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From Briefing.com: 5:01PM Weekly Wrap: Roller coaster rides at amusement parks can be great fun. In the stock market, they can be wrenching.

This past week, the stock market roller coaster continued. The market rose on Monday and Tuesday after a sharp decline the previous Friday. But on Wednesday, the Dow plunged 115 points and the S&P dropped 15 to the lowest level of the year. On Thursday, however, the market rallied big time, with the Dow surging 206 points and the S&P 22. Friday saw fairly stable action at first, but increased volatility in late afternoon that led to a day of losses.

The dramatic action is a result of the conflicting forces of fears over rising inflation and the benefit of still strong earnings growth. Slower economic growth is also widely expected, but the uncertain degree of the slowdown is also causing stock market turbulence.

The main problem for the stock market is the undeniable fact that inflationary pressures are increasing. This week, the catalyst setting off the worst reaction to those fears was the Wednesday report that the core rate of CPI in March rose 0.4%. That was well above the expected 0.2% increase, and followed on a 0.3% February increase. These levels are up sharply from a year ago.

The release of the Federal Reserve Beige Book later that day poured more fuel on the fire. The trends from the Federal Reserve districts, based on anecdotal reports, were that "upward price pressures have strengthened" and that "high energy prices were already, or could soon be, damping consumer demand."

This really says nothing new. Market participants are well aware of these conditions. Nevertheless, the comments from the Fed compounded the fears generated by the CPI report.

The earnings reports helped offset this negative sentiment. About one-third of the S&P 500 companies reported this week, and the trend is excellent. Operating earnings in aggregate are on track for 12% growth. That compares with expectations of 7% growth just a few weeks ago.

First quarter earnings are coming in well above expectations, and guidance for the second quarter has been encouraging.

Noteworthy strong reports this week included 3M, Bank of America, Eli Lilley, Parker-Hannifin, Sun Trust Banks, Texas Instruments, Coca-Cola, Johnson & Johnson, Merrill Lynch, Pfizer, Viacom, Intel, Altria, Caterpillar, Honeywell, JP Morgan Chase, United Technologies, Allstate, eBay, Motorola, AT&T, Baxter, Cummins, Whirlpool, Amgen, Google, and International Paper. That is an impressive list of companies that all beat expectations.

The economic data this week was limited. March PPI provided a rare positive note on inflation, as the core rate was up only 0.1%. March housing starts dropped from high February levels. Initial claims fell, but that may have been due to seasonal adjustment problems. The Philadelphia Fed manufacturing index was a surprisingly strong 25.3. This contrasted with the similar NY Empire State Index which was a weak 3.1. The degree that economic growth has slowed is a matter of debate that this week's data did little to settle.

The yield on the 10-yr note over the past week was essentially stable, rising modestly from 4.27% to 4.28%. Oil prices rose from $50.49 a barrel to $55.50. That had some minor impact, but there had been little talk that oil would go below $50.

For the week, stocks were up. Score one for the strong earnings reports. Next week brings even more reports, with plenty of big names on tap. There are no inflation reports, and no major economic reports.

Perhaps the market can sustain some of the upswing that developed this past week. But downswings are still likely in the near future as well. Until the market perceives that the Fed has inflation back under control, the wild ride is likely to continue.

 
 Index    Started Week 	Ended Week     Change  %Change   YTD 
 DJIA 	   10087.88 	10157.71 	69.83 	0.7 % 	 -5.8 % 
 Nasdaq 	    1908.15 	1932.19 	24.04 	1.3 % 	-11.2 % 
 S&P 500     1142.62 	1152.12 	 9.50 	0.8 % 	 -4.9 % 
 Russell 2000 580.78 	 589.53 	 8.75 	1.5 % 	 -9.5 %

9:17AM Gapping Down :Gapping down on disappointing earnings/guidance: TSRA -21%, HLIT -21%, CREAF -18% (down in sumpathy: SGTL -6.6%), MYG -12%, LEA -8.8% (also BofA downgrades to Sell), COST -8.6%, SNDK -8.2%, SYNA -8.2%, BSTE -7.1%, BEBE -6% (also Wachovia downgrade), HYSL -6%, SWIR -5.7%, ISRG -5.6%, OSTK -5%, AFFX -4.4% (also Baird downgrade), ARBA -4% (also downgrades from CIBC and RBC), XLNX -3.7% (also First Albany downgrade), AMGN -1.1%.... Other News: AX -5% (cut to Sell at Sandler O'Neill), TASR -4% (profit taking after 25% move yesterday), POZN -3.4% (profit taking after 68% move yesterday), QGEN -3.2%, STX -2.3% (in sympathy with WDC report).

