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Market Update 070502
http://biz.yahoo.com/mu/update.html

4:20 pm : With the trend as their friend and sellers still coming up short trying to fight the tape of late, the bulls continued to ride an eight-week wave of upward momentum Thursday, lifting the Dow to its 18th record finish this year and closing the S&P 500 above the psychologically significant 1,500 mark for the first time since September 7, 2000.

Now that roughly two thirds of the S&P 500 have reported quarterly results, placing added emphasis on economic numbers, an encouraging productivity report before the bell was a catalyst behind today's decent follow-through buying efforts. The Labor Dept. showed that productivity in Q1 rose a healthy 1.7% (consensus 0.8%).

With the Fed meeting next Wednesday and policy makers still concerned that high levels of resource utilization have the potential to sustain inflation pressures, the productivity reports indication that unit labor costs rose only 0.6% in Q1 helped ease the worst of wage-based inflation fears. Initial claims unexpectedly falling to their second lowest level of the year (305K) was also encouraging, even though the data were collected after the April payrolls were compiled.

The temptation to take some money off the table amid a growing sense that stocks are clearly running ahead of fundamentals still looms. And, given the monthly jobs report's influence on the economic outlook and monetary policy, the market's sizable gains of late will likely come into question Friday morning if April payrolls growth checks in below economists' already unenthusiastic estimates.

Of the seven economic sectors finishing with gains, Telecom turned in the best performance (+1.4%). Dow component Verizon Communications (VZ 41.09 +1.49) surged to fresh multi-year highs for a fourth straight day, further supporting our Overweight rating on a sector that is also attractive for its defensive characteristics. That may help explain why market gains weren't as robust as today's broad-based leadership suggests since investors are likely to become more risk averse as valuations come into question.

Energy was the only other sector to gain at least 1%, but its continued resilience in the face of falling oil prices and earnings shortfalls from Sunoco (SUN 76.50 -1.20) and Williams Companies (WMB 29.19 -0.69) was noteworthy. Crude for June delivery is down nearly 5% this week while Energy is up 2.1% over the last three sessions.

Financials also provided some notable support, with Life & Health Insurers (+2.3%) giving the sector its biggest lift. Prudential Financial (PRU 99.45 +2.65) surged to record levels after handily exceeding Wall Street forecasts. Unum Group (UNM 27.36 +2.44) soared 10% to a multi-year high after saying Q1 net profits more than doubled and raising its full-year earnings outlook.

Bonds were weak across the yield curve as traders felt today's economic data provided further evidence the Fed won't be lowering interest rates anytime soon.

Consumer Discretionary, a market leader of late, was among the biggest obstacles for the bulls. Autos (-2.8%) ranked as today's worst performing S&P industry group after General Motors'(GM 30.73 -1.71) Q1 net income plunged 90% year/year due largely to continued subprime mortgage weakness weighing heavily on its GMAC unit's results. Specialty Stores (-3.1%) was another source of sector weakness after OfficeMax (OMX 41.90 -7.56) swung to a profit but Q1 earnings also fell well short of analysts' expectations. DJ30 +29.50 DJTA +1.4% NASDAQ +7.62 NQ100 +0.3% SP400 +0.3% SP500 +6.47 XOI +0.8% NASDAQ Dec/Adv/Vol 1490/1523/2.13 bln NYSE Dec/Adv/Vol 1365/1872/1.51 bln

3:30 pm : The underlying bullish momentum that has helped vault the Dow about 13,000 this week for the first time ever has picked up a little steam going into the close. The renewed wave of buying interest has the Dow on pace to close in record territory for the 18th time this year. The S&P 500 is poised to close above the 1,500 level for the first time since September 2000 and is now less than 25 points away (or less than 2%) from its record finish on March 24, 2000.

