q GDP Booms, Job Market Still Healthy

- Final 1Q GDP rose 5.6% versus estimates of a 5.6% gain and a prior estimate of a 5.3% rise.
- Final 1Q GDP Price Index rose 3.1% versus estimates of a 3.3% increase and prior estimates of a 3.3% increase.
- Final 1Q Personal Consumption rose 5.1% versus estimates of 5.2% and prior estimates of a 5.2% increase.
- Initial Jobless Claims for last week rose 313K versus estimates of 310K and 309K the prior week.
- Continuing Claims rose to 2409K versus estimates of 2430K and 2355K prior.

BOTTOM LINE: The US economy boomed at an annual rate of 5.6% in the first quarter, propelled by a surge in consumer spending, Bloomberg reported. Business investment rose at the fastest pace in six years. Inventory rebuilding, along with robust profits, should continue to spur corporate spending over the intermediate-term. The core PCE index, the Fed’s favorite inflation gauge, rose 2% for the quarter. I expect second quarter GDP to rise around average levels, consumption to moderate and the core PCE to decelerate.

First-time claims for unemployment benefits in the US rose last week while remaining at a level that suggests strength in the labor market, Bloomberg said. The four-week moving average of claims fell to 305,500 from 311,500 the prior week. The four-week average of total benefit rolls fell to 2.39 million, the lowest in almost 6 years. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 1.9% from 1.8% the prior week. I continue to believe the labor market will remain healthy without generating substantial unit labor cost increases over the intermediate-term.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- BlueScope Steel Ltd., Australia’s largest steelmaker, cut its full-year profit estimate for the third time this year. Its shares fell the most in three months.
- The American public has turned against the Fed’s two-year campaign of interest-rate increases, concerned it may hurt the economy by slowing growth, a Bloomberg/LA Times poll shows.

Financial Times:
- Dell Inc.(DELL) has reorganized its Americas division after several quarters of worse-than-expected results, citing an interview with CEO Rollins.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 indicated +.08%.
NASDAQ 100 indicated +.06%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (ACN)/.46
- (AM)/.26
- (CA)/.20
- (STZ)/.32
- (GIS)/.61
- (MON)/1.20
- (PALM)/.23
- (WOR)/.40

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 1Q GDP is estimated to rise 5.6% versus a prior estimate of a 5.3% gain.
- Final 1Q GDP Price Index is estimated to rise 3.3% versus a prior estimate of a 3.3% gain.
- Final 1Q Personal Consumption is estimated to rise 5.2% versus a prior estimate of a 5.2% gain.
- Initial Jobless Claims for last week are estimated to rise to 310K versus 308K the prior week.
- Continuing Claims are estimated to fall to 2430K versus 2439K prior.

2:15 pm EST
- The FOMC is expected to raise the benchmark Fed Funds rate 25 basis points to 5.25%.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technology stocks in the region. I expect US equities to open modestly higher and to build on gains into the afternoon, finishing higher. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Highs ahead of Fed Announcement

Indices
S&P 500 1,246.00 +.55%
DJIA 10,973.56 +.45%
NASDAQ 2,111.84 +.55%
Russell 2000 688.04 +.16%
Wilshire 5000 12,518.20 +.47%
S&P Barra Growth 576.40 +.49%
S&P Barra Value 667.92 +.60%
Morgan Stanley Consumer 599.92 +.10%
Morgan Stanley Cyclical 802.08 +.41%
Morgan Stanley Technology 481.19 +.58%
Transports 4,730.60 +.56%
Utilities 408.63 +.51%
Put/Call .83 -15.31%
NYSE Arms .75 -50.36%
Volatility(VIX) 15.79 -3.72%
ISE Sentiment 140.00 -2.78%
US Dollar 86.67 +.23%
CRB 338.19 +.33%

Futures Spot Prices
Crude Oil 72.34 +.21%
Unleaded Gasoline 220.59 +.34%
Natural Gas 5.88 -3.60%
Heating Oil 194.60 +.44%
Gold 581.20 +.03%
Base Metals 205.08 +1.37%
Copper 315.05 -1.15%
10-year US Treasury Yield 5.24% +.83%

Leading Sectors
Energy +1.82%
Gaming +1.62%
Steel +1.44%

Lagging Sectors
Alternative Energy -.94%
Airlines -.99%
Restaurants -1.15%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
CSFB:
- Rated (FRX) and (BRL) Outperform.

Afternoon/Evening Headlines
Bloomberg:
- A tsunami alert system for nations bordering the Indian Ocean is up and running, 18 months after deadly waves triggered by an earthquake slammed into 12 nations across the region and killed an estimated 220,000 people.
- BP Plc(BP) manipulated the price of propane used to heat homes and businesses in the northeastern US in February 2004 and tried to do the same in April 2003, the Commodity Futures Trading Commission said.
- Walt Disney(DIS) named former Procter & Gamble CEO John E. Pepper as its non-executive chairman, succeeding former US Senator George Mitchell.
- Henry Paulson, confirmed today by the US Senate to become Treasury Secretary, said faster global economic growth will help reduce lopsided global trade and investment flows.

AP:
- Sunni insurgents offered to stop attacks on US-led military forces in Iraq if the Iraqi government and President Bush set a two-year deadline for withdrawing all foreign troops.

Financial Times Deutschland:
- Advanced Micro Devices(AMD) aims to win Dell Inc.(DELL) as a customer for its personal computer chips after agreeing to equip Dell servers, citing AMD strategist Margaret Lewis.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs, Retail longs and Biotech longs. I covered some of my (EEM), (IWM) and (QQQQ) shorts earlier in the day, thus leaving the Portfolio 75% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, sector performance was mixed and volume was below average. Measures of investor anxiety were lower into the close. Overall, today's market performance was mildly bullish. A number of market leading stocks posted outsized gains. As well, bears were unable to capitalize on yesterday's weakness. The 4-basis-point rise in the 10-year yield likely capped an otherwise more vigorous rally. I suspect long-term rates may fall on tomorrow's Fed rate hike. Natural gas is trading at new cycle lows, falling another 4%. I continue to expect stocks to finish the last two days strongly.