Companies in focus this morning following some notable ratings changes include downgrades on YHOO, UPS, LLY, KRB, BUD, LEA, XLNX and AFFX while MCD, BLS, ERICY, AFL, IP, DHR, FCX and FSL have been upgraded

8:55AM Gapping Up :Gapping up on strong earnings/guidance: GOOG +11% (up in sympathy: INCX +16%, GRU +2%), DV +16% (also multiple upgrades: Bear Stearns, CSFB, Jefferies, Piper), HTCH +6.8%, HAL +5.2%, BHE +2.7%, ERICY +2.5% (also Pru upgrade), BRCM +2%... Other News: INGP +4.2% (to announce merger with Nasdaq today - WSJ), ELOS +4.2% (started with an Overweight and $38 tgt at Lehman), TIBX +4.1% (profiled favorably in BusinessWeek), MCIP +1.4% (MCI bid raised to nearly $30 by Qwest - WSJ), SYNC +6% (Qool Labs selects co).

2:09PM Halliburton Co. (HAL) 43.78 +0.43: The Oil & Gas Equipment Services Index is up almost 6% year-to-date and 18% within the last twelve months. The group should get a boost Friday after the world's largest oilfield contractor, Halliburton, bested the Streets' estimates by fifteen cents.

The Houston-based company reported net income from continuing operations was $365 mln, or $0.72 per share up from last year of $0.17. Excluding a $2 bln, or $0.14 tax gain, earnings per share was $0.59. Due to reduced operations in Iraq, revenues fell 10.5% year/year to $4.94 bln. Consolidation operating income was $586 mln up from $175 mln last year. The jump was caused by a $110 mln gain on the sale of its 50% stake in Subsea 7 Inc. Strong demand and an improved pricing environment helped drive profitability. Operating margins widened to 11.8% with its ESG unit saw adjusted operating margins expand by 220 basis points to 18.5%.

The prevailing theme across all of its various business units was an improved demand environment for oilfield services due to higher drilling activity worldwide. This resulted in improved pricing, increased utilization, and higher margins. Growth was heavily weighted in North America and Latin America up 8.6% and 4.3%, respectively from the fourth quarter. While Europe/Africa and Middle East/Asia declined 9.6% and 7.8% q/q.

Its Energy Services Group, which accounts for 44% of total revenues, enjoyed a 20% increase in revenues to $2.2 bln. Operating income soared 140% to $513 mln. Production Enhancement Services saw increased demand for well stimulation services due to a strong natural gas market in the US, higher equipment utilization, and improving NA pricing. Its Cementing Services benefiting again from higher drilling activity worldwide. Completion Tools jumped 93% in operating profits seeing improvement in each of the four geographical regions, while its Drilling & Formation Evaluation unit gained 86% in profits on increased US activity, deepwater contract in Brazil, and higher drill bit sales.

What this report tells us is that activity within the energy patch has accelerated, as record energy prices drive demand for oil and gas, which in turn benefits the Drillers due to increasing demand at the drill bit, as well as the Oil Equipment and Services companies servicing those wells. We have been long proponents of both groups, suggesting investors add to the large cap players with technological advantage as extracting oil and gas has become much more difficult, as the growth environment drives top and bottom line growth.

Within its KBR unit, which accounts for 56% of total revenues, operating profits were $105 mln vs. a loss of $15 mln last year. This construction unit has come under increasing scrutiny from Congress regarding its billing practices centering on possible over billing. HAL stated it was resolving issues with our customers related to our work in Iraq, resulting in a settlement of the Dining Facilities matters. Its Iraq-related work accounted for $1.5 bln, or 30% total, generating an operating income of $38 mln (margin of 2.6%), or 6.4% of total. KBR's backlog as of the end of March was $9.4 bln up $1 bln just since the end of Dec due to a recent LNG award.

To provide further insight into the macro picture, Baker-Hughes reported the international rig count in March was up 2% from Feb and 12% from last year. For the US, the rig count up was 30 to 1,306. While the land rig count has increased more than 100 since the beginning of the year. Worldwide offshore rig utilization increased from 87.9% to 88.1% last week. HAL's competitor Baker Hughes (BHI) also beat expectations, along with oil driller Noble (00), which generated a 61% rise in profits. The oil services industry is in the early stages of a multi-year upcycle. Even if the pricing curve turns out to be more moderate this cycle, there remains considerable upside in earnings for these companies. BJ Services (BJS) is a suggested holding in our Active Portfolio along with oilfield drillpipe manufacturer, Grant Prideco (GRP). For Halliburton, Reuters estimates earnings growth of 24% in 2006. The stock is currently trading at 22x forward earnings.---Kimberly DuBord, Briefing.com

12:10PM MCI (MCIP) $26.60 +0.10 (+0.4%) The press release from MCI announcing receipt of the revised offer from Qwest (Q) of $30, of which $16 is cash, makes it pretty clear: Verizon (VZ) will have to up its bid to gain the support of the MCI board for the Verizon merger agreement to occur. The simplicity of the the three paragraph press release says it all. The first paragraph gives the details of the new Qwest bid and states the board will review it. The second paragraph gives the details of the earlier Qwest bid. The third paragraph gives the details of the Verizon bid, for which a signed merger agreement exists and under which Verizon has already called for a proxy vote by MCI shareholders.

