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Focus: Stocks couldn't rally off of the results at earnings season

>> 2/3 of the 475 companies in the s&p out with results have beaten analysts’ estimates. we want to bring you to the bloomberg terminal to look at a 12-year chart of the actual quarterly earnings for the s&p 500, charted in white, compared to the actual s&p 500 seen in red. you can see the correlation between earnings and stock prices. here you see earnings falling from their previous peak in 2000. this is right here. this is the decline right here. dragging down stocks, the line in red. stronger earnings over the past three years have fueled the s&p. that’s that up trend you see right here. here you go, is the s&p 500. note how it’s basically leveled off. note, too, that earnings have climbed to a peak, that is the white line at the end of the chart. so a question for investors has become, why the s&p 500 has not rallied given the strong first-quarter results. let’s get the perspective right now of lincoln anderson, chief investment officer of l.p.l. financial services, joining us from our boston bureau in lincoln. pleasure to have you on. looking at earnings season, it seemed to confound investors that stocks couldn’t rally off of the results. why was that?

>> i think there is irrational pessimism in equity and credit markets that people are looking away from the fundamentals which is low interest rates and strong earnings through the first quarter.

>> does that mean the rally this week was not a surprise to you?

>> not at all. i was one of the people who’s been scratching their heads wondering why stocks weren’t moving higher following these strong earnings announcements.

>> so, then, why do you think that rally sputtered today?

>> it comes in fits and starts. you know, some bad news comes into the market on a few companies’ earnings disappointments. bear in mind we had about 80% of companies met or exceeded earnings estimates in the first quarter but most people were focused on the 19% that missed.

>> and in terms of that pessimism you talked about that perhaps is overextended, what do you think, then, it would take to erase that pessimism because another factor is oil prices, well off the record highs of april, but also not enough of a catalyst.

>> i think it will take sustained continued progress until people decide that the positive news is a trend and the negative news are little fits and starts that just don’t ever turn into a sustained negative trend. i mean, it’s―we had that soft patch a month ago and then it went away and we returned to strong economic numbers and i think that will translate into a rising earnings estimates for the second quarter and we’ll just go along that way.

>> one thing we heard a lot of talk of this week during the rally was the importance of technology shares, they really need to be there and perhaps leading the rally for the rally to stick. is that how you see it?

>> i think some of the beat-down sectors need to participate here. healthcare already has been and that’s one that was certainly a catalyst, i think, to this advance. and i think technology should follow. we just have to get over the hurdle of lack of pricing power in technology. the spending numbers are there. there has been heavy spending in technology, but there’s still a lot of price competition.

>> the companies in tact where we’ve heard negative news such as i.b.m., is that an anomaly?

>> not an anomaly but that sector is finally getting sorted out so you’ll see winners and losers and misses as you get sorted out and then it will hit on all cylinders and we’ll see more steady upward progress and fewer anomalies.

>> we have listed on the screen a moment ago that you like the industrial stocks. why is that and what specifically?

>> in terms of industrials, what i like about industrials, again, it’s an area that got―had relative underperformance due to people worrying we were in to a cyclical slowdown, the soft patch piece. and also we have such strong capital spending numbers right now that i think we’ll be sustained through the year and can drive that sector higher.

>> any specific stock that highlights this?

>> i’m not a stock analyst.

>> you do like junk bonds. what role do you think they’re playing in a portfolio right now?

>> right now they’re playing a big negative role. the junk bond market is one of those areas where we have a lot of pessimism, as i mentioned. in credit markets , a serious spread widening over the last month or so. at first, initially due to the g.m. problems but it’s kept right on going so at this point i’m liking junk just because we have now moved from spreads being super tight to spreads being wide but, boy, it’s a hard way to get there.

>> overall, what kind of gains are you looking for for the s&p this year?

>> i think earnings will be up over the year about 15% and i don’t see any reason why p.e.’s should go down so the s&p should be up somewhere in the 10% to 15% range to keep the p.e. stable at around 16.

>> lincoln earnings cious -- thanks for joining us.

>> my pleasure.

>> lincoln anderson out of boston from l.p.l. financial services. when we return, microsoft has just 10 days to make major changes. su keenan will join us with those details.
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Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)
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deborah kostroun is at the big board with more on what held stocks back today.

>> the dow jones industrial average and the s&p 500 might have been lower in friday’s session but they had a really tremendous week. the s&p 500 up 3.1%. the dow up 3.3%. take a look at the gainers in the s&p 500 for the week. we saw the auto industry, it was the best performer throughout the week. retail, second best performer throughout the week and also consumer durables, many of the homebuilders putting in a strong performance. if you look at the auto industry and some of the stocks related to that, visteon, the money-losing auto parts supplier spun off from ford in 2000, they rallied for a second day on friday. the second largest gain in the s&p 500 -- laggards for the week, even though these were laggards, they were still up for the week. all 24 industry groups in the s&p 500 were higher. if you look at energy, crude oil down 3.8% this week. crude oil falling and closing on friday at a three-month low of $46.80 after opec’s president said that the group will keep production levels near their record levels to meet global demand regardless of whether it causes crude prices to decline further. now, in friday’s session, even though retailers, one of the best performers throughout the week, one of the worst performers in friday’s session because gap said sales fell for the first quarter in three years. comparable sore sales―store sales fell in all of the company’s divisions. we also had prudential downgrading federated and abercrombie & fitch so those stocks on the lower side. i’m deborah kostroun at the new york stock exchange.

>> over at the nasdaq, the nasdaq had its biggest weekly gain since august. robert gray has details.