The tech-heavy Nasdaq is hitting fresh six-year highs as well, but the closest it has come to hitting a milestone of any kind has been an intraday journey through the "halfway mark" from its best levels ever. On March 10, 2000, the Nasdaq hit an intraday all-time high of 5132 before closing at 5048. DJ30 +32.96 NASDAQ +9.66 SP500 +7.06 NASDAQ Dec/Adv/Vol 1394/1600/1.76 bln NYSE Dec/Adv/Vol 1262/1950/1.22 bln

3:00 pm : The Energy sector's (+1.2%) continued resilience to falling oil prices remains a noteworthy piece to today's puzzling advance. Crude futures are down 5% this week while Energy is up 2.4% since Monday. Sunoco (SUN 76.75 -0.95) and Williams Companies (WMB 29.06 -0.82), both of whom missed analysts' expectations, are the only two energy components trading lower.

Meanwhile, Technology continues to provide a floor of support, with its best performer -- Symantec (SYMC 19.38 +1.21) -- soaring nearly 7% after merely beating lowered expectations. The Industrials sector is getting its biggest lift from strength in transportation stocks led by a 2.2% rally in Railroads on no news. DJ30 +21.02 NASDAQ +8.47 SP500 +6.20 NASDAQ Dec/Adv/Vol 1448/1528/1.61 bln NYSE Dec/Adv/Vol 1361/1862/1.12 bln

2:30 pm : More of the same for stocks as buying remains widespread across most areas. Bonds, though, remain under pressure across the yield curve. Traders continue to view this morning's stronger than expected rise in the ISM Services Index and the surprise drop in jobless claims as further evidence the Fed won't be lowering interest rates anytime soon.

The 10-year note is down 7 ticks to yield 4.67% while the 2-year note is down 3 ticks to yield 4.69%. That marks the first time in more than six weeks 2-year yields are higher than those of 10-year securities. DJ30 +16.61 NASDAQ +7.33 SP500 +5.65 NASDAQ Dec/Adv/Vol 1399/1564/1.52 bln NYSE Dec/Adv/Vol 1304/1882/1.05 bln

2:00 pm : Not much has chanced over the last couple of hours as the indices remain mired in a relatively narrow trading range. The market's holding pattern has been further evidenced in the A/D line, as advancers on the NYSE hold a slim 17-to-13 advantage over decliners while both advancing and declining issues on the Nasdaq remain evenly matched.

The ratio of up to down volumes paints a similarly sluggish picture at the Big Board and the Composite, with a slight edge going to buyers who are showing signs of fatigue given the market's sizable gains of late.DJ30 +10.00 NASDAQ +6.80 SP500 +5.26 NASDAQ Dec/Adv/Vol 1484/1453/1.39 bln NYSE Dec/Adv/Vol 1387/1775/956 mln

1:30 pm : The blue-chip averages remain positive but are merely hovering just above the flat line without much conviction on the part of buyers. One area on the S&P 500 that has recently seen a surge in volume has been Human Resources (+2.7%), which is now today's best performing S&P industry group.

Monster Worldwide (MNST 45.69 +1.66) has spiked to session highs amid speculation it is close to a sale of the company. However, since the stock ranks 43 out of the Industrials sector's 52 components, the 3.8% surge in MNST shares has had no impact on the broader market. DJ30 +4.22 NASDAQ +6.41 SP500 +4.45 NASDAQ Dec/Adv/Vol 1431/1498/1.28 bln NYSE Dec/Adv/Vol 1323/1827/880 mln

1:00 pm : After briefly slipping into the red within the last 30 minutes, the Dow is bouncing back, getting a boost from off all things, a rebound in oil prices. Exxon Mobil (XOM 80.58 +0.76) is now among the price-weighted index's best performing components (+1.0%). Crude for June delivery, which was down as much as 1.4% earlier, is now off only 0.3% near $63.50/bbl.

While oil's uptick itself is bearish for consumers, it has prompted a rally in the Energy sector (+1.1%) and provided another leg of market support. Drillers (+1.4%) now ranks among today's top ten performing S&P industry groups. Integrated Oil is up 1.1%. DJ30 +7.82 NASDAQ +6.97 SP500 +5.09 XOI +0.9% NASDAQ Dec/Adv/Vol 1466/1452/1.19 bln NYSE Dec/Adv/Vol 1390/1724/810 mln

12:30 pm : No real change in the proceedings as the afternoon session gets underway. Eight of 10 sectors are still in positive territory; but the best performer -- Telecom (+1.2%) -- is also among the least influential areas on the S&P 500, which helps to explain why market gains aren't as robust as such broad-based leadership might suggest.

