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From Briefing.com: 4:17 pm Weekly Wrap

Although no one would ever pick the last week of any year as a "proxy" for the entire year's market tone and trends, this past week might easily fill the role. In fact, the month of December could fill that role as well.

First of all, this holiday week of light volume gave up all of the gains made earlier in the month and essentially left December flat for the entire month.

While the S&P 500 Index showed a small positive gain for the year, the Dow showed a small loss for year, although dividends offset that loss slightly.

This type of one-step forward, one-step back movement characterized the market movement for the full year.

For example, January's losses this year were offset by February's gains, which were in turn erased by March and April's losses. May, June, and July showed a strong summer rally, but the losses in August, September, and October brought the market back to being flat for the year.

Now this week's losses have erased the earlier modest gains of December.

This means that if you want to give thanks for the modest returns of the entire year, you must thank the month of November, whose overall gains of approximately 3.5% are now more than responsible for all of the market's result in 2005.

All of this "tread-water" market action has occurred while the overall economy and business earnings have shown very good and solid results.

Inflation has been remarkably constrained. The Fed raised interest rates at every FOMC meeting. Corporate balance sheets are in extremely good shape and earnings growth was very solid and well ahead of overall GDP growth. Oil prices doubled and hurricane damage was extensive in multiple areas of the country. Yet overall economic growth was still higher than the historical average.

The question now for the markets turns to what the environment for next year will be. It appears, at the moment, to be in contrast to the very positive tone that traders had at the beginning of 2005.

There are only three lasting events this week that might be meaningful going forward.

First was the announcement by the Chinese government that they have chosen 13 Chinese banks to serve as market makers for the yuan. This very modest indication that China is edging closer to letting the yuan float to market rates could be a significant driver of the global economy next year.

The other announcement of interest was Friday's statement from Intel that it is going to rebrand the company as a consumer-oriented technology company instead of an "information technology" company. This step from the hardware leader of the PC revolution that is now 25 years old serves as a good reminder of a theme that we have stressed at Briefing.com for several years: the information technology market (meaning PCs and computer equipment for businesses) has matured.

Finally, a lot of focus is now on the message seen in the interest rate market. The yield curve is now inverted, with two-year Treasury bonds yielding a basis point more than the ten-year bond.

The traditional view is that an inverted yield curve is a leading indicator of an impending economic recession. However, it seems that every commentary about the quality of the yield curve predictor has focused on the fact that, in the past, the long term interest rates have been much higher than they are currently. In those scenarios, when the short term interest rates became even higher, the restrictive short term effect on the economy has been dramatic. Today, with the long term interest rates low by historical standards, most analysts have expressed the view that short term rates, although higher than long term rates, are still not high enough to seriously impact the modest economic growth now in place.

If that view turns out to be correct, it means that yet another age-old adage on Wall Street might be proven true in 2006: "the inverted yield curve has correctly predicted 9 out of the past 6 recessions.

Happy New Year from all of us at Briefing.com.--Robert V. Green, Briefing.com

 
 Index      Started Week Ended Week Change  %Change YTD  
 DJIA         10883.27   10717.50  -165.77  -1.5 % -0.6 %  
 Nasdaq        2249.42    2205.32   -44.10   -2.0 % 1.4 %  
 S&P 500       1268.66    1248.29   -20.37   -1.6 % 3.0 %  
 Russell 2000   686.44     673.22   -13.22   -1.9 % 3.3 %

4:20 pm : The final trading day of 2005 was dominated by selling action that locked the major averages within a very tight, red range. Wedged between two holiday weekends, thin volume characterized the past five sessions and particularly today's as many participants got an early start to the New Year' weekend. The lack of catalysts due to a taciturn corporate front and a blank economic calendar helped to further hinder buying efforts. While the market's disposition was decidedly bearish, losses were somewhat kept in check and likely driven by year-end portfolio adjustments. In the end, though, today's action did little to change the indices' 2005 statuses: Each ended on positive ground, and the S&P clung to the 3.5% with which it entered the session. Although that's not the best of returns, it's the third consecutive year during which the market has risen.