>> the nasdaq composite finishing higher on friday, the only of the three major averages to do so, finishing higher for the sixth straight day, the longest streak since november and best weekly gain on the nasdaq composite index since last august. the nasdaq has rallied more than 7% in the past three weeks since closing at its 2005 lows on april 28. head of trading at p.n.c. capital markets telling me that given the action in the last week, people didn’t want to go into the weekend short. the shorts are at risk, he says, the tone changing more bullish this week. he says as far as next week’s trading goes, the fed minutes will move the market , and he’s most focused on the consumer sentiment reading from the university of michigan due out next friday and there’s a strong possibility of a summer rally and the consumer sentiment index an important gauge of that for him. the rally over the past week, transports leading the gains as crude oil falling to a three-month low on the nymex. 6.5%-plus gains for the transports. also financials and computer-related shares gaining, as well. the semiconductors, one of the best performing groups over the past week continuing their gains that they’ve had basically over the past month. the s.o.x. rising for an eighth straight day. intel shares rising for an an eighth straight day on friday. google rising to a record as they lost a customized home page. there was weakness in retail. looking at sharper image, j.p. morgan cutting it to underweight from neutral as they forecast a wider loss than the average estimate.%  also, weakness in teen retailers, prudential downgrading the group from underweight to neutral. american eagle outfitters and pacific sunwear falling in friday’s session. at the nasdaq, i’m robert gray. a new york state grand jury investigating possible criminal conduct at the insurance giant a.i.g., according to people familiar with the situation. allan dodds frank joins us with details.

>> the grand jury is taking testimony from insurance industry witnesses as they listen to―as they are questioned by prosecutors from the new york attorney general eliot spitzer’s office about possible misconduct at a.i.g. the attorney general declined to comment on the grand jury, which, by law, is conducted in secret. spitzer has said his investigation is focused on offshore reinsurance transactions that a.i.g. executives may have used to boost the company’s net worth. people familiar with the investigation say a.i.g. senior vice president testified in exchange for immunit from possible criminal charges that could arise from the grand jury. former prosecutor john moskow says he has no information from inside the a.i.g. grand jury although he says, if it is sitting, its existence is significant.

>> part of an investigation. then you are seeking to obtain an indictment. or checking to see whether you should obtain an indictment but in any event, the question is, should you bring criminal charges? if not, should you bring civil charges or should you bring criminal charges. that’s what you learn in a grand jury investigation.% 

>> on may 1, a.i.g. said some reinsurance deals may have to be reclassified as loans and could cause the company to restate earnings by $2.7 billion over the last five years. so far, former a.i.g. chairman and c.e.o. maurice hank greenberg has been forced out of the company and three other top executives have been fired for refusing to cooperate with investigators. the new york attorney general does not expect to prosecute the company which is cooperating with investigators from his office and the u.s. securities and exchange commission. spitzer also said he could pursue possible criminal charges against individuals from a.i.g. and other insurance companies caught up in the investigation. a.i.g. disclosed on valentine’s day it received subpoenas from spitzer and the a.i.g., since then the stock has declined more than 25%. a.i.g. may file its delayed annual report for last year by the end of the month.

>> thanks so much. turning our attention right now to the currency market . the dollar traded higher today, sending it to a seven-month high against the euro. the gains came on concerns that economic growth in europe, also on speculation the three-year bear market for the dollar may be over. as for treasuries, prices were little changed today. the yield on the 10-year at $4.12%. for the five-year, that yield at 3.87% and two-year, note that it recorded its fourth weekly price decline in the past five weeks coming on speculation the federal reserve will continue to raise interest rates. and speaking of the fed, fed chairman alan greenspan said some regions of the u.s. housing market are showing signs of unsustainable speculation and trough based on fast turnover of existing homes.

>> the big price surge will soon simmer down and because of the heterogeneity of the market and inability to get a major reduction in price in this country, we don’t perceive it as a serious macro economic issue.

>> greenspan also offered a warning that energy choices americans make will have a major effect on the economy. he was speaking to the new york economic club today. he said energy prices should fall some, noting the rise in oil as well as gas inventories. long-term, however, the choices the u.s. makes now, he says, will affect the economy for a language time to come.

>> of critical importance will be the extent of the light vehicles on u.s. highways which consume 11% of total world production become more fuel efficient as vehicle buyers choose the lower fuel costs of lighter or hybrid vehicles.

>> one problem the chairman anticipates is that much of the untapped oil and gas in the world is in countries hostile to the u.s. or that prohibit foreign investment. >> unless those policies and political institutions and attitudes change, a greater proportion of the cash flow of producing countries will be needed for oil reinvestment to ensure that capacity keeps up with projected world demand.

>> he says fear that won’t happen is a major reason oil future prices are so high today. taking a break, then stocks failed to get a lift from first-quarter earnings results. will that affect investors in coming weeks? keep it here.

Focus: How aggressive should individual investors be in planning their own retirement

>> we want to make a correction to a story we brought you before the closing bell. in a report from the new york stock exchange on some of the movers, we did mention hewlett-packard and in the report we incorrectly said hewlett-packard would have job cuts. here’s that correct version. shares of hewlett-packard rose 4.6% after the new chief executive, mark hurd, said he plans to slash costs across the company. analysts said that may mean 15,000 job cuts. we apologize for the misinterpretation. we want to turn our attention to investment strategy in the meantime. how aggressive should individual investors be in planning their own retirement? brian sullivan asked scott budde, managing director at tiaa-cref, which has more than $325 billion in assets under management.

>> we spend a lot of time at tiaa-cref talking with investors. we have over three million investors who are using tiaa-cref to save for retirement and when we get questions about how they should allocate assets, we strongly urge them, particularly as they get into the 45-year range, to sit down and talk with someone about what asset allocation works for them because when you put a group of 45-year-olds in a room, they have very different attitudes about what they want do in retirement, what their assets are and tolerance for risk is.

>> vanguard says just buy index funds or e.t.f.’s, active portfolio managers say, no, put your money in the hands of someone who will make individual stock decisions.

>> the most important thing, rather than one versus the other, if you’re looking for active funds, look for active funds that are fully invested in what they say they’re in, stock funds that stay in stocks, bond funds that stay in bonds and not look for ones that deviate substantially from that. that kind of market timing --

>> don’t market time?

>> don’t market time and it makes it hard for individuals to stick with the asset allocation they said if the manager is going into a class that’s not part of the fund.

>> what about a breakdown on average of stocks, bonds, real estate, et cetera?

