Market Wrap Up - Feb 7

Enjoy your Market Wrap Up, including our summary and analysis of the market activity of the day. U.S. markets benefited today from favorable productivity and labor cost data and a solid earnings report from tech-bellwether, Cisco Systems.

OVERSEAS MARKETS

Shares on India's BSE SENSEX 30 Index climbed 1.14% today, as the Indian government provided a forecast of 9.2% economic growth for 2007, ahead of its own central bank's estimate for 8.5%-9.0% growth. About a week ago, the government revised 2006 economic growth higher to 9.0% from 8.4%.

Chinese shares were strong today as well, with the SHSE-SZSE 300 Index climbing 2.3% and the Hang Seng edging up 0.12%. Chinese shares benefited from a move by the China Securities Regulatory Commission to approve five new funds that plan to raise at least 30 billion yuan ($3.87 billion), according to state-owned Securities Times newspaper.

ECONOMIC DATA & ANALYSIS

Today's economic news contradicted itself, but the market voted in favor of data over the earlier voiced opinion of a non-voting member of the Federal Open Market Committee. Early this morning, Charles Plosser, the president of the Philadelphia Federal Reserve, spoke before the Greater Philadelphia Chamber of Commerce. Mr. Plosser said that with economic growth resuming, prices may not fall in line with Fed expectations without further prodding. Plosser basically laid out our previously published prediction that persistent inflation could require further Fed tightening this year. We previously stated that the release of the Fed meeting minutes would likely provide the market with real insight into just how serious the Fed is about its inflation concerns.

At 8:30 this morning, fourth quarter nonfarm productivity was reported up 3.0%, versus a Bloomberg consensus view for a rise of 2.0%. At the same time, labor costs were only up 1.7%, compared to a forecast for a 2.1% rise. So the market gets very favorable results on both ends. If labor costs remain in check, while productivity improves, an important factor for inflation is negated. Still, we look to higher energy and food costs to drive inflation in the years ahead more than any other factor.

COMMODITY MARKETS

Our theory regarding the looming threat of food inflation seems to be increasingly taking hold. Soybean futures rose 0.3% and cattle feeder futures were 0.33% higher, while live cattle increased by 0.29%. However, corn and lean hog prices were lower today. We believe it is a near certainty that America's increasing demand for ethanol will drive corn and other food prices higher, despite plans to import ethanol from Brazil. We anticipate that feed costs for cattle, hogs and poultry will increase and be passed on to the consumer, driving inflation. At the same time, it seems a near certainty to us that conflict with Iran is pending, and that oil and gold prices are also destined to see higher ground over the next year and a half. Yes, you market enthusiasts driving up semiconductor stocks today, take a look around. The world is not so pleasant.

STOCK SPECIFIC NEWS
Tech bellwether, Cisco Systems (CSCO) energized sector investors today. A strong earnings report, revised higher guidance and a slew of positive reports from semiconductor companies helped drive technology stocks upward. The NASDAQ Telecomm Index rose 1.76% today on Cisco's push.

Tomorrow, look for earnings reports from Pepsico, Aetna, Waste Management, Thermo Fisher, Marriott International, Qwest Communications, Broadcom and Aon Corp.

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