Friday Watch

Late-Night Headlines
Bloomberg:
- Nelson Peltz, the billionaire investor known for pressing companies to take steps to increase their stock prices, is raising $2 billion for his hedge-fund group Trian Fund Management LP.
- CBS’s nightly newscast drew its smallest audience in 20 years last week, extending the drop in viewership for anchor Katie Couric that began almost from her first days on the job.
- James Chanos, president of Kynikos Assoc., is bearish on Moody’s Corp.(MCO), the bond rating company whose biggest shareholder is Warren Buffett. Kynikos sold Moody’s stock short, Chanos said.
- Dow Jones’(DJ) controlling Bancroft family, reversing decades of resistance to a sale of the company, said it will consider offers and plans to meet with Rupert Murdoch’s News Corp.(NWS/A) on his $5 billion bid.
- JPMorgan Chase(JPM) expects credit conditions to worsen and possibly make it cheaper to buy rivals.
- Shares of ethanol producers fell today, following separate analyst reports from Banc of America and UBS AG that said increased ethanol supplies will hurt prices and profits.
- Manufacturing activity in China expanded at a slower pace in May, according to a survey of purchasing managers released today. A plan for state companies to pay dividends may help to cool investment that threatens to leave the country with idle factories if the economy slows. Manufacturing overcapacity may lead to deflation and turn China’s investment growth into a “curse,” the Asian Development Bank said in March. State companies controlled by the central government will pay dividends under a trial program to start this year, the government said May 30. That will leave less money for investment.
- Trading in options to buy Staples(SPLS) surged to six times their daily average amid speculation the company might benefit from a takeover of rival OfficeMax(OMX).
- Chinese investors opened more than 420,000 new brokerage accounts on May 30, well above the daily average for the year, even as the government tripled the tax on securities transactions.
- The US dollar traded near the highest in more than three months against the yen before a US government report that will probably show jobs growth accelerated in May.
- Peter Kreisky, president of Kreisky Media Consultancy, expects the Bancrofts to sell Dow Jones(DJ) to News Corp.(NWS/A).

Wall Street Journal:
- CKX Inc.(CKXE), the operator of Elvis Presley’s Graceland estate, is near a deal to be taken private by Robert F.X. Sillerman.

China Daily:
- More than 70% of Chinese who studied overseas in the past two decades remained abroad, hindering the nation’s scientific progress, citing China’s social science academy.

Xinhua News Agency:
- China’s financial institutions have used up 6% of the $14.9 billion quota for overseas investment they’ve been granted so far.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CHS), target $32.

Piper Jaffray:
- Rated (CELL) Outperform.

Business Week:
- Earnings growth could push railroad stocks up an additional 35% through 2009, citing Morgan Stanley analyst William Greene.
- ConocoPhillips(COP) has become the third-largest US oil company as a result of investments such as a 20% stake it acquired in Russia’s Lukoil for $7.5 billion in 2005. Bernard Picchi of Wall Street Access said ConocoPhillips shares could reach $85 a year from now.
- Sepracor Inc.(SEPR) will be more profitable than analysts’ consensus, citing Robert Hazlett of BMO Capital Markets Corp.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.16%.
NASDAQ 100 indicated +.12%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Business & Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- (ANSS) 2-for-1
- (CI) 3-for-1
- (TSBK) 2-for-1

Economic Releases
8:30 am EST
- Personal Income for April is estimated to rise .3% versus a .7% gain in March.
- Personal Spending for April is estimated to rise .4% versus a .3% gain in March.
- The PCE Core for April is estimated to rise .2% versus unch. in March.
- The Change in Non-farm Payrolls for May is estimated at 132K versus 88K in April.
- The Unemployment Rate for May is estimated at 4.5% versus 4.5% in April.
- Average Hourly Earnings for May are estimated to rise .3% versus a .2% gain in April.

10:00 am EST
- Pending Home Sales for April are estimated to rise .3% versus a -4.9% decline in March.
- ISM Manufacturing for May is estimated to fall to 54.0 versus a reading of 54.7 in April.
- ISM Prices Paid for May is estimated at 73.0 versus a reading of 73.0 in April.
- The Final Univ. of Mich. Consumer Confidence reading for May is estimated at 88.0 versus 88.7 in April.

Afternoon
- Total Vehicle Sales for May are estimated to fall to 16.3M versus 16.4M in April.

Other Potential Market Movers
- The Fed’s Kroszner speaking, (WMT) Analyst Day, (WY) Analyst Meeting, (AIG) Financial Services Presentation, ASCO Annual Meeting, Bank of American Healthcare Conference, Sanford Bernstein Strategic Decisions Conference, Cowen Tech Conference and Lehman Wireless/Wireline Conference could also impact trading today.