>> if you look at our investors overall and we have a long and fairly conservative philosophy of how we advise people and educate them on asset allocation issues, you’d find overall the system would be a little over 50% in equities with the balance broadly diversified across fixed income, including treasury inflation protected securities.

>> are you more favorable on t.i.p.s. than you were?

>> we would try to steer away from immediate changes for or against any of these asset classes. for planning for retirement on a long-term basis, because of the inflation protection t.i.p.s. offer, should be part of someone’s portfolio.

>> we had the c.p.i. later today, do you think we should be protected from inflation in any manner going forward here?

>> for a diversified portfolio we think that sort of inflation protection is a key component. it’s also not really available through nominal bonds so having those in a mix with nominal bonds is a good idea.

>> we’ve had your counterparts in illinois this week tell us real estate is an investment they’ve made. i wonder if tiaa-cref, managing money for teachers, et cetera, thinks real estate is a safe place to put pensioniers’ money?

>> we believe in broad diversification so we certainly would include real estate in that mix. we have a very long history, one of the largest real estate investors within our general account as well as having one of the only accounts available for individual investors who use tiaa-cref on the retirement side that invest in income-producing real estate.

>> what do you think of%  president bush’s plan for putting money into private accounts? is that a good thing?

>> as a company, we don’t take political stands one way or the other on social security. so i think we’d leave that up to individuals.

>> if we look at overall retirement plans, how aggressive do we need to be for income versus growth and i guess what i’m trying to say is when you look at breaking out stocks, do i say, you know what, let’s do something real safe with a nice dividend or do i want to buy an intel? where do we go?

>> if you look at broadly diversified equity strategies, strategies that involve exposure to all the corners of the equity market value and growth, large, mid and small cap stocks, you’ll see broadly diversified strategies over longer periods do very well in terms of a competitive return and tend to be lower risk than more specialized strategies which can look great in the short term but over a longer period, don’t seem to offer the same sort of positive risk-return tradeoff that the broad funds do.

>> that was scott budde, managing director at tiaa-cref. taking a break, when we return, microsoft hopes to do something different with the next x-box video game console, make money. we’ll speak about the video game wars with analyst charles di bona from sanford c. bernstien.
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Listen Market briefing --- Ellen (slow)
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gains of 1.3%. the s&p trading higher by 1%. for the s&p, it was financial companies such as citigroup gaining and leading the advance. you had the inflation report come out today. what it did was signal to investors that the federal reserve may be closer to ending its series of interest rate increases. also, raw material producers such as alcoa jumped today after a report from china on industrial production came in stronger than expected. the rally across the board. let’s now focus on pricing power. i mentioned inflation and a new product. this product at palmone, the maker of the trio mobile fun releasing a device intended to compete with the ipod. michael snyder asked the c.e.o., edward colligan, how similar the device is to the ipod.

>> the ipod is intended just to play music. this is about your life has become digital and in a short period of time, a lot of things we use in our lives from documents to music to videos to photographs, have all gone digital and this device allows you to carry all those with you, have them with you anywhere you go, and view them, share them. it’s got wireless technology built in so you can connect to the network. it’s really a very powerful device to help you manage your digital lifestyle.

>> it’s got wi-fi, also bluetooth?

>> it has wi-fi so you can connect to your network in the home or office. it’s got bluetooth so you can, through another cellular connection, a phone, you can connect up to the internet so you can do web browsing, you can retrieve email. it allows you to get documents off of your network. you can look at excel spread sheets or word files on it. there’s a portable keyboard you can buy as an accessory, you can use this almost as a laptop replacement.

>> the estimated u.s. price of $499, is that accurate? and what does this product mean to your bottom line this year?

>> i think it can be significant. it’s an attempt by us, really, to redefine the handheld computing category. we call it a mobile manager, a new category of product. there’s nothing really like it, allowing you to manage both your office productivity documents and view movies. it spans a broad range of capabilities.

>> you have a sales projection for the year?

>> we don’t talk about specific projections for individual products but we think it can add significantly, especially at this price point.

>> can you be a little more specific in terms of how significant it will be to your bottom line?

>> i think it will be a profitable product and reinvigorate the handheld category, in this particular area of the market . it has been under pressure, so our trio smart phones have been really selling quite well but the connected organizers are an area under pressure. we think this product will reinvigorate that end of the category.

>> the trio―there is talk you may use a microsoft operating system?

>> we’ve always said we’re open to other technologies. we don’t focus on that as what we’re trying to deliver to our customers, just a great value product that does some applications particularly well. if it makes sense for us to reach new markets or new opportunities by leveraging other operating systems, we can go ahead and do that. right now our entire product line is placed on our operating system.

>> there is talk that palmone could buy palmsource that it spun off a while back. any truth with in that?

>> no, we are focusing on working with them as a partner.

>> you have discussed in the past palmone having problems with product delivery. what have you done to deal with that?

>> we really, that is something that probably happened more than a year and a half ago at this stage. we’ve been able to deliver our products effectively over the last year and the trio, we’ve been launching on a whole range of networks around the world. we just announced our verizon relationship and we’re delivering that in volume to verizon customers today. we have new relationships throughout europe with orange and telecom italia and telefonica so we’re delivering product and the life drive product will be coming out this month and be in stores like circuit city and best buy, available to our customers.

>> your pricing power, how easy is it for you to pass on costs and raise prices if you want to?

>> i think we’re really focused on value. in our category, we are a leader. we feel like we have a reasonable level of pricing power but really this is a very competitive market and the idea that you can raise prices and not provide the value that a customer wants is not really.

>> that was edward colligan, chief executive of palmone and he was speaking with mike schneider. we have after-the-bell earnings out from intuit, reporting net income of $1.61 a share, $1.55 excluding items. analysts were looking for $1.55. the company saying revenue was up 20% to $849.5 million, topping what analysts were expecting. you see shares down almost 3% in extended trade. let me note, as well, the company saying that for the fourth quarter it anticipates a loss of nine to 12 cents a share. analysts, on average, have been anticipating a loss of six cents, steeper than analysts anticipated for the fourth quarter. the company saying that fourth-quarter sales should come in about $270 million, also below what analysts were forecasting. analysts were forecasting sales closer to $302 million. let me tell you about earnings from b.e.a. systems, the software maker. a 35% increase in net income coming in, excluding items, at nine cents a share, matching analysts’ expectations. sales coming in stronger than expected, $281.7 million. taking a break, when we return, tiaa-cref, largest retirement fund in the u.s., what are they saying about strategy.