A lack of leadership left the market stunted. Somewhat bucking the bearish bias was Energy. A 1.2% rise in the price of crude helped incite some buying interest, and last-minute portfolio additions of the market's best-performing sector likely provided added support. Ultimately, though, its 0.3% gain could not effectively counter the losses levied by the nine other sectors. Dragged by profit-taking within the diversified metals and mining industry, Materials (-0.8%) led the laggards. It was a trio of declines posted by the market's three heaviest sectors -- Financial (-0.4%), Technology (-0.6%), and Healthcare (-0.7%) -- however, that can be largely credited with today's slide. The Treasury market continues to loom as equity traders' focal point, and, although this week's yield curve inversion came as little surprise and on conviction-lacking volume, another session of the two-year note's yield surpassing the 4.39% offered by the 10-year especially weighed upon the Financial sector. To that end, banks posed a particular challenge. On a related note, Citigroup (C 48.68 +0.10) wasn't helped by news that it's upped its bid for state-owned Chinese lender Guangdong Bank to $3 billion. Regading the Tech sector, Intel (INTC 24.94 -0.13) had lent some modest support in the early going, following reports of its marketing makeover, but too fell victim to pervasive selling.

While the crude action had initially appeared overlooked, the Discretionary sector (-0.6%) eventually responded to the commodity's rise over $61 per barrel. The story there was a similar one of wide-spread selling. General Motors (GM 19.35 +0.34 ) stood as its brightest spot; seemingly paradoxical, its year-long weakness doubled as its strength today. The Dow component is the first since 2002 to have lost 50% or more over the course of a year. At the same time, with a 10.3% dividend yield, GM tops the 2006 Dogs of the Dow list and may have, for that reason, attracted some buyers today.
DJ30 -67.32 NASDAQ -12.84 SP500 -6.13 NASDAQ Dec/Adv/Vol 1751/1325/1.30 bln NYSE Dec/Adv/Vol 1955/1302/1.10 bln

10:19AM Semi Index - - SOX 476.54 -5.46 - - continues to slide lower off the opening : Next area of interest lies at its mid-November gap and 50-day sma around 472.83/472.17. Minor support at its late November reaction low at 475.51.

10:10AM Semiconductors Hldrs Trust - - 50 Day Alert (SMH) 36.66 -0.26 : Semis extend lower off the opening bringing its 50-day simple ma into play around 36.49.

09:42 am WellPoint: Prudential reiterates Overweight. Target $85 to $85. Firm notes that on Wednesday, WellPoint quietly completed the WellChoice acquisition sooner than expected. Considering the political confusion surrounding this deal, the firm says they were impressed by WellPoint's rapid deal close. Firm says from the WellChoice acquisition, they believe WellPoint emerges as a formidable managed care competitor with a broad national footprint, who can effectively compete for national & large group accounts, leverage its deep products offering, and better exploit the Medicare Drug Benefit opportunity. Firm says despite WellPoint mgmt's guidance, they expect the WellChoice deal to be earnings accretive in 2006 due to sizeable SGA expense savings & enrollment growth.

09:40 am North Pointe Holdings: Sandler O'Neill reiterates Buy. Target $15 to $15. Firm ups target as a result of an increase in peer group valuations, as well as the firms expectation that the co will be able to grow both its top and bottom line at a double digit rate in 06.

09:05 am McDermott: Hibernia Southcoast Capital reiterates Buy. Target $50 to $50. Firm citing valuation and MDR's B.W.X.T subsidiary is part of a consortium that was recently awarded a contract by the Department of Energy to manage and operate the Los Alamos National Laboratory. The contract term is seven years and it starts on June 1, 2006. The firm also notes that the recent recommendation in favor of the confirmation of the Babcock and Wilcox Chapter 11 Joint Plan of Reorganization and the associated proposed settlement agreement by the Honorable Judge Jerry A. Brown of the US Bankruptcy Court for the Eastern District of Louisiana is an important step toward MDR being able to reconsolidate B&W's results The firm believes the process is still on track to reach an effective date of Feb. 22, 2006.