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

Evening Review

Market Performance 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
After-hours Stock Quote
In Play

Stocks Rising Modestly into Final Hour on Positive Earnings and Buyout Activity

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is mildly higher, most sectors are higher and volume is heavy. In today's manic market where a short-sited pessimistic day trading mentality still rules the day, we jump from recession fears to boom fears almost overnight. While some recent data are indicating a sharp acceleration in U.S. economic activity, other data points are more muted. Moreover, the effects of the recent rise in the 10-year yield are already taking hold. The average 30-year mortgage rate has jumped from 6.11% in December to 6.42% last week. Moreover, mortgage applications fell -7.3% last week, the worst decline since January. On top of this, global growth, while still very high, is decelerating, not accelerating. I believe it is unlikely the 10-year yield will move substantially higher from current levels. Maybe the economy isn't too hot or too cold again, but just about right. I plan to add to my core iShares Lehman 20+ Year Treasury Bond (TLT) long on any substantial move higher in the 10-year yield from current levels. Bloomberg is reporting today that Royal Dutch Shell and Vitol Group are among companies that are hiring supertankers to hoard up to 20 million barrels of oil in the Gulf of Mexico due to the fact that U.S. onshore storage is completely full. Oil companies have hired at least 10 supertankers for storage, according to the report. An analyst at BNP Paribas said that storing the oil on tankers is a "cheaper alternative" than trying to deliver to a market that "may not want the incremental barrels now." This could be one of the reasons oil is coming under pressure again today. Moreover, demand destruction is pervasive, China's bubble is poised to burst, the U.S. dollar is firming, alternatives are exploding onto the scene like never before, conservation is taking hold, global spare production capacity is rising and the risk premium is shrinking. I still expect oil to head into the 40s before year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on buyout speculation, stabilizing long-term rates, short-covering and investment manager performance anxiety.

Growth Revised Down, Consumer Spending Higher, Job Market Healthy, Chicago PMI Surges, Construction Muted

- Preliminary 1Q GDP rose .6% versus estimates of .8% and prior estimates of 1.3%.

- Preliminary 1Q Personal Consumption rose 4.4% versus estimates of 4.1% and a 3.8% prior estimate.

- Preliminary 1Q GDP Price Index rose 4.0% versus estimates of 4.0% and a prior estimate of 4.0%.

- Preliminary 1Q Core PCE rose 2.2% versus estimates of 2.2% and prior estimates of 2.2%.

- Initial Jobless Claims for last week fell to 310K versus estimates of 314K and 314K the prior week.

- Continuing Claims fell to 2472K versus estimates of 2500K and 2524K prior.

- Chicago Purchasing Manager for May rose to 61.7 versus estimates of 54.0 and 52.9 the prior month.

- Construction Spending for April rose .1% versus estimates of unch. and an upwardly revised .6% increase the prior month.

BOTTOM LINE: The US economy grew at a slower pace than previously thought in the first quarter, Bloomberg reported. The Fed’s favorite inflation gauge, the core PCE index, rose at a 2.2% rate versus the 20-year average of 2.5%. The downward revision in growth was mainly the result of lower inventories than expected, which is a positive going forward. As well, personal spending was revised higher to 4.4%, the best rate in a year. Housing was less of a drag on growth than previously though, subtracting .9 percentage points from GDP. Moreover, personal income was revised higher for the fourth quarter of 2006, boosting the gain over the prior quarter to an annual rate of 5.9% from 4.7%. This is over twice most measures of inflation and suggests either payrolls have been undercounted or employees were paid more than estimated. I continue to believe US growth bottomed in 1Q as a result of dramatic inventory de-stocking and that growth is reaccelerating meaningfully this quarter and will approach average rates before year-end.

The number of Americans filing first-time claims for state unemployment benefits unexpectedly fell last week, pointing to strength in the labor market, Bloomberg reported. The four-week moving average of jobless claims rose slightly to 304,500. The unemployment rate among those eligible for 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 substantial unit labor cost increases.

A measure of US business activity jumped more than forecast in May, signaling expansion for the third consecutive month and suggesting the economy is accelerating after bottoming in the first quarter, Bloomberg reported. The Chicago PMI has now exceeded 60 during two out of the last three months. The long-term average is 55.0. Moreover, the New Orders component of the index soared to 71.1 from 56.5 the prior month. The Prices Paid component rose to 70.2 versus 64.9 the prior month. The Employment component of the index rose to 57.3 versus 50.5 the prior month. I continue to believe manufacturing which subtracted from US growth substantially during 1Q will add to growth this quarter as companies rebuild depleted inventories.

Spending on US construction projects unexpectedly improved last month, as work increased on non-residential projects such as hotels and factories, Bloomberg reported. Private homebuilding fell to the lowest level since June 2004. Non-residential construction rose 1.1% in April and is up 13% from the same time last year. I continue to believe overall construction activity will remain muted throughout the year as homebuilders continue to work down inventories.