Focus: Pegging the yuan to the dollar

>> a new report out by the treasury department released at 2:30 p.m. new york time said that china did not manipulate its currency in order to gain an export advantage last year. the report says that china’s policy of pegging the yuan to the dollar comes close to doing so and it must be changed now.

>> the report calls on china to move to greater flexibility in its exchange rate regime and do so now. we think they’ve made such strides that they’re capable of doing it now.

>> no major trading partner with the u.s. met the criteria for manipulation during the period of june 30 to december 31 that the study covered. lawmakers on capitol hill quick to respond.
>> if it quacks like a duck and walks like a duck and swims like a duck, it’s a duck. they are manipulating their currency and for the report not to find that is strange.

>> some lawmakers and manufacturers have pressed the bush administration to take action. they say china’s decade-old policy of pegging the yuan to the dollar has contributed to the record trade deficit and loss of manufacturing jobs. turning our attention to this afternoon’s stock market rally, kicked off around 2:30. here’s a report from deborah kostroun at the big board.

>> the dow jones industrial average closing near its best level of the day and after monday’s 112-point move higher, the market was looking for followthrough and didn’t see that followthrough until the last hour and a half of trading. the dow jones industrial average rally of 2.19% is the largest this year and the largest since early november. united technologies, caterpillar and home depot. home depot beat earnings by two cents a share and united technologies putting in a strong performance after their c.e.o. reaffirmed their 2005 e.p.s. and saying no way on the honeywell purchase. u.t.x. saying the buy of honeywell not going to happen. honeywell, one of the biggest drags on the dow jones industrial average. however, that stock did rise about 4.8% on may 6 on that u.t.x. takeover speculation. gainers in the s&p 500, retail at the top of the list with earnings, not only home depot helping to lead the way. also materials and also utilities. big lots, their first-quarter earnings beat estimates by two cents a share. federated and nordstrom closing at record highs on the day. j.c. penney, first-quarter profit more than quadrupled on higher sales of private brand apparel and furniture and shares rose after the company raised their annual profit forecast for the second time this month. industrials also on the plus side in general. deere and company, second-quarter profit rising 27% on lower costs, increased prices and more sales of construction machinery. in addition to the gains in industrials, energy also putting in a very strong performance and in fact you really saw the energy taking off as crude oil closed. however, just shy of $49 a barrel. i’m deborah kostroun at the new york stock exchange.

>> retail stocks powered the nasdaq rally. robert gray files this report.

>> the nasdaq composite closing at the highs of the session and above the key psychological level of 2000 for the first time since april 12, also closing above the 200-day moving average, now above both its 50-day and 200-day moving averages. staples rising after beating the average analysts’ estimates on earnings and revenue, coming in at 21 cents per share ahead of the 20-cent estimate. saying sales to businesses increasing by the most in two years and more customers buying the staples brands. costco was rising, hot topic, reporting earnings tomorrow, ross stores which also reports earnings tomorrow and children’s place which reports earnings on thursday. google shares moving to a new record high in today’s session, now up more than 170% i.p.o. to date, rising on news that it plans to spend a significant amount of cash on acquisitions and investments in 2005. following the key technical trade in the philadelphia semiconductor index, the s.o.x. moving higher than its 200-day moving average. michael mccarty saying it’s notable that the s.o.x. breaking its downtrend line and powering through the moving averages. looking at the video games, southwest securities upgrading video game makers such as activision, electronic arts, take-two and t.h.q., up to a strong buy. the electronic entertainment expo ongoing in los angeles as microsoft and sony introducing their brand new consoles for the next cycle of games. at the nasdaq, i’m robert gray.

>> crude oil rebounded from a three-month low today. the gains came on concern that increased supplies of crude will not ease shortages of oil products during the second half of the year. additional production by opec countries has lowered prices by now almost $10 from april’s record high. here are the other energy movers today with gains across the board for gas futures, heating oil futures and natural gas futures. toyota motor moving up mans to build a gas and electric hybrid version of the camry. we’ll hear from the chief operating officer of toyota u.s.a. about the carmaker’s success.

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Listen Market briefing --- Ellen (slow)
Conversation with Energy Secretary --- Peter (slow)
H.P. --- Bob (fast)

speaking with samuel bodman, the u.s. energy secretary. peter, we look forward to your conversation.% 

>> thank you very much, ellen.  thanks, as well, to energy secretary samuel bodman for joining us.

>> i’m happy to be here.

>> you heard your saudi arabian counterpart, ali al-naimi, say the kingdom has no plans to reduce oil production. is the administration pleased with that news or would you prefer saudi arabia boost output at this point?

>> i talked to the minister yesterday. we had a lunch meeting yesterday here in the energy department and then i joined him on the symposium this morning. during our lunch, he was, i thought, quite forthcoming with what they were capable of doing. they are capable of producing more oil today and making it available to the marketplace. their indications are that they lack absence of refining capacity to match up with the kind of oil they could produce, really means that they’re not finding sufficient customers. and they haven’t pursued it so i have to tell you i was satisfied with that discussion.

>> let me ask you about the future in terms of output from saudi arabia. minister al-naimi wanted to assure people that saudi arabia will be able to boost production over time to meet global oil demand. do you have doubts about the kingdom’s ability in the future to produce 15 million barrels a day that he talked about today?

>> that’s further afield than i think he was being explicit about. what he said to me yesterday at lunch was first that they’re prepared to undertake a $50 billion investment program, which i was very pleased with. and they are looking to stage increases in production over the next four years, 2006, 2007, 2008 and 2009, to produce a net increase of production availability of 2.5 million barrels per day increase. that will, in part, offset some decline they would naturally see in their normal production, meaning a net increase of about a million and a half barrels a day, which would take it from the available production today of about 11 up to 12.5 million barrels a day and i do believe that they can achieve that.

