$60 Oil, Plus, The ‘Index Effect’

Stocks were lower on China trade/protectionist
concerns as well as higher oil. Greenspan and Snow told
members of the Senate Finance Committee that imposing trade tariffs on China
would be misguided and may put the future of the U.S. economy “at risk.” At
issue is the value of the yuan, or renminbi, which is pegged at 8.3 to the
dollar. Some say this gives China an unfair advantage. Both Greenspan and Snow
said that any attempt to use sanctions to persuade China to revalue its currency
would be detrimental to the U.S. economy. The market dropped beginning at 1:30
ET as oil hit $60 for the first time ever.

Chinese oil company CNOOC offered $18.5 billion for Unocal
(
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topping Chevron’s $16.5 million bid. The Chinese government owns 70% of CNOOC.
Unocal has 1.75 billion barrels in oil reserves; 57% of which are in Asia. The
US could block the deal because of national security issues. Some analysts feel
Chevron may win out. Oil stocks rose on the news of the increased bid.

Jobless claims for the week of 6/16 fell 20,000 to 314,000, slightly
less than expected. Existing home sales for May fell 0.7% to 7.13 million
vs 7.2 million consensus. 

Fedex
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by 0.02; the company also gave a a weaker outlook.

General Electric
(
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11 businesses into 6 and also reaffirmed Q2 and FY numbers, saying it is looking
for double digit growth in 2006.

DR Horton
(
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midcap index and replaces Veritas. The date will be announced by Standard
& Poor’s.Talk is also that Google will be added, but that can’t happen until the
company has been public for a year; this happens in August. Over $1 trillion is
indexed to the S&P 500, and when a stock is added, its shares often rise in
anticipation of institutions buying them later. This “index effect” has been
declining of late; according to Stand & Poor’s, the median excess return between
announcement date and effective date was 3.6% between mid-2002 and mid-2004,
down substantially from prior years. In 1999, Paine Webber strategist Ed
Kerschner said that the 35 stocks that were added to the S&P in 1998 appreciated
on average 9.2% during the first six days after being added.

Rising commodity prices are starting to show up in corporate guidance.
Fedex cited rising jet fuel costs, Del Monte cited increased steel
and energy costs and Family Dollar
(
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prices. For the past year, the Dow Transports have outperformed the Dow, but
that has not been the case in the last several weeks.

Tomorrow, look for new home sales to be released at 10 AM ET. The consensus
is 1.32 million. Also look for durable orders for May; consensus 3.0%.

Strong sectors were:     
Oil Services
(
$OSX.X |
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(
$HUI.X.X |
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+0.65%   Semis
(
$SOX.X |
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Weak sectors were:   Airlines  
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-3.67%     Chemicals
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$CEX.X |
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-2.38%     Retail
(
$RLX.X |
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Herman Miller (MLHR)
reported Q4 of 0.31 and guided higher.

Nabi Biopharma (NABI)
received Orphan Medicinal Product designation from the European Medicines
Agency.

Research in Motion
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rejected two NTP patents.

Best Buy
(
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dividend by 9%.

Bed Bath & Beyond
(BBBY)
beat by a penny.

Family Dollar
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Rite Aid
(
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Goldman cut Gannett
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AG Edwards
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