Since the MCI board had previously told Qwest that if they wanted the company, they needed to come up with $30 per share, it seems likely that MCI would accept this new Qwest bid, unless Verizon responds. In fact, when the MCI board gave the "thirty's good" message to Qwest, they even specified that $16 of it must be in cash. Qwest has now done that, although a good portion of this additional cash comes from "pledges" totaling $800 million made by existing MCI shareholders, whose aggregate holdings are 13% of MCI. Although full details of what this pledge would look like, it probably amounts to secured debt, convertible into Qwest stock at varying ratios (to protect against downside.)

How Verizon reacts will now determine the outcome of this battle. If Verizon does not raise its bid, the MCI board will be forced, because of their prior statements, to accept the MCI bid, even though the new Qwest bid does not have a downside protection clause that MCI specified. This would mean a breakup payment to Verizon of $250 million (one-quarter of a billion dollars!). It is not clear at the moment if Verizon would still be entitled to force MCI to issue the proxy vote to MCI shareholders for a vote, but the proxy ballot would be accompanied with a "management recommends a NO vote" statement. We think this possible outcome is the least likely scenario.

A more likely scenario is that Verizon will no raise its offer for MCI and do it before Saturday night. It might even come later today. The question is "how much" and "how structured." The cash portion of the Verizon bid is only $8.35 per share. Since it has been clear throughout this battle that the real issue for the MCI board is the future value of Q stock, to win Verizon needs to present a bid that brings the analysis back to that issue. That means they should bump the cash portion as close to the $16 level that Qwest has presented. If Verizon made their total cash bid a full $16, their current VZ swap ratio with a collar of $14.75 would make the offer $30.75. It's then a no-brainer decision for the MCI bid.

Is such a pure-cash bump likely from Verizon? It would cost almost $2.5 billion. The parsimonious behavior of the VZ board might indicate they would be reluctant to go this far, even though their balance sheet could easily support the debt. Although it would be a slam dunk "end-of-game" move by Verizon, putting an end to this critical strategic battle, we think the chances of this scenario are 50/50 at best.

A more likely, but still far from certain, move from Verizon is that they increase the cash bid portion of their bid by at least $5 per share (to $13.35 or more) in cash, along with an increased stock swap ratio that puts the total value of the bid with $250 million of the Qwest bid. To "equal" Qwest's bid, Verizon can offer $250 million less, since no breakup fee would be paid. While only a small percentage now (2.6%), it is still one-quarter of a billion.

We think the most likely scenario is bid from Verizon that increases the cash portion to the $10-$12 range and increases the value of the stock swap to the $16-$17 range. That still puts the MCI board in the "gray zone" of which bid is better, but is close enough for them to select Verizon. Although Verizon has previously stated that they will not be pressured into paying too much for MCI, they have already proven with the Carlos Slim Helu side deal that they can be pressured.

We still think the strategic value of MCI to Verizon is so high that "paying up" in this auction is worth it, even if it pushes the payback date further into the future. It is also clear that Verizon sees that strategic value, which means all of the firm statements about "final offer" and "won't be pressured" were just posturing gestures to try to get the lowest possible price. The only mistake Verizon might make now is letting their frugal character set their revised price offer too low in the "gray zone," forcing the MCI board to accept the Qwest bid. In the end, that's probably what it all boils down to: how willing is Verizon to pay up for their future? Qwest is "all-in" now. All Verizon needs to do is call. - Robert V. Green

9:02AM Page One - The Whipsaw Continues : Market conditions remain treacherous. After a surprisingly large run-up yesterday, the market is poised to open lower. Investors should remain wary of getting caught up in the emotion of the moment.

The gains yesterday were attributed to excellent earnings reports. Indeed, the numbers have been coming in very good. But that has been true on other days when the market went down. Our view is that there are strong countervailing forces that are bursting through at various times. Yesterday, in the absence of bearish news, it was the bulls' turn.

The bears have held sway on many days due to sensible concerns about rising inflation, and less legitimate concerns about slower economic growth. But the bulls haven't given up either. Earnings growth of 11% this quarter provides support to stocks, and economic growth will remain above long-term trends. There are arguments both ways.

