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From Briefing.com: Close Dow -30.26 at 10287.10, S&P -4.90 at 1191.49, Nasdaq -18.94 at 2084.08: For the third straight session, the market endured a post-lunch plunge that erased intraday gains that left the indices submerged. While the session was launched on solid footing - as a stream of September same store sales data, a host of positive earnings reports, GE's upbeat guidance, and easing energy prices injected some reassurance into an inflation-fixated and interest-rate wary market - gains were ultimately unsustainable. Although his remarks were of no surprise, reasserted inflation-related comments from Dallas Fed President Fisher exacerbated the sell-off that traders, disappointed in yet another session's inability to maintain momentum, began this afternoon. Week-to-date, and Q4-to-date, the Dow, S&P and Nasdaq have respectively lost 2.7%, 3.1%, and 3.2%. Leadership was all but absent again today, with Energy spending yet another session in the laggard's slot. A 1.7% drop in crude ($61.70/bbl), accompanied by similar pullbacks in gasoline and natural gas, prompted a 2.3% loss across the sector, which has, since Monday, given back nearly 10% of its year-to-date gain. Trailing Energy came Utilities, off 1.5% today as traders similarly locked in some of the S&P's second best performer's profits. Battling sharp across-the-board declines that left semis and software, particularly, with 1.7% losses, Technology's 0.8% fall weighed heavily on the market. An earnings beat from ATI Technologies (ATYT 14.20 +0.94) offered some support to the struggling Nasdaq, while relative strength in Yahoo (YHOO 34.80 +0.31) and a surge in First Data (FDC 39.55 +0.77), following CIBC's positive comments, limited the sector's downside. Aside from a better than expected earnings report from Marriott (MAR 63.62 +0.45), which beat estimates by more than a nickel and simultaneously hiked Q4 and FY05 guidance, the 0.2% rise in retailers - though severely pared this afternoon - coupled with energy price action to close Consumer Discretionary's nose above water. Along that line, today's stream of Sept. same store sales reports were, overall, better than the market had feared. Three of the nation's biggest stores - Target (TGT 52.02 +0.78), Wal-Mart (WMT 43.93 +0.43), and Costco (COST 44.92 +2.01) - each delivered comps ahead of analysts' expectations; Costco, in addition, reported Q3 earnings that surpassed estimates by a penny alongside a $1 bln share buyback plan. In the end, though, the subsequent 4.2% jump in COST shares, as well as strength in WMT, could not offset a guidance-induced plunge in CVS (26.30 -1.75); the sector lost 0.4% today. An upbeat announcement from General Electric (GE 33.59 +0.91) - its Q3 earnings will come in at the high end of its forecast and that current momentum will carry over into Q4 - sent shares up 2.5% and drove the Industrial sector to a leading 0.9% gain. Strength in banks (+0.4%) supported the Financial sector, and, as rates on 30-year mortgages hit six-month highs (5.98%), renewed buying efforts in underperforming Freddie Mac (FRE 58.80+1.78) also lent some support to the overall market. Perhaps further stunting today's momentum was traders' anticipation of tomorrow's employment data, within which the inflation-gauging hourly earnings component is apt to garner particular attention. While the report's influence may be diminished by the forecasting vagaries associated with the impact of Hurricane Katrina, uncertainty ahead of the report may have affected today's trading.DJTA +0.74, DJUA -1.56, DOT -1.19, Nasdaq 100 -1.18, Russell 2000 -0.86, SOX -1.73, S&P Midcap 400 -0.91, XOI -2.15, NYSE Adv/Dec 1075/2198, Nasdaq Adv/Dec 1044/1974

3:01PM ATI Technologies (ATYT)
14.17 +0.91: Graphics chip maker ATI Technologies said Thursday it beat analysts' fourth quarter profit target on a narrower than expected loss, after issuing a sales warning in late August. The Ontario, Canada-based company posted a loss of $104 million, or $0.41 per share, on sales of $470 million for the most recent quarter, compared to a year-ago profit of $61.2 million, or $0.24 per share, on revenue of $572.2 million. In the third quarter, the company reported a loss of $0.4 million, flat on a per share basis, on $423.4 million in revenue. Excluding a previously announced inventory write-down and stock-based compensation expense, which totaled $67 million and $11.2 million, respectively, ATI lost $0.12 per share - $0.16 better the consensus estimate loss of $0.28 per share.