>> let me ask you about the u.s. situation right now. what are your thoughts about the inventory levels right now? what is your sense about where inventories are headed. i know you don’t want to talk about prices but what about the overall inventory levels, are you satisfied?
>> the inventory levels are moving ahead and seem to be poised to provide the backup we’ll need for the summer driving season so that in my view they’re adequate today. they seem to be creeping up a little bit with time and that’s what the saudis are seeing, as well. we also discussed that during our meeting yesterday.

>> one thing that did come up in the conversation today at that symposium was the talk about refining capacity constraints not only in the u.s. but elsewhere in the world. the saudis have talked about the possibility of investing in u.s. refineries. did that come up in your conversations with the minister?

>> he said that hementioned a year ago when he was here that they were prepared to help fund two new refineries in this country. he went on to say that he didn’t get a lot of takers for that. there are a lot of regulatory problems with getting refineries built today. one of the positive things he reported yesterday was that they’re prepared to fund and build three new refineries over the next two or three years in saudi arabia so that they would refine oil there and then export it not just to the united states but to other markets around the world and that should help, as well as the improvement in total oil production, which i mentioned before.

>> i want to switch gears quickly to the energy bill. the house passed its version in april. the senate energy committee starting its work today. in the last congress, the two chambers couldn’t agree on several issue, including whether to give liability protection to the makers of fuel additive mtbe. does the administration feel that waiver should be included in a final energy bill?

>> we have said that the mtbe issue is something that came up in congress. the president and the administration have not been active on the issue. the president has asked me as his representative to become active if it’s required in order to strike a reasonable balance in conference so we are not active at this point in time. we’re hopeful and encouraging the congress to find a reasonable compromise on this issue by themselves. if the administration is required to be active on the issue, i can assure you, we’ll be there.

>> how confident are you right now that the congress will meet the president’s deadline and give him a bill to sign by august?

>> i feel quite good about it. we do have the bill. it’s been passed by the house. senator dominici is showing great leadership in working the system in the senate, which, as you know, is a very different situation than exists in the house. he is working on a bipartisan approach to a bill for the senate. he seems very encouraged, when i talked to him yesterday, i got a message back from him today, we sort of passed in the night today and i didn’t really see him physically but the message was that he felt quite good about it so we were encouraged. we are just going to be vigilant. this is not something that is going to be easily done, we don’t think. but i do believe we’ll eventually get there.

>> we’re short on time, samuel bodman, secretary of energy in the united states. thank you very much for your time. we’ll send it back to ellen braitman in new york.

>> thanks so much. our other top stories, earnings report from hewlett-packard announced just over an hour ago. bob bowden is breaking down the numbers and joins us with details.

>> the big story after the bell today, no question about that. the headline number, h.p. exceeds analysts’ estimates by a penny a share on a per-share basis, h.p. reporting 37 cents a share, compared to 34 cents from the same period a year ago and a penny better than the 36 cents analysts expected. that bottom line of the blue part of the screen. the revenue increased 7% from a year ago to $21.57 billion and exceeded the $21.63 billion analyst estimate by 1%. the p.c. group called personal systems grew revenue 6% last quarter, imaging up 5%, storage and servers revenue up 6%. services represents 19% of h.p. revenues. that growth was 14% and software, the star grower, you see up 23% from the year-ago quarter but this is only 1% into h.p.’s overall sales. turning to the future. the earnings and revenues forecasts seemed contradictory. the profit forecasts reads like a disappointment with a range of only 29 to 31 cents for the current quarter, missing analysts’ estimates for the fiscal third-quarter earnings but many analysts expected h.p. to reduce its forecast as new c.e.o. mark hurd is known to prefer conservative forecasts after carly fiorina tended towards more bullish forecasts only to report earnings that fell short of estimates three times in eight quarters. on the other hand, we have the revenue forecast, h.p. forecasting current quarter revenue at $20.3 to $20.7 billion, making the midpoint up $20.5 and analysts were only expecting $20.35 billion. the midpoint of the revenue forecast clearly better than what analysts anticipated. we have a quote from mark hurd in the press release -- people not really taking much from the h.p. story, ellen, and assuming that means much for the other competition.

>> h.p. planning to cut jobs in the third quarter across multiple businesses. it said may 17 it determined to cut jobs, seeing costs of three cents per share on the job cuts so that conference call just knot underway just about nine minutes ago and we’ll monitor the headlines coming out ahead of that. you have the dow up 80 points, the s&p eight points and nasdaq 10, the indexes closing near their highs of the day. we will take a quick break and go to the new york stock exchange and the nasdaq to get more details on what fueled the rally that kicked off around 2:30 new york time.

Focus: Domingo

>> 39 after the hour. we want to take time for arts news right now. opera superstar placido domingo debuts friday night in a new production of cyarono de berg iac.

>> placido domingo has sung 122 roles so far in operas written by mozart to vagner. the latest is the rarely performed cyrano debergyac.

>> i have never been an artist satisfied do repertoire, i have always been surging. it is many years i want to do cyarano and finally it comes when i approach the end of my career.

>> domingo debuted at the metropolitan opera in 1968 and has opened 18 seasons there, singing over 600 performances at the met. his signature role is othello. he received over 100 curtain calls, putting him in the guinness book of records. the director says domingo is a trooper despite his fame.

>> he is one of the first people at rehearsal in the morning and often the last to leave. he’s a dedicated, hard worker, part of the reason he is a superstar.

>> domingo is known for his generosity to colleagues and support of younger singers.

>> i saw him on tv when i was 11 years old and he was singing tosca and i pointed to the tv and i said to my mom, i want do that. yeah, honey, ok. then this is the big, first big role i’ve done with placido and i tell you, i cried the first day of rehearsal.

>> to pave the way for future stars, in 1993, domingo started operalia, a competition where singers not only win mon tarry prizes, but a chance for exposure and an opportunity to land jobs. when he’s not on stage singing or rehearsing, do domingo is conducting operas and running two opera houses in washington and los angeles.