The risk is to get caught in the middle, and to be overly influenced by a day's action in the stock market. Just because the market goes down (or up) for a couple of days doesn't mean that one side of the argument has won. The very next day, the argument can be reversed.

This is even true of oil. When the bears were in full power, there was the silly argument that lower oil prices would be bad for the stock market. The logic went that if oil fell below $50 a barrel it would hurt energy stocks, which would undermine the only leadership sector there was. Today, oil prices are pushing towards $55 a barrel again, and this too is taken as bearish. Of course, higher oil prices drain the consumer of spending power, and higher prices are bad for stocks. Lower oil prices are good. The lack of consistency in the argument simply shows how unstable market conditions are right now. Any argument to justify a view can fly, at least for a day or two.

The earnings reports today are mixed. Google had a great report, and International Paper and Halliburton had good reports. But Amgen had a mixed report, and Eastman Kodak and Lear Corp. disappointed. Costco warned of lower profits this quarter and for the full year. Overall, earnings are still good, but there were not enough major names today to make a statement.

Futures indicate a lower open. It is ascribed to oil, but it really reflects selling after yesterday's rally. The S&P opens today up 18 points for the week. The Nasdaq is up 54. Conditions remain treacherous, and the action will remain choppy. This is not a time to be looking for a wave to ride.--Dick Green, Briefing.com

9:28AM Outback Steakhouse (OSI) Raymond James upgrades Mkt Perform to OUTPERFORM. Target $47.5. Raymond James upgrades OSI following Q1 results, citing: 1) the stock's recent pullback; 2) yesterday's release of the first in-line EPS quarter since 1Q04; 3) an improved cost outlook on the food and G&A lines; and 4) firm's continuing confidence in the ability of the co to meet its goal of doubling its size in five years.

9:27AM Callisto Pharma (KAL) Stanford Research initiates BUY. Target $5. Firm says KAL is the only biotech co they are aware of with 2 promising clinical stage programs in development for the treatment of cancer and a market cap below $50 mln. Firm believes that 3 strong proxies for KAL's potential valuation are VION, BIVN, and CTIC. Also, firm notes that KAL began trading on the Amex on Oct 25, 2004 and they believe that increased visibility will help drive near-term appreciation.

9:26AM Sierra Wireless (SWIR) RBC Capital Mkts upgrades Underperform to SECTOR PERFORM. RBC upgrades SWIR following in-line Q1 results but Q2 guidance below consensus. Despite firm's concerns over threats to SWIR's business model, they see limited downside potential at these levels given that they expect a minor recovery in PC cards in 2H05 on HSDPA and other launches, and including value for SWIR's cash ($4/share) as well as its franchise, IP, and brand.

9:26AM Chittenden (CHZ) Harris Nesbitt upgrades Underperform to NEUTRAL. Target $26. Harris Nesbitt upgrades CHZ following Q1 report, saying the co is one of the few banks experiencing an increase in the margin YoY and is optimistic that it will modestly increase throughout 2005. Also, they note the co has taken a number of steps to enhance the value of its franchise, including positioning itself for rising rates, expansion into higher-growth New England mkts, and maintaining a low-risk and low cost balance sheet, which they think should support loan growth.

9:25AM CB Richard Ellis (CBG) Goldman Sachs upgrades In-Line to OUTPERFORM. Goldman Sachs upgrades CBG given the continued very strong brokerage activity, saying that industry-wide real estate sales volumes in Q1 are up 25% over the prior year, and nearly 35% in the more relevant office/industrial mkts, which they say alone could yield $0.06 of y/y incremental Q1 EPS for the co. This combined with strong momentum dispels one of their concerns.

9:25AM Lear Corp (LEA) Banc of America Sec downgrades Buy to SELL . Banc of America downgrades LEA as they now believe that the co's 2002-04 margins outperformed the Big 3 production trend due solely to a high reliance on Big 3 large trucks. Firm now estimates that LEA's earnings power, excluding the effect of higher raw material costs, is closer to $3.00 than $6.00.

9:24AM UPS (UPS) Bear Stearns downgrades Outperform to PEER PERFORM. Bear Stearns downgrades UPS following Q1 results, as they expect its valuation to continue to gradually contract closer to that of FDX, if it continues to lose domestic mkt share.

9:24AM Polaris Inds (PII) IRG Research initiates BUY. Target $74. Firm believes the recent sell-off is unwarranted and creates a compelling opportunity to build positions. They believe catalysts include growth from international and utility markets, more rapid product development coming from harvest of growth investments, and continued share repurchases.