By segment, ATI said sales from its PC division - 80% of total revenue - fell 18% to $377 million as a result of lower sales of desktop products in the Add-in-Board and retail channels. Consumer revenue, in contrast, grew nearly 35% to $93 million from the previous quarter as chip volumes for cell phones and digital televisions increased considerably.

In August, ATI warned that fourth quarter revenue would fall short of its prior guidance due to slower sales for desktop computer chips. As a result, the company cut its revenue forecast to a range of $465 to $480 million, from $550 to $680 million. In addition, it said gross margin would fall into single digits from a previous prediction of 29% to 30% because of a write-down of inventory and lower selling prices in desktop products. The revised outlook was well below previous analyst estimates.

Accordingly, gross margin for the period fell to 9.0%, compared to 29.0% in the previous quarter. Factoring out the inventory write-down, which accounted for the majority of the decline, gross margin amounted to 23.3%. Still, the lower level reflects a weaker product mix and aggressive reductions in average selling price to foster demand in the Add-in-Board channel, the company said. Meanwhile, selling and marketing expenses climbed 4% sequentially, primarily due to higher advertising and promotional activity to bolster brand awareness and support new product introductions. Research & development costs were flat from the third quarter, while administrative expenses were up 8% due to increased staffing levels and professional fees.

Aside from ATI's reported loss, the company offered an encouraging outlook for the first quarter. It expects sales to increase by about 15% from last quarter's $470 million, due to growth in desktop discrete, chipset, and handheld businesses. This equates to $540 million versus the consensus estimate of $534.66 million. Furthermore, ATI predicted gross margin around 29% on continued improvements in chipset margins and the introduction of a new desktop product family. Operating expenses are expected to rise 2% to 3% sequentially, excluding stock-based compensation costs.

Although ATI has demonstrated poor performance over the last two quarters, the company appears to be gaining traction, albeit modestly. The company's consumer business, which includes handsets, digital TVs, and game consoles, represents a significant catalyst for growth. ATI has significant exposure to the market for advanced mobile devices and has retained notable design wins with such companies as Motorola, Samsung, Siemens, and LG. In addition, the company is key supplier for Microsoft's next generation game console, Xbox 360, and Nintendo's Revolution console, which are slated to be launched in the coming months. With increased focus on new products and markets, coupled with ongoing cost improvements, the company stands to deliver stronger performance heading into fiscal 2006. --Richard Jahnke, Briefing.com

2:57PM General Electric (GE)

33.48 +0.80: During its Commercial Finance investor web cast, General Electric announced it will achieve the high-end of its existing third quarter earnings guidance of $0.44 per share, driven by robust financial services performance and long-cycle global infrastructure. Wall Street was already anticipating as much with consensus dead on the mark. Forty-four cents in earnings would equate to 16% growth over the prior period - quite impressive. GE estimated this positive momentum would flow through to the fourth quarter as well. It is increasing its full year guidance to $1.81-$1.83, up slightly from $1.80-1.83. The current consensus estimate is right in the middle of the range at $1.82 per share.

On CNBC Mr. Immelt reiterated his comments regarding his bullish outlook for the US economy, as well as GE's own profits. The conference being held in New York for the Commercial Finance division is part of GE showcasing its new reorganization. Chief Finical Officer Keith Sherin told investors that GE is parting with slower-growth, more capital intensive businesses, like insurance, in favor of higher-growth areas including water treatment, healthcare, and consumer finance. In the quarter, GE reduced its stake in the life-and mortgage insurance business from 52% to 27% and will de-consolidate the entity from its balance sheet. Sherin added GE will exit Genworth by the end of 2006. GE Commercial Finance is forecasted to generate earnings growth of 25% for FY05. Further, better risk management, asset growth, and improved capital deployment is forecasted to boost ROE to 22% from 19% in 2004.

GE's shares haven't been on anyone's buy list recently, with the stock dropping to $32.68 on Wednesday - its lowest point in a year. GE has lost 8% year-to-date vs. a 1.7% decline in the S&P 500. Helping to draw in the buyers today was news that the company raised its share repurchase program by a billion dollars to over $4 bln in 2005. While that seems like an enormous sum consider GE ended the second quarter with $146 bln in cash and marketable securities.

Investors won't see GE's quarterly results stray much from consensus, as performance is well telegraphed by both parties. During its second quarter earnings presentation, GE outlined expectations for the upcoming quarter. What stood out then, and now looking back, are the double-digit gains expected on both the top line and profit line. The biggest drag will likely be NBC Universal, as ratings continue to trail ABC and FOX.