Given the market's performance through the end of April and two days into a month that historically kicks off the year's worst six-month period, Telecom's defensive-orientation is also worth mentioning since investors are likely to become more risk averse as valuations come into question. DJ30 +8.45 NASDAQ +7.58 SP500 +4.88 NASDAQ Dec/Adv/Vol 1429/1488/1.09 bln NYSE Dec/Adv/Vol 1304/1792/724 mln

12:00 pm : The indices are off their best levels of the session midday but are still holding on to respectable gains, especially given the temptation to take some money off the table amid a growing sense that stocks are clearly running ahead of fundamentals. Roughly two thirds of the S&P 500 have merely turned in quarterly results that were better than feared and, with the market's focus shifting to economic data, it remains to be seen what catalysts will surface to keep this latest rally intact.

With the Fed meeting next Wednesday and policy makers still concerned that high levels of resource utilization have the potential to sustain inflation pressures, today's Q1 productivity report showing that unit labor costs rose only 0.6% in Q1 has eased the worst of wage-inflation fears. Initial claims unexpectedly falling to their second lowest level (305K) of the year is also encouraging, even though the data were collected after the April payrolls were compiled. Investors, however, aren't getting too excited about the data since tomorrow's monthly jobs report, given its influence on the market's outlook for the economy and monetary policy, will be closely watched for more clarity on labor conditions.

Nonetheless, there's no denying that market momentum continues to favor the bulls. The Dow is on pace to close in record territory for the 18th time this year while the S&P 500 is trading above the psychologically significant 1,500 mark for the first time since September 2000. The Nasdaq is at fresh 6-year highs and now turning in an even better year-to-date performance (+6.2%) than the Dow's 2007 gain of 6.1%. DJ30 +14.90 NASDAQ +8.11 SP500 +5.13 NASDAQ Dec/Adv/Vol 1421/1463/964 mln NYSE Dec/Adv/Vol 1281/1789/632 mln

11:30 am : The major averages continue to inch higher as the bulk of sector leadership remains positive. Telecom (+1.2%) is pacing the way among the nine sectors now in positive territory as Dow component Verizon Communications (VZ 40.54 +0.94) surges to fresh multi-year highs for a fourth straight day. A turnaround in the Consumer Discretionary sector is also contributing the market's latest move to the upside.

Tech is still another area of notable support but its intraday 0.7% advance has recently been eclipsed by a 0.8% gain in Energy. Even though the latter carries a smaller 10.1% weighting to Tech's 14.9% influence on the S&P 500, ongoing enthusiasm to own oil stocks in the face of another pullback in crude prices is noteworthy. Crude for June delivery is currently down 1.2% and back below $63/bbl. DJ30 +32.24 NASDAQ +10.72 SP500 +6.87 XOI +0.5% NASDAQ Dec/Adv/Vol 1359/1472/810 mln NYSE Dec/Adv/Vol 1193/1824/532 mln

11:00 am : As evidenced by the Nasdaq turning in the best performance among the majors for a second straight day, it's no surprise to see Technology hitting fresh session highs. Since tech is the second most heavily-weighted economic sector, its 0.8% advance has been a big reason why the S&P 500 is now trading above the psychologically significant 1,500 for the first time since September 2000.

Systems Software (+1.4%) now ranks among today's top ten performing S&P industry after Symantec (SYMC 19.53 +1.36) topped Wall Street's lowered expectations last night. Intel (INTC 22.05 +0.23) is also providing some sector support and helping the Dow hit historic highs after its CEO said profit gains in 2007 and 2008 will outpace revenue growth. DJ30 +20.64 NASDAQ +10.57 SOX +0.4% SP500 +5.46 NASDAQ Dec/Adv/Vol 1360/1433/640 mln NYSE Dec/Adv/Vol 1280/1689/406 mln

10:30 am : Despite digesting some more reassurance on the economic front, stocks are still struggling to find their footing. At the top of the hour, the ISM Services index checked in with a stronger than expected read of 56.0 in April from 52.4 in March.

