Thursday's Brew - Nov 30

Enjoy your fresh morning coffee with our summary of the market outlook for the day and a medley of important information you should find useful. We are publishing this issue much too early for futures activity to be of any use to you. A rumored canceled meeting between President Bush and Iraq's Maliki, due to a threat against the government, poses event risk to markets Thursday, but barring any unforeseen specific event, we would anticipate market movement to depend highly on the personal income and spending data set for release.

OVERSEAS MARKETS

Asian stocks benefited Thursday from strength seen in the revised higher Q3 GDP result in the U.S. This combined with positive comments from Ben Bernanke on the outlook for 2007, eased the concern of Asian market participants about the health of their most important export market. Today, the forecast for South Korean export growth in 2006 was raised to 15% from the 12% previously seen. The Hang Seng Index appropriately rose 1.11%, while the NIKKEI 225 edged 0.61% higher. We anticipate markets in Europe to follow suit once open.

ECONOMIC DATA & NEWS

Consumer health will once again come into focus Thursday when personal income and spending results are posted. Citigroup expects that an increase in wages and disbursements helped personal income and personal spending to rise 0.5% and 0.2%, respectively, in October. The November Chicago Purchasing Managers Index is expected to have been impacted by auto sales, but Bloomberg's consensus indicates it could rise to 54.0 from 53.5 in October. Considering recent weakness in durable goods orders, we may face another disappointment in the Chicago PMI, in our view.

COMMODITY MARKETS

The New York Society of Security Analysts meets for its alternative energy conference Thursday. Natural gas has recovered sharply from a slow start Wednesday, as we predicted, and is up approximately 1.8% in late night activity EST. We are overweight energy. In this regard, we are working on the provision of sector weighting recommendations. Currently, we have stated an underweight recommendation for the financial sector and overweight view for energy, gold and the early cyclical semiconductor industry.

However, the recent signs of poor demand for hardware could put a damper on the performance of semiconductor names and we are reducing our recommendation to marketweight. Still, we believe the best time to buy semiconductor names is when things seem bleakest. When P/E ratios appear overdone, earnings are weak, semi investors must sum up courage, as these stocks tend to move ahead of actual operating recovery. As it seems more and more likely the Fed will be able to cut rates in 2007, early cyclicals should benefit. Semiconductor stocks have already shown some strength in the past month, so we could see a near-term trough and better buying opportunity. Keep in mind that if Israel/America's pending war with Iran brings unforeseen surprises, these stocks are likely to suffer much. A well diversified portfolio incorporating beta reduction through the shorting of individual securities is recommended here.

STOCKS IN THE NEWS

Brinker International splits 3 for 2 at the close, while Lucent's merger with Alcatel is expected to close. Reporting earnings are Brown Forman Corp., Smithfield Foods Inc., HJ Heinz Co., Kellwood Co., Cheesecake Factory, H&R Block and Mcdata Corp. We hope you found good use of your "Morning Coffee" today, and we wish you a good day trading. (disclosure)