From Briefing.com: Updated: 05-May-03 - General Commentary - If you're a bear you have to be getting nervous, very nervous. Bolstered by ongoing strength in the tech sector, the Nasdaq Composite closed Friday's session above the 1500 level (1502.88 +30.32). It was the first time the tech heavy index had closed above this ceiling since June 18th, 2002.
Strong than expected earnings (generally speaking), improved breadth and excitement over the successful conclusion on the war on Iraq have all been contributing factors behind the Nasdaq's impressive run. Though very short-term momentum tools suggest that the index is overextended and in need of a breather, Briefing.com doesn't expect corrective pullbacks to amount to much either in duration or distance.
Technically market is simply too strong right now. This tells us that the smart money anticipates a respectable rebound in the economy over the next few months, a modest uptick in demand and continued double-digit gains in yoy earnings. While all of these are assumptions, they are likely to be the ruling assumptions dictating direction until there's a significant change in perceptions.
Economic data most likely culprit, though Briefing.com notes that while growth remains sluggish it's still growth. Fact that economy continued to grow despite war concerns leads us to believe, along with the majority, that the economy will indeed snap back in quarters two, three and four. Growth might not be strong enough to result in meaningful job creation, but it should be strong enough to translate into steady earnings growth --- especially given that corporations are running lean and mean.
Will be interesting to see if Fed decides to give economy a boost with a rate cut at this week's meeting. We doubt it, but the loss of jobs over the past few months would typically warrant such a response. However, having already slashed rates dramatically over the past couple of years, and with the economy likely to get a boost post-war, we expect Fed to sit tight for now.
Only earnings report of note this week - at least in terms of being able to move entire sector/market -- is Cisco. Company scheduled to report on Tuesday. Barring a big negative surprise, market/sector should maintain its generally bullish bias in the week(s) ahead.
Robert Walberg
4:14PM Weekly Wrap :
Indices continued to climb in the face of ever more discouraging economic news. As Briefing.com speculated a few weeks ago, investors willing to look past soft March/April data due to influences of war. That explains why market shrugged off the soft ISM, claims, productivity, employment and construction spending data.
Helping investors downplay the significance of the data was the steady stream of better-than-expected earnings reports. Among the companies posting big upside surprises were ChevronTexaco, Cigna, Nicor, Biosite, Georgia Gulf, Exxon Mobil, Chubb, AstraZeneca, Southern Co., Monsanto, ConocoPhillips, Countrywide, Northrop Grumman, Coventry Health, DuPont, Nabors, Excelon, Barrick Gold and Standard Pacific.
As Briefing.com reported the other day in a Stock Brief entitled "The Big Picture - Earnings Scorecard," with nearly 80% of the S&P 500 reporting results, the market capitalization weighted gain is a whopping 15.3%. That's well above the 5%-7% predicted just ahead of earnings season. Energy, utilities, financials and technology among the best performing sectors.
Fact that in many cases companies have delivered sizable earnings gains with no material pick-up in end user demand suggest two things: 1) businesses continue to improve their operating efficiencies and 2) when demand finally improves, earnings leverage will be considerable. This latter fact has many investors excited about second half prospects.
Of course for the bullish second half scenario to play out, the economic data will need to improve. Question next week will be does Fed help economy along with another rate cut? Most on street, Briefing.com included, don't expect the Fed to lower rates at next week's FOMC meeting, but they could alter the bias.
Earnings will also remain in the spotlight next week what with Hewitt, Cox Comm., Cisco Systems, Electronic Arts, Oxford Health, CVS, Toll Brothers, Pixar, Whole Foods, Alliant Techsystems, Nvidia and McData among the firms scheduled to report results. For a full list of companies reporting next week, see Briefing.com's Earnings Calendar.
Though recent gains have left indices overextended from a very short-term perspective, unless we get one or two negative earnings/economic shocks, the underlying bullish bias should remain intact.