Unfortunately, while the data show that the service industry remains in good growth mode, the report's lack of historical data and lack of a tight correlation to the non-manufacturing economy has not offered investors enough of an incentive to extend yesterday's rally. DJ30 -4.62 NASDAQ +3.06 SP500 +2.26 NASDAQ Dec/Adv/Vol 1504/1200/460 mln NYSE Dec/Adv/Vol 1366/1535/270 mln

10:00 am : The major averages are now trading in split fashion as a lack of influential industry leadership leaves the door open for sellers to voice their opinion about current valuations. The Financials sector recently slipping into the red has taken some steam out of early attempts to build on recent gains.

Consumer Discretionary, a market leader of late, is also in negative territory. Specialty Stores (-3.1%) ranks as today's worst performing S&P industry group after OfficeMax (OMX 43.92 -5.54) swung to a profit but Q1 earnings fell well short of analysts' expectations. Autos (-1.1%) are another area of sector weakness after General Motors' (GM 31.61 -0.83) Q1 net income plunged 90% year/year, also missing Wall Street's targets. DJ30 +2.30 NASDAQ -0.57 SP500 +2.16 NASDAQ Dec/Adv/Vol 1276/1245/208 mln NYSE Dec/Adv/Vol 1169/1503/96 mln

09:40 am : With the trend as their friend and sellers still coming up short trying to fight the tape of late, the bulls continue to ride several weeks of upward momentum that has lifted the Dow to 17 record closes this year alone. Now that about two thirds of the S&P 500 have reported quarterly results, placing added emphasis on economic numbers, an encouraging productivity report is acting as this morning's biggest catalyst behind decent follow-through buying efforts.

Earlier, the Labor Dept. showed that productivity in Q1 rose a healthy 1.7% (consensus 0.8%), but, more notably, unit labor costs rose only 0.6%, easing wage-inflation concerns. As a reminder, since the Fed remains concerned that high levels of resource utilization have the potential to sustain inflation pressures, tight labor market conditions will be a focal point when the Fed meets next Wednesday.

DJ30 +19.18 NASDAQ +3.82 SP500 +3.31 NASDAQ Vol 88 mln NYSE Vol 44 mln

09:15 am : S&P futures vs fair value: +4.9. Nasdaq futures vs fair value: +4.0.

09:00 am : S&P futures vs fair value: +6.0. Nasdaq futures vs fair value: +5.0. Early sentiment continues to strengthen, indicating an even higher start for the cash market. The tame increase in unit labor costs awarding investors some relief on the inflation front has reignited the momentum that has lifted stocks virtually unabated since the market bottomed in mid March.

The positive disposition, though, is certainly subject to change throughout the session as investors keep a close on Intel's (INTC) analyst meeting today and await a payrolls report tomorrow that may reflect some softening in labor market and lend further confirmation that stocks are clearly running ahead of fundamentals.

08:33 am : S&P futures vs fair value: +4.0. Nasdaq futures vs fair value: +3.0. Futures indications spike higher in response to this morning's economic data, now suggesting an upbeat start for stocks. A preliminary read on Q1 productivity rose a healthy 1.7% (consensus 0.8%) as unit labor costs rising just 0.6% eases wage-inflation worries. Initial claims fell 21K to 305K (consensus 310K); but the claims report has not had as much of an impact on trading as the productivity data since investors will now turn their focus to tomorrow's more influential employment report to get a clearer picture of labor conditions.

08:00 am : S&P futures vs fair value: +0.6. Nasdaq futures vs fair value: -0.5. With the Dow closing in record territory for the 17th time this year, the S&P 500 coming within a point of hitting 1,500 and the Nasdaq surging 1.0% to a fresh 6-year high yesterday, it's not surprising to see stocks take a bit of a breather this morning.