In order to extend today's gains, GE needs to keep driving home to investors its strategy of increased transparency, simplified organization, and most importantly, its promise to deliver organic growth. We continue to hold the position that GE offers a compelling long-term investment, particularly in an environment of rising interest rates and slower consumer spending. The company has never looked better, generating internal growth rates in the low double-digits while trading at a 25% discount to its historical valuation. Looking for a stock that will reap the rewards from developing nations like China and India? Prudential estimates over the next five years that 40% of GE's total revenues will come from these high-growth areas. ---Kimberly DuBord, Briefing.com

11:26AM Merck (MRK)

27.46 +0.57: In a new Phase III study, Merck & Co. said its experimental vaccine Gardasil completely prevented high-grade cervical pre-cancers and non-invasive cervical cancers associated with human papillomavirus (HPV) types 16 and 18. "These are the first pivotal data to show that vaccination with Gardasil reduced HPV 16 and 18 related cervical pre-cancer and non-invasive cancer," said Laura Koutsky, Ph.D., principal investigator, HPV research group, University of Washington, Seattle. "This trial confirms that a vaccination can give young women a high level of protection from developing pre-cancerous lesions and early cervical cancers," Mrs. Koutsky added.

For Merck & Co., the successful trial in the ongoing Phase III program of Gardasil is welcoming news, as the beleaguered drug maker has been reeling from an influx of Vioxx-related news, as well as a score of impending patent expirations. Vioxx, which was introduced by Merck in 1999 to much acclaim, was pulled from the market in September 2004 after studies linked it to increased risk of heart attack and stroke in long-term users. Nearly 5,000 lawsuits have been filed against the pharmaceutical giant since. Last August, in the first civil case against the company's once-popular painkiller, a Texas jury found Merck liable for the wrongful death of Robert Ernst. The case, which was followed with intense investor focus and media coverage, was widely viewed as an early indication of the torrent of forthcoming trials. Consequently, shares in the company are approximately 40% below their September 2004 levels and down nearly 10% year-to-date.

Nonetheless, Merck's recent study over the efficacy of Gardasil is a breakthrough for the company, and for the approximately 20 million people infected with the disease in the U.S. alone. HPV has been identified as the cause of cervical cancer, pre-cancers, benign cervical lesions, and genital warts - with such cancers accounting for approximately 290,000 deaths worldwide, including an estimated 3,700 in the U.S. In the United States, an estimated 10,400 new cases of cervical cancer will be diagnosed in 2005, Merck said.

Although the immune system generally clears the disease from the body on its own, certain strains can lead to cervical cancer. Of these strains, Merck's Gardasil currently targets types 16 and 18 - which account for about 70% of cervical cancers. The investigational vaccine also combats HPV 6 and 11, which are not responsible for cervical cancer but rather genital warts.

Interestingly, Merck's Phase III trial demonstrated great promise of the drug's effectiveness at preventing HPV (6, 11, 16, 18), with little side effects. As such, the company is optimistic that the drug will soon be available for distribution. Merck said it remains on track to file a biologics license application with the U.S. Food and Drug Administration in the fourth quarter.

While Merck's positive clinical study was undoubtedly encouraging, the company continues to face significant challenges. With impending patent expirations and ongoing Vioxx-related cases, the near-term growth prospects do not appear very promising. However, at the current price level, investors' concerns have largely considered in the valuation. Given Merck's seeming discount to its peers, large cash position, and strengthening pipeline (i.e. Gardasil), the stock warrants consideration as a long-term play. --Richard Jahnke, Briefing.com

11:07AM Costco Wholesale Corp. (COST)

44.36 +1.45: With companies reporting same-store sales data for September, today can unofficially be referred to as Retail Madness Day. The theme across the entire sector is gasoline prices and hurricanes. The International Council of Shopping Centers, a trade group which tracks sales trends, forecasted a 3% rise last month. That would be the smallest gain in four months as Hurricanes Rita and Katrina have displaced many Americans from their homes and have sent gasoline prices to record levels. High gas prices inflated sales for the wholesale-club retailers last month. CostCo, Sam's Club, and Wal-Mart all reported higher sales in September. Wal-Mart reported comps of 3.8%, and 3.2% excluding gas price inflation. For its club-warehouse chain, Sam's Club's, sales grew 9.8%, but ex-gas, the figure drops to a rise of 6.3%.