>> next year, i am at the met, back with cyrano, sampson and deliela and opening night of the 50th anniversary of the washington opera and three acts at three different operas and in washington and in los angeles have been doing the season also.

>> you think you’re winding down?

>> a little bit perhaps.
>> the 64-year-old tenor is in the twilight of his career but is still pushing forward. he recently finished recording vagner’s piece and in the summer takes on another new part, the title role in pucini’s early opera, edgar, making it 123 roles and counting.

>> the other performances of cyrano this month are may 17 and may 20. speaking of art news, christie’s contemporary auction eased concern the contempterary art market reached a peak and was on the way down. a total of $134 million of art was sold, including hopper’s share car and only a handful of works failed to sell. dealers bid and bought heavily. contemporary art auctions are challenging the spremacy of the impressionist and modern art sales. last night’s sale at christie’s outpaced sotheby’s modern sale held last week. there was a legal victory for christie’s international. a court of appeals overturned a lower court ruling saying the auction house did not mislead taylor thompson about the origins of two antique earns. christie’s claimed they were from the era of lowy the 14th. at stake in the case is what measures auction houses must take to verify the authenticity of the items they sell. it is 44 after the hour, let’s take a break on this day when stocks did decline across the board. you had energy shares as the biggest drag on the s&p after oil prices declined to a three-month low.

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declines, 1.1% for the dow, 1% for the s&p. keep in mind, what happened here, you had energy shares falling on a decline in oil prices. that was the biggest drag on the standard & poor’s 500. moving along to look at what happened in treasuries today -- with concerns over the economy and the pace of interest rate increases sending the nasdaq lower, robert gray has details.

>> the nasdaq composite index closing near the lows of the session, concerns over the economy and its growth and the pace the fed will continue to raise interest rates weighing on stocks, sending them lower in the session. crude oil fell 4% today. closing below the 200-day moving average for the first time since january 3. traders say it fell on lower demand, casting doubt over the strength of the economy going forward, as did wal-mart’s disappointing earnings, overshadowing the retail sales. bruce a little bits at r.b. beard saying stocks are locked in a trading range until the inflation picture is cleared up and michael gurkha with man financial saying earnings growth may not be as strong in the third quarter, selling stocks, putting pressure on the market today. transports led declines in the session, followed by banks and insurance stocks moving lower on concerns about the strengthening economy and interest rate concerns. the philadelphia semiconductor index moving higher, stocks paced by gains in marvell technology, intel and teradyne. marvell with positive comments from wachovia, reiterating an outperform. intel, j.p. morgan analyst saying their profit this quarter may beat his forecast and teradyne upgraded to a buy at morris and cabot. in digital music, stocks falling for a second day after yahoo announced it was entering the digital music subscription business. apple shares falling for the fourth consecutive day, down nearly 10% in those four days. napster fell 27% yesterday and plunged again today. realnetworks falling for a second day after yahoo saying their subscription service will be significantly cheaper than their rivals and yahoo finishing lower after being higher earlier on. google shares rose to an intraday record but closed lower, as well.

>> david stockman resigned as chairman and chief executive of collins and aikman, maker of automotive interiors. the company now asking creditors, customers and suppliers for help to avoid running out of money. charles becker, former director, will be acting chief executive while a search begins for a replacement for stockman. stockman held two terms in the house of representatives before president ronald reagan appointed him director of the office of management of budget in 1981. he was a principal economic adviser at the start of reagan’s presidency. today, the company’s bond prices plunged and the new york stock exchange suspended trading of% -its shares and plans to delist them. moving along to tell you of a story out of washington. the securities and exchange commission chairman william donaldson says pressure on hedge fund managers to deliver market -beating returns may lead to disaster. he suggests growth of the industry could require more oversight by the s.e.c. peter cook is live in our washington puree with more on the chairman’s comments.

>> speaking to a group of financial officers of some of the country’s biggest charitable foundations, donaldson defended the plan to require hedge funds to register with the s.e.c. by 2006. donaldson said he’s worried about the problems with hedge funds in the meantime.

>> if history is a guide, it is just this sort of pressure that can lead otherwise well intentioned professionals to pursue practices that can ultimately result in disaster for investors.

>> donaldson said the s.e.c.’s mandatory registration of hedge funds is a first step and additional regulatory changes might be needed in the future. i asked donaldson if he fears a hedge fund could collapse today the same way long-term capital management did in the 1990’s.

>> i can’t really comment on that because we don’t have the data. we haven’t been inside these funds. as i said here, i believe the federal reserve’s attempt to get at the leveraged side through the banking system is a very good thing that’s being done and i have high hopes that will work.

>> hedge fund manager phillip goldstien who is suing to block the s.e.c. registration rule says there’s no evidence anything is amiss with hedge funds -- he says unfounded rumors about problems in the hedge fund industry should not be the basis for s.e.c. action. and a requirement that companies expense employee stock options, chairman donaldson says a market value proposal cisco proposeing is interesting.

>> thanks so much. new york stock exchange chief executive officer john thain said the big board may increase its cash payment to members as part of its merger with archipelago. under terms of the merger announced back on april 20, each of the nyse members is slated to receive $300,000 in cash and many of the seat holders, many of them are in the 70’s, and want to realize the benefits of the transaction sooner so the latest development is that john thain saying the big board may increase the cash component of the offer. we are going to take a break. when we return, reigning operatic superstar, placido domingo, making his debut in a new performance mounted by the new york’s metropolitan opera.

Focus: The panel's work

>> president bush’s tax reform panel has just wrapped up two days of hearings in washington. the panel heard expert testimony on a variety of options for reforming the tax code. jeff kupfer is the executive director and joins us from washington with an update on the panel’s work. thank you for taking time to join us.

>> thank you, ellen.

>> in as much preciseness in terms of the topic, what are the most viable options from what you’ve heard so far in the hearings?% 

>> we had a very interesting two-day meeting. we had people come in and present a variety of the proposals that have been out there in the past. flat tax, consumption tax, national retail sales tax, reforms within the existing code. today, we spent a lot of time on business taxation, looking at ways to simplify business taxation, also international transactions so we had 27 witnesses come through over the last two days and they presented a variety of options for the panel to consider.