Links of Interest

Market Snapshot
Detailed Market Summary
Quick Summary
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- Companies in the S&P 500 may still be a bargain after the benchmark for US equities surpassed its 2000 record. The index's 500 members are 45% less expensive relative to historical profits than when the index last peaked.
- China’s stocks fell, extending a slide that wiped out $161 billion of the market value yesterday after the tax on securities trades was tripled. About 15 of the CSI 300 Index’s members fell by the 10% daily limit.
- Thomas H. Lee Partners LP and Fidelity National Financial agreed to buy Ceridian Corp.(CEN) for $5.3 billion after shareholders pressed the company for changes.
- Fred Thompson, a star of NBC’s “Law & Order” since 2002, told the show’s producer Dick Wolf that he won’t return for the new season in September, the latest sign that he may run for president next year.
- Japan’s wages unexpectedly fell in April, a fifth month of declines that may hamper a recovery in consumer spending.
- A California appeals court refused to throw out a suit accusing Gradient Analytics Inc., a research firm, and Rocker Partners LLC, a hedge fund, of driving down the price of Overstock.com Inc.(OSTK) shares.
- Daily average US ethanol production increased 1,000 barrels a day in March over February and the increased output is likely to spur discretionary blending.
- David Humphreys, chief economist of OAO GMK Norilsk Nickel, the word’s biggest nickel producer, said China’s production of nickel pig iron is a “significant” addition to global supplies and the market is moving into surplus.
- Peru’s main stock index fell the most in 12 years today, plunging 7.6%, led by miner Sociedad Minera Cerro Verde SA, on concern that Chinese demand for commodities may slow.

Financial Times:
- Man Group Plc is poised to start a “true” NY-listed hedge fund. The listing, which would be underwritten by Morgan Stanley(MS), may raise several hundred million dollars.
- Postnuptial agreements are gaining popularity among wealthy hedge fund managers and executives who want to safeguard their fortunes in case of divorce.
- Google(GOOG) will announce an initiative on Thursday that will take its applications beyond the web and challenge Microsoft(MSFT) on its home turf of the computer hard-drive.

Korea Economic Daily:
- An oil field OAO Rosneft is developing with South Korean companies may hold 10 billion barrels of oil, almost 300% more than initial estimates, citing South Korean government officials.

Commercial Times:
- Taiwan retail investors have stepped up buying of US dollars as the local currency gained following attempts by the island’s central bank to shore up its value. Taiwan banks have had 20 or 30 percent more than usual retail customers in the past few days wanting to exchange local dollars into the US currency.

21^st Century Business Herald:
- China is to start a tracking system in June to crack down on stock market speculation by state-owned enterprises, citing an official at the nation’s state assets agency. The nation’s state assets supervisor will also step up crackdowns on insider trading and share price manipulation, starting next month.

Xinhua News Agency:
- Eastmoney.com, a Chinese Web site that provides financial news and information, may raise $500 million in an IPO on the Nasdaq Stock Exchange.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ADBE), target $50.

Night Trading
Asian Indices are +1.0% to +1.50% on average.
S&P 500 indicated +01%.
NASDAQ 100 indicated +.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Business & Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (ATVI)/-.03
- (BIG)/.19
- (BTH)/.19
- (BRCD)/.09
- (CIEN)/.25
- (CSC)/1.48
- (CPRT)/.41
- (COST)/.56
- (DELL)/.27
- (DG)/.08
- (ESL)/.64
- (FOSL)/.30
- (FRED)/.19
- (GCO)/.26
- (HNZ)/.56
- (IRF)/.58
- (JCG)/.29
- (JTX)/1.94
- (OVTI)/-.01
- (PLL)/.43
- (NX)/.76
- (SHLD)/1.21
- (TIF)/.35

Upcoming Splits
- (GEO) 2-for-1

Economic Releases
8:30 am EST
- Preliminary 1Q GDP is estimated to rise .8% versus a prior estimate of a 1.3% gain.
- Preliminary 1Q Personal Consumption is estimated to rise 4.1% versus a prior estimate of a 3.8% gain.
- Preliminary 1Q GDP Price Index is estimated to rise 4.0% versus a prior estimate of a 4.0% gain.
- Preliminary 1Q Core PCE is estimated to rise 2.2% versus a prior estimate of a 2.2% gain.
- Initial Jobless Claims are estimated to rise to 314K versus 311K the prior week.
- Continuing Claims are estimated to fall to 2500K versus 2529K prior.

9:45 am EST
- Chicago Purchasing Manager for May is estimated to rise to 54.0 versus 52.9 in April.

10:00 am EST
- Construction Spending for April is estimated to remain unch. versus a .2% rise in March.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,000,000 barrels versus a 1,969,000 barrel increase the prior week. Gasoline supplies are expected to rise by 1,500,000 barrels versus a 1,431,000 barrel increase the prior week. Distillate inventories are estimated to rise by 700,000 barrels versus a 512,000 barrel increase the prior week. Refinery Utilization is estimated to rise .50% versus a 1.60% increase the prior week. Finally, Natural Gas supplies are expected to rise by 105 bcf versus a 104 bcf increase the prior week.

Other Potential Market Movers
- The (HNZ) analyst day, (NVLS) 2Q mid-quarter update, (MA) Investment Community Day, (AIG) Financial Services Presentation, FBR Growth Conference, Bank of American Healthcare Conference, Deutsche Bank Energy/Utilities Conference, Sanford Bernstein Strategic Decisions Conference, Cowen Tech Conference and Lehman Wireless/Wireline Conference could also impact trading today.

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