CostCo released its sales data for the month, along with its fourth quarter earnings results, which were assisted by a lower tax rate and share buybacks. Overall, earnings were solid considering the headwinds the club retailer faced. Profits grew 20% from last year to $354.7 mln, or $0.73 per share, from $296.8 mln, or $0.62 per share. Net income was positively impacted by a tax benefit tied to unremitted earnings, which added four cents, and a lower tax rate (28.9% vs. 37% last year), which tacked on another three cents. On a comparable basis, earnings came in at $0.66 per share, excluding non-recurring items - a penny above consensus.

Net sales grew 10.3% year/year to $16.4 bln, roughly in-line with expectations. CostCo's September comparable sales increased 11%, above the Briefing.com consensus of 7.4%, including 10% growth domestically and 13% internationally. Again, stripping out gasoline sales, US comps grew 8% and total warehouse same-store sales rose 7%. CostCo has consistently outpaced its competitors this summer in sales. Over the last four months COST generated comps of 11%, 9%, 5% and 9% respectively. This compared to BJ's Wholesale at 3.8%, 5.6%, 4.7%, and 4.3%, and Sam's Club, which posted increases of 9.8%, 6.6%, 5.1% and 4.0%, respectively. Note: we are including the effects of gasoline in the September numbers.

CostCo's success is partly due to its ability to drive store traffic. It has been running promotional campaigns using coupons to attract customers, offering special prices on particular items like flat screen TVs, without having to lower shelf prices. Merchandise sales helped make up for profits lost on gasoline sales, which it also sells at a discount. CostCo carries less than one day's supply of gasoline, making it highly susceptible to price fluctuations. In April, the company lowered its Q3 and FY05 profits forecast as a result.

Overall, the Issaquah, Washington-based company used all its means this quarter to meet expectations. Sales were modestly better, but margins were worse. Gross margins slipped 40 basis points, likely impacted by gas prices. SG&A held steady, but operating margins dropped just over 20 basis points to 2.79%. Earnings per share were boosted by the company's aggressive share buyback program, which was boosted again to $1 bln in common stock after COST bought $400 mln worth of stock during the quarter. Unfortunately, CostCo did not provide any cash flow statement or a balance sheet with its press release. Still, the ramp in buybacks gives a clear signal management feels it has adequate cash on hand to support its capex plan, which includes opening another 17 stores in 2005 and 25 locations next year.

Shares jumped today in early trading, gaining more than 3%. We think the market is responding to the total value return offered by owning COST shares rather than the bottom line results. This remains a top line story, as margins will remain under pressure. The retailers are seeing a run up today after months of languishing performance that has stemmed from concerns over the effects of gas prices. The group is entering a seasonally strong period. For investors looking to step in, we would suggest focusing on the specialty and luxury group and shy away from the department stores and discount retailers. For CostCo, with shares down 9% year-to-date, and trading at a 20% discount to its historical average, the current level appears attractive. We appreciate the buybacks and top line acceleration, but hope to see some margin improvement ahead, or at the very least some stabilization. ---Kimberly DuBord, Briefing.com

9:06AM Page One - Shifting Fears Settle in on Inflation and the Fed

The stock market tanked yesterday on fears that inflation is picking up and that the Fed will continue to raise interest rates.

There was no new data to support the inflation fears. Yes, there was the prices paid component of the ISM services index, but that number was not surprising. Energy prices were higher after Katrina hit. There is still no evidence that there will be a sustained rise in inflation rates going forward.

Unfortunately for the stock market, it may be a while before there is evidence as to the outlook for inflation. The September core CPI data will be out next Friday, and the core PPI data will be out October 18. If those numbers remain low, however, it may not convince the market that inflation is under control. If the numbers pick up, it doesn't necessarily represent a trend. Just as possible is an uncertain 0.2% reading on both.

So far, however, the inflation fears remain simply fears. Both core PPI and CPI are running at a 1% annual rate in the most recent four months of data. The argument that higher energy prices now, all of a sudden, have to result in higher core inflation rates is unconvincing to say the least. Furthermore, energy prices have now stabilized or fallen in the months since Katrina hit. It is very possible that the core rates stay at low levels and the total inflation rates see no further boost from energy in a couple of months.

That won't do much for the stock market short term. And, there is another legitimate concern. The stock market is coming to grips with the reality that the Federal Reserve probably will raise rates more than one more time. Statements from various Fed officials give this impression If stocks were priced for just one more rate hike, an adjustment was needed.

Same store sales for September are coming in quite nicely this morning. The three largest stores all reported above expectations: Wal-Mart had its previously reported 3.8%, Costco posted a very good 11.0%, and Target came in at 5.6%. Federated and Talbots had disappointing numbers, but many specialty retailers had very good numbers.