>> are you whittling away any of the topics to narrow it down in the hearings?

>> what we wanted to do in this meeting is have everybody come in and give us the whole range of options. what the panel will do now, we have a meeting coming up next week where we will have witnesses come in to help us to begin to evaluate the options and whittle them down. the panel will then continue to meet as a group and as working groups to go through the options and hopefully come up with a smaller set of options we will then recommend to the secretary of the treasury.

>> in seems that in one form or another, each of these proposals or topics is out there with suggestions of reform. how do you address critics who say that the panel is really about the administration trying to gain political capital for a specific point of view?

>> what i would say is that when the president set this up and the secretary of the treasury appeared in front of the panel early on, they both made it clear that all options should be on the table and we should look at everything and that’s what we have done and will continue do. in first stage of the process, we heard from over 50 witnesses and not one of the witnesses came in and said, you know, the tax code is fine, don’t do anything. they all came in and said you need to change it. so what we’re doing now is looking at all those options and the panel, who have a lot of people on it, who have thought about these issues over time, will come up with recommendations and we can move forward.

>> in terms of the ones that come up the most as best suggestions, give us the top three.

>> the ones we always hear about are the flat tax, a retail sales tax, reforms within the existing code. i’m not saying those are the top three the panel will consider but those are always in the public discussion. they’ve been around if the past and we’ll continue to look at them moving forward.

>> in terms of a consumption tax, certainly there’s talk that congress is discussing this. how much consideration are you giving this idea compared to the others?

>> what we know is that the current tax code is a hybrid between an income tax and consumption tax so using a consumption tax is something that already exists in the tax system so we’re looking at other options that would also involve a consumption tax, a value-added tax, retail sales tax. we’re taking a hard look at those. a lot of witnesses have pointed to the vgating of moving towards a consumption tax base for the country.

>> you were given a deadline of july 31 for the panel. will you meet that deadline?

>> we have every intention of meeting that deadline. we are on track for that. that’s why this meeting the last few days was very important because we have the options on the table and have two months now to refine those options and write up our report but we plan to meet that deadline.

>> at that deadline, what’s the proposal going to look like? will it give a litany of suggestions? how narrow will it be?

>> what the panel has discussed―no decisions have been made yet. but we all recognize that for our report to have merit and to be useful, we need fewer rather than more options. at the same time, the president has directed us to come back with options and have at least one option that’s based on the current tax code so we’ll have a couple of options but hopefully fewer, and not one option for each panel member.

>> one option meaning?

>> well, what i’m saying is we will at least have two, three, four options, probably somewhere in that range but that hasn’t been decided yet.

>> jeff, thanks so much for joining us, we appreciate the update.

>> thank you.
>> jeffrey kupfer is executive director of the tax reform panel set up by the administration. another story to bring to your attention, america’s busiest port is so congested it may start losing business. we’re talking about los angeles, the gateway for almost half the containers that come into the u.s. last october, the port was so crowded with ships unloading that incoming vessels had to wait at sea as long as 10 days. those waits run up costs and eat into profits. as the new peak shipping season begins, companies are making% -other plans, diverting ships to other ports or moving goods by air. as the two giant discounters battle it out, target outperforming wal-mart on the stock front. the question is, will the trend continue? is that story straight ahead.

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Dell --- Bob (fast)
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37 cents exactly meets the average forecast of analysts surveyed by thomson financial. dell reported revenue of $13.39 billion, a 16% increase from the same period a year ago and it misses the analysts’ estimates, it was a miss of just .22%,. the all-important operating margin came in at 8.8%, the same as last quarter. that’s better than the 8.4% from a year ago. exceeding some analysts’ estimates such as an 8.6% figure postulated earlier today on bloomberg television. highlights by unit include revenue from storage systems up 49% from dell, services revenue up 30%, software and peripheral revenue including printers, tv’s and displays up 29% and mobility product revenue up 22%. now, turning to the forecast for the current quarter. dell predicting fiscal second-quarter earnings in a range of 37 to 39 cents a share, bracketing the 38 cent analysts’ figure. revenue forecast presented at a midpoint higher than consensus. we have this comment from daniel morgan of synovus investment advisers, managing a $6.5 billion portfolio. he said the report is pretty good and the guidance is good, which is positive. dell closed the regular session at $36.51, up almost a buck in the extended hours. other p.c.-related stocks, the rally, in telecom, hewlett-packard shares up 25 cents a share. microsoftmicrosoft and intel also up in extended hours.

>> looking at what happened during the regular trading session, stocks fell on concern the federal reserve may step up interest rate increases after a stronger-than-expected retail% -sales report. the closing numbers -- the stronger-than-expected retail sales report led to a rally in the dollar, surging to a six-month high against the euro and gaining against the yen after the retail sales jumped in april. traders saying the bearish sentiment seems to have lessened. crude falling below $49 a barrel on easing of supply worries. reports show rising of u.s. inventories and slowing growth in chinese demand, at close, crude down 3.8% to $48.54, a three-month low. the prices down 15% from the record high set on april 1. deirdre bolton has more on what moved or failed to move in stocks today. many factors behind the activity.

>> you mentioned the oil prices and then, in fact, oil prices at their lowest level since february, not enough to lift the major stock indices. among the reasons, investor fears of higher interest rates sparked by the retail sales report, also disappointing earnings from wal-mart. wal-mart’s first-quarter sales suffered as gasoline prices rose causing the world’s biggest retailer to fall short of wall street’s earnings estimates. sending the stock to its biggest decline in more than five months. yet, overall april retail sales came in higher than economists expected, giving investors a mixed picture of the consumer’s strength.

>> the good news is there’s two consumers out there, folks that shop at wal-mart and the rest of the retail sales.