09:00 am Noven Pharma: Jefferies & Co reiterates Hold. Target $11 to $11. Firm is saying the inclusion of Daytrana drives the change in valuation. They also note mgmt's commentary on pipeline is positive, but still lacks detail.

08:59 am Genentech: Lazard Captial reiterates Buy. Target $105 to $105. Firm believes that Avastin sales are tracking below their expectations and they are decreasing estimates. Herceptin sales are tracking above their Q4 estimate, and they are increasing estimates.

08:59 am MGI Pharma: Lazard Captial reiterates Buy. Target $35 to $35. Firn believes Aloxi November IMS sales of $16.6 mln are tracking below their Q4 estimate of $70.9 mln, taking into account the absence of IMS data from U.S. Oncology.

08:58 am TEKELEC: CE Unterberg Towbin reiterates Buy. Target $20 to $20. Firm is modeling for strong growth in next generation switching for Tekelec in 2006, although they have moderated our expectations somewhat due to the ongoing technical issues at Cingular. They are now estimating next gen switching growth of roughly 30% year-over-year in 2006. As next gen switching grows, they think its mid-40-mid-50% gross margins will continue to put pressure on overall corporate gross margins.

09:12 am U.S. Oil Companies Return to Libya

After nearly two decades since the U.S. imposed sanctions on Libya, three U.S. oil companies said they will pay $1.83 billion to Libya's national oil company to resume producing oil in the North African nation, according to The Wall Street Journal. ConocoPhillips (COP), Marathon Oil (MRO), and Amerada Hess (AHC) said they plan to reestablish operations in Libya's Sirte Basin region for the first time since 1986, when U.S. oil companies were forced to abandon their production.

Amid improving relations with Libya, the U.S. formally lifted its sanctions on the country in 2004. Accordingly, the action has cleared the way for U.S. oil companies to return to the politically turbulent nation following 19 years of trade restrictions.

According to The Wall Street Journal, the region to which the three companies are returning produces about 350,000 barrels of oil per day and holds large additional stores of oil and natural gas. The Journal noted that the re-entry will add about 45,000 barrels per day of production during 2006 for Houston-based Conoco, and add about 40,000 to 45,000 barrels per day of production for Marathon. Furthermore, the move is expected to add more than 160 million barrels of oil equivalent to Marathon's proven reserves. The re-entry will also add approximately 20,000 to 25,000 barrels per day of production and more than 85 million barrels of oil equivalent to proven reserves for Amerada Hess.

Under the deal announced on Thursday, Conoco and Marathon will each hold a 16% stake in the project, while Amerada Hess will hold an 8% stake. Libyan National Oil Corp. will hold the remaining 59% interest. In addition, the three companies are required to pay Libyan National Oil Corp. a total of $1.3 billion for their interest, and an additional payment of $530 million for costs Libya's naitonal oil company incurred since 1986 to maintain the fields, the Journal said. Of the total amount to be paid, Conoco and Marathon will each pay $732 million and Amerada Hess will pay $366 million.

--Richard Jahnke, Briefing.com

09:05 am Intel (INTC)

25:07: When it was introduced in 1991, the ubiquitous "Intel Inside" ad campaign helped turn the world's largest chip maker into a top 10 global brand worth an estimated $36 bln. The Wall Street Journal is reporting, however, that Intel plans to formally unveil an overhaul of its 37-year old corporate logo and brand identity at the Consumer Electronics Show in Las Vegas next week.

The new strategy thinks "outside" the box (beyond PCs), now that rival Advanced Micro Devices (AMD) has made inroads into the markets for laptops and servers, and is more focused on Intel's transformation into consumer products. The major re-branding effort plays into our Overweight rating on the Technology sector, as end market demand for everything portable, everything digital, predominately within the consumer electronics market, has and will continue to drive growth and subsequent investment in chip fabrication capacity.

According to Intel's Chief Marketing Officer Eric Kim, this "evolution" will allow Intel to be better recognized for its contributions, establish a stronger emotional connection with its audiences and strengthen Intel's overall position in the multi-billion dollar market for computer chips. The Semiconductor Industry Association is projecting a compound annual growth rate of nearly 10% for 2005 through 2008, with worldwide sales of microchips hitting an estimated $309 bln in 2008, a 45% increase from the record level of $213 bln reached in 2004.