It would be hard to pick these numbers out as post-Katrina from a line-up. They are extremely encouraging from an economic standpoint as there is no evidence of the feared consumer slowdown following the hurricane.

Oil is down $1.00 this morning to $61.80 a barrel. Gasoline futures are down 4 cents to $1.86. It is amazing that amidst all the recent inflation scare based on virtually no data, that energy prices could be down so much and attract so little attention.

There is some good news on the corporate front as well. General Electric, the largest global conglomerate, said profits for the third and fourth quarters will come in at the high end of the forecast range. No Katrina impact here either.

We had expected the market to experience turmoil in late September due to earnings warnings ahead of the earnings reports. The downdraft now therefore does not completely surprise us. And, we still look for excellent earnings reports that will give the market a boost in the weeks ahead.

The fears have shifted from $5 a gallon gasoline to a consumer implosion and now to rampant inflation in just four weeks. There is now data to indicate the first two won't happen. It will take some time to show the latter won't either. The fundamentals simply have not changed significantly, and still leave room for a decent mid-single digit gain in the S&P by year-end. -- Dick Green, Briefing.com

9:37AM Inergy (NRGY) Wachovia upgrades Mkt Perform to OUTPERFORM. Firm believes the co is well positioned to achieve a 2005-2007 CAGR of about 10% in distributions per unit. They think the co's recent acquisition of Stagecoach significantly expands its midstream operations and provides a leg for additional growth. Valuation range is $30-$34.
9:36AM Gramercy Capital (GKK) Wachovia upgrades Mkt Perform to OUTPERFORM. Firm thinks the co should continue to grow FFO and dividends over the next few qtrs, based on strong deal flow and a solid financing model. They believe the co will be able to leverage its strategic relationship with SL Green (SLG) to drive deal flow, in addition to investment opportunities identified by the co's own senior mgmt team. Valuation range is $26-$27.

9:35AM Animas (PUMP) Brean Murray initiates STRONG BUY. Target $21. Brean Murray notes that the co manufactures and distributes devices used in the treatment of the disease, specifically insulin pumps, which is a high-growth market estimated to be $600 mln domestically and $800 mln globally. They expect the co to achieve profitability in 2H05 and forecast that profitability will continue.

9:34AM Viasys Health (VAS) Brean Murray initiates STRONG BUY. Target $29. Firm notes that the co has been a turnaround story since its spin-off from Thermo Electron (TMO) in Nov 2001, and says that increasing disposables sales are expected to drive revenue growth and margin expansion.

9:31AM Golden West (GDW) Wachovia upgrades Underperform to MKT PERFORM. Firm thinks the co has a strong history of managing through credit problems and a superior business model, with lower-than-average interest rate risk. Valuation range is $54-$57.

9:31AM LaBarge (LB) Oppenheimer initiates BUY. Target $20. Firm says the co is the 46th largest electronics manufacturing services co globally and is seeing rapid growth in orders, particularly from customers in the defense and natural resources sectors. They believe recent order announcements provide excellent visibility to earnings. They also cite attractive valuation.

9:30AM SanDisk (SNDK) CE Unterberg Towbin downgrades Buy to MARKET PERFORM. Firm believes the current stock price largely reflects expectations for a strong Q305 and near term outlook, as well as the general long term growth outlook for the NAND market.

9:30AM Citrix Systems (CTXS) Lazard Freres initiates BUY. Target $31. Firm believes that the co will trade at a premium multiple based on its improved visibility, strong end mkts, and strategic position. They expect the mkt to grow 12% - 18% through 2009 and believe the co is best positioned to exploit this multi-billion dollar opportunity.

9:30AM Elizabeth Arden (RDEN) Fulcrum initiates BUY. Target $26. Firm believes RDEN is a high risk/high reward story in which both the risk and the reward potential rest on the success of the Britney Spears and subsequent celebrity fragrance franchises and the new Prevage skin care line, in an industry where the consumer is fickle. They say RDEN's core strength, is that it dominates sales of fragrances in mass channels, particularly "prestige" fragrances which is a segment that is growing.

9:28AM Luby's (LUB) Sanders Morris Harris initiates BUY. Target $16.5. Firm thinks the co's strong mgmt team is successfully turning the once struggling cafeteria chain around by selling unprofitable assets, slashing debt, boosting operating efficiencies, and introducing a new menu board and products. They expect Q4 results to beat consensus ests and believe the co is poised to sustain its recent momentum.