Deflation Fears Lessen – Here’s Why

June 17, 2003
Vincent Mao

Stocks
were slightly higher Tuesday after several positive economic reports. Â Consumer
prices in May rose unexpectedly and eased the market’s worries about deflation.
Meanwhile, housing continued to remain red hot, with housing starts jumping by a
larger-than-expected 6.1 percent in May. Bonds traded lower for the second day
on the economic data news. Merrill Lynch released a survey of 270 asset managers
which showed cash levels at a two-year low and also 71% managers view the stock
market as overvalued.

In economic news, the May
CPI came in flat vs. an expected -0.1% decline. The May Core CPI,
which strips out the volatile food and energy components, rose by 0.3% vs. an
expected rise of 0.1%. This was the biggest monthly gain since last August, and
will likely alleviate the market’s deflation fears. Industrial production in
May rose by 0.1% vs. an expected flat reading. Capacity utilization in
May came in at 74.3% compared to an expected 74.4%. May housing starts rose
by 6.1% to a rate of 1.732 million units and building permits rose 3.7% to a
1.788 million rate.

The 10-year U.S. Note
was -235 at 119 185.

The dollar rose 0.27 at
93.07.

Gold gained 3.70 at
363.80.

Crude Oil fell 0.11 at
29.46.

Volume was
1,468,083,000
on the NYSE, and 1,948,154,000 on the Nasdaq.

Market breadth was mixed,
with NYSE declining issues over advancing issues by a ratio of 1.15, and up
volume over down volume by a 1.19 ratio. Nasdaq advancing issues over declining
issues at 1.08, and up volume over down volume at a 1.76 ratio.

Top Dow stocks were:

Stocks in the news:

Five Dow components — American Express, Citigroup,
Caterpillar, Merck and United Technologies — hit 52-week highs
today.

Altria Group
(
MO |
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traded slightly higher after CSFB raised their target price from $45 to $50. CSFB
cited that declining litigation in the tobacco industry, improving fundamentals,
and the weak dollar should benefit the company.

Ballard Power Systems
(
BLDP |
Quote |
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PowerRating)
traded up after the company announced a $1.75 million order
from an unnamed major automotive corporation.

Circuit City
(
CC |
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PowerRating)
traded
higher after reporting better-than-expected first-quarter
results. The electronics retailer reported a loss of 21 cents a share, beating
estimates by 3 cents. Circuit City blamed the results on the general economic
weakness and rapid technological improvements.

J.M. Smuckers
(
SJM |
Quote |
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PowerRating)
gained after reporting
better-than-expected fourth-quarter results. The company reported results of 46
cents a share compared to 28 cents a share for the same period a year ago.
Excluding charges, Smuckers earned 51 cents a share besting estimates by 4
cents.

Drug maker Pfizer
(
PFE |
Quote |
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was higher on heavy volume. The company cuts its fiscal 2003 results
to $1.73 from $1.80 due to excess inventory from the Pharmacia acquisition.
However the firm affirmed its fiscal 2004 estimates of $2.13 a share or 7 cents
higher than Street estimates.

AT&T
(
T |
Quote |
Chart |
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PowerRating) was off by 4%
after Merrill Lynch downgraded Ma Bell from “neutral” to “sell”. Merrill based
the downgrade on competition from its consumer business and delays in recovery
from its enterprise business.

CNET Networks
(
CNET |
Quote |
Chart |
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PowerRating)
fell after the company announced a $100 million
convertible note offering. Proceeds from the notes, which will mature in 2013,
will be used for acquisitions, expansion, and general corporate purposes.

Vincent Mao

Deflation Fears Lessen – Here’s Why

BUY THE FEAR, SELL THE GREED

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