In addition to a new version of the company's blue logo, one that replaces the lowered "e" with an oval swirl surrounding the company's name, Intel's new "Leap ahead" marketing slogan will supplant the "Intel Inside" tagline but remain an advertising cooperative program in which Intel will share advertising funds with companies who feature the new slogan on their products. So far it is unclear if Apple Computer (AAPL), which is expected to begin using Intel's dual-core microprocessors in 2006, will display the Intel logo on its notably style-conscious Macintosh line of desktop and notebook computers.

--Brian Duhn, Briefing.com

09:04 am Citigroup (C)

48.58: Citigroup raised its bid for Chinese lender Guangdong Development Bank to $3 bln (24.1 bln yuan). The raise offer beats out two rival bids by France's Societe Generale and China's Ping An Insurance Group. As the Chinese economy continues to expand by leaps and bounds, global financial institutions are investing more in the region hoping bank's profits will benefit from increased borrowing. Citigroup's premium bid speaks volumes to the interest the global banking community has in China, all vying for a piece of an estimated $1.7 tln in household savings.

The world's largest bank's revised bid is more than 2x book value for less than a 50% stake. This compares to Bank of America's purchase of a 9% stake in China Construction Bank for $2.5 bln in August at 1.15x book value. Citigroup has also agreed this week to quadruple its stake in Shanghai Pudong Development Bank to 20% costing $878 mln.

Guangdong is the second largest lender in the southern Chinese provinces, which are the second richest on the mainland. Citigroup, a suggested holding in our Active Portfolio, would become the first overseas investor to buy a controlling stake of a state-run bank in China. The government is considering waiving the ownership restrictions in order to reduce costs of bailing out the bank. Current laws prohibit foreign institutions from owning more than a 20% stake in Chinese banks. The Guangdong municipal government, which controls the lender, is expected to decide on the buyer by mid-January.

--Kimberly DuBord, Briefing.com

08:20 am Goldman Sachs (GS)

128.02: The results are in and Goldman Sachs has retained its top ranking in arranging mergers and acquisitions in 2005. The total, a whopping $778 bln - the most by any investment bank in five years, according to Bloomberg. Goldman Sachs surpassed Morgan Stanley in the last quarter. Morgan Stanley, now headed by John Mack, had the biggest gain of all the top investment banks, increasing its market share by seven points to 27% and rising to second place from fourth place last year. The data, compiled by Bloomberg, showed that Goldman, which has led M&A deal rankings since 2001, worked on 30% of all transactions this year.

The M&A rankings for the year by market share: Goldman 30%, Morgan 26.9%, JPMorgan 24.2%, Merrill Lynch 22.5%, Citigroup 20.4%, UBS 18.0%, Lehman Bros 15.3%, Deutsche Bank 14.2%, Lazard 11.1%, and Credit Suisse 10.4%.

With balance sheets flush with cash, Morgan forecasts deals worldwide could soar to a record-tying level of $3 tln next year. This year's tally increased 33% to $2.58 trillion - the best year since the bubble burst in 2000. Until the strife amongst Morgan Stanley's senior management against former CEO Philip Purcell's policies resulted in several key investment bankers leaving the firm, the number two securities firm was leading the M&A rankings. Investment banking is critical business for securities firms as it is the second biggest profit center after trading. Bankers fight for every point in rankings, as these so-called M&A league tables are used as a means of self promotion to win new clients.

The largest deal of the year was Procter & Gamble's $57 bln purchase of Gillette, providing Goldman, UBS, and Merrill $30 mln in advisory fees each, according to Bloomberg. Deals and deal makers will be one of the biggest stories again in 2006 given healthy balance sheets, high cash levels, private equity interest, improved CEO confidence, and the push by companies to acquire growth by acquisitions that enable better economies of scale. Goldman's reputation and status as the premier investment bank underscores our unrelenting bullish view on the stock.

--Kimberly DuBord, Briefing.com