>> indeed, shares of target closed higher after the company’s first-quarter earnings rose 15%, helped by sales of fashionable private brands. aside from wal-mart, exxon-mobil pushed the dow lower. energy stocks, including valero and conocophillips were the biggest weight on the market , falling after reports of rising inventories and slower demand. other losers included steel stocks can with u.s. steel stocks plunging after cutting its forecast of domestic shipments. that gave investors another reason to question the outlook for economic growth and corporate profits.

>> investors are getting mixed signals out there and what’s driving investor sentiment is the complete lack of transparency about the direction we’re headed in and what the fed does in terms of magnitude and frequency of interest rate increases.

>> interest-rate-sensitive stock including banking stocks and financials closed lower, both of these groups underperforming the s&p 500 year to date. back to you.

>> thank you very much. you talked about oil and its impact on stocks today. energy stocks were the main drag on the s&p 500. here’s a report on today’s trading with details on the energy shares from deborah kostroun.

>> the dow jones industrial average closing near its lowest level of the day and a confusing market , according to peter henderson with bank of america specialists. he said the fact you had oil down didn’t inspire the market and good news in the market like retail sales, coming in better than expected, couldn’t help the markets . but in a sense that concern, we did see concern because retail sales may actually force the hand of the fed to keep increasing interest rates. looking at the oil stocks, oil closing at its lowest level in three months. laggards in the s&p 500, energy at the top of the list, the biggest drag all day long. material stocks, also transportation stocks. oil refiners and integrated oil stocks like conocophillips, it was down 5.5%, its biggest loss in 3 1/2 years. oil services, that index had its biggest drop since january of 2003, all 15 members of that index were lower, some of the components of that really kind of seeing big percentage moves lower. gold stocks lower and that, along with the fact that gold, the commodity, fell to a three-month low. that as we saw an increase in the value of the dollar and in fact that was on the rise mainly because retails were on the rise so you saw gold producers lower. freeport mcmoran, owner of the world’s biggest gold mine, down 6%. other material stocks and steel stocks lower. u.s. steel down, its biggest drop in one year. that after the biggest u.s. steelmaker cut its forecast for domestic shipments this year and cut that forecast for the second time in only three weeks. other material stocks lower, phelps dodge, the second biggest copper pursue, producer, was lower, mainly as the price of copper fell to the lowest level in seven weeks. 3m buying cuno, i’m deborah kostroun at new york stock exchange for bloomberg news.

>> more on that report showing u.s. retail sales last month rose twice as much as forecast. economists say it is the latest sign a consumer rebound is helping power economic growth. su keenan has more on the report and the story.

>> ellen, many economists echo the view of christopher low who says the latest report is far better than anyone thought possible, especially in the face of those big gasoline price increases. the amount spent last month jumped twice as much as the forecast. this as americans were spending more on cars, on clothes and restaurant meals. 1.4% surge is the biggest since september. if you back out autos, april’s jump in retail sales was also double the median estimate of economists surveyed by bloomberg. in both cases, the commerce department revised the two previous months’ sales figures higher, which delaware investment’s analyst finds encouraging.

>> it’s erraticidatesa we’ve been seeing. the quarter started off strong. march was a big disappointment, one of the worst numbers we’ve seen in a year and now april was a big sigh of relief the consumer is not slowing as much as we thought.

>> not, indeed. susquehanna financial group’s analyst saying the retailers catering to the teenage customer showing real strength.

>> the big change has been that the gap and players like express have walked away from this business, walked away from the casual young customer and missed the boat and opened up the doors for players like american eagle to establish themselves as well as abercrombie & fitch so at this point in time we don’t see a crack in the armor but the momentum will continue through the selling season and these stocks should outperform.

>> two factors powering consumer spending, employment growth and rising incomes am 11 of 13 retail industries tracked by the government showed sales gains last month compared with eight in march. the increase in service station receipts shows gasoline is a big factor in the sales increase.

>> thanks so much. taking a break and when we return, a progress report on the bush tax reform panel. we’ll be joined by the executive director.

Focus: Cisco

>> cisco is seeking regulatory approval to sell a new derivative, failing to stop a rule forcing the company to sell options. cisco is betting the price investors would pay for derivatives would show its options are worth less than other valuation standards suggest. in the meantime, cisco beat analysts’ per-share estimates by a penny in the latest quarter. suzy assaad got an outlook for the quarters ahead from chief financial officer, dennis powell. she began by asking about cisco’s router business.

>> we need to look at the new data coming out, we have had great success with the new crs-1 router, a router that is at a much higher level of performance than any product out on the market to date. we are seeing great success. we have 25 -- excuse me, 15 customers paying and 15 already in trials with this very significant product. we also have the i.s.r. router, an integrated services router, bringing together a number of advanced technologies on to an integrated platform. it has i.p. telephony, security and now wireless all on to an integrated router. this is the highest performing router in terms of sales we’ve had in our company’s history. we introduced it last fall and are already at a billion dollar run rate.

>> what about gross margins? we saw them reduced certainly from a year ago. you came in at 66.8% versus 68.8% from a a year ago. what’s the outlook for the gross margin?

>> gross margins are stable. we saw them at basically the same level as last quarter. we see continued growth in the high-end product. we also are beginning to see some improvements in terms of the cost structure as we reengineer the products and make them more cost effective on the manufacturing side. clearly, we need to watch this but we feel comfortable with the position in our gross margins. they are very solid. pricing for us has remained fairly stable. overall, we’re very comfortable with the margins as they are today.

>> you still think you can grow the top line between 10% and 15% annually?

>> over the next four to five years, we believe that the opportunity for us, based upon industry analysts and their analysis of the market that we compete in and growth we expect to see in in them, we should be able to grow in the 10% to 15%. it’s up to us to execute but the opportunity is there for us.

>> what’s the situation in terms of cash on hand?

>> cash on hand currently is at $16 billion. we continue to generate about 1.9 billion dollars of cash from operations this last quarter and we’ve been able to maintain the cash balance even with the repurchase of about $2 billion of our stock.

>> what do you plan on doing with all those billions?

>> we’ll continue to first of all use the funds to fund acquisitions. we’ve made a number of acquisitions in the last year and we will continue to be aggressive on the stock repurchase program. we believe for now, it’s the