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 8306.35 8582.68 276.33 3.3 % 2.9 %
Nasdaq 1434.54 1502.88 68.34 4.8 % 12.5 %
S&P 500 898.81 930.08 31.27 3.5 % 5.8 %
Russell 2000 388.50 406.95 18.45 4.7 % 6.2 %
Close Dow +128.43 at 8582.68, S&P +13.78 at 930.08, Nasdaq +30.32 at 1502.88: After a short-lived recess into the red at the open, the bulls ran out of the gate and never looked back... The major averages managed to earn the bulk of their gains within the first hour and a half of the session and spent the rest of the day drifting sideways with an upward bias, finishing the day near session highs with gains of 1.5% for the blue-chip averages and 2.1% for the Nasdaq...
Today's advance is quite impressive since it comes on the back of the already hefty gains over the last couple of weeks and is particularly striking in the face of this morning's arguably weak Employment Report, which was accented by Nonfarm Payrolls decline of 48K (vs. consensus of -58K), higher unemployment rate of 6.0% (vs. consensus of 5.9%), and a drop in the Average Workweek to 34.0 (vs. the consensus of 34.2)... Several factors aided the indices in their advance... First was the feeling that things can only get better from here as the economy is bound to improve going forward now that the war is over... Second was the Factory Orders report, which checked in at 2.2% vs. consensus of 1.2% and came in contrast to the plunge in the ISM new orders survey...
This, in turn, propelled the Dow above its 200-day exponential moving average, which acted as an additional impetus for the positive bias of the trade... The S&P 500 and the Nasdaq did not fall too far behind, as both set new multi-month highs... The broad-based advance of the market was reflected in the fact that there were no laggards of note to speak of... With 1.53 bln shares traded on the NYSE and 1.81 bln shares exchanged on the Nasdaq, volume was quite decent, especially for a Friday... Treasuries were soft across the yield curve in response to the strong run of the equities...
The 10-yr note closed the day down 21/32, bringing its yield up to 3.92%...NYSE Adv/Dec 2479/767, Nasdaq Adv/Dec 2263/901
2:51PM Secondary plays to rising DSL demand include CTLM +14%, GSPN +11.5% and WSTL +1.7% :
2:49PM Adv Fibre Comm: DSL price cuts should increase demand for equipment (AFCI) 17.02 +1.08: According to Pacific Growth, Verizon will soon significantly drop its DSL rates in order to better compete with cable. Current prices of $49.95-59.95 will move to $34.95 -- for both new and existing customers. Pacific Growth believes this is likely to increase demand for DSL related equipment. AFCI signed a supply contract with VZ approx. one year ago and is often a 10% customer. Firm also believes that SBC will follow suit by the end of the yr.
1:53PM SARS concerns effecting DRAM markets -- Silicon Strategies : A column in Silicon Strategies from a research firm cites concerns over the SARS outbreak's effect on the DRAM markets. SARS concerns are said to have "scared" Chinese consumers away from retail outlets. As a result, PC sales have witnessed a dramatic slowdown with sources mentioned in the article suggesting PC OEMs are making half of their targeted sales numbers for China (the second largest PC market). Subsequently, DRAM inventories at OEMs have been increasing with transactions in the China and Hong Kong spot markets described as being "virtually ceased". It is important to note that this is a slow time during the PC sales cycle due to seasonality. Despite this development, the article also mentions a positive note being production problems, which have reduced supply and kept prices higher according to the research firm's supply and demand ratio.
11:10AM S&P 500 moves to new four month high : -- Technical -- The index (926.37) has broken through the upper end of its week long trading range in recent action. Next resistances are at 927/928 and 932 in front of the Jan high at 935. Intraday supports are now at 923/922 and 920.
8:20AM Broadcom to take $88 mln charge related to settlement (BRCM) 17.88: Co. announces it has resolved disputes raised by employees and former securities holders of ServerWorks relating to agreements entered into when Broadcom acquired ServerWorks; Broadcom will incur $25 mln in cash payments and expenses and record a one-time non-cash charge of $88 mln reflecting the acceleration from future periods of stock-based compensation expense.
Genesis Microchip (GNSS) 15.29 -1.85: Pacific Growth reiterated its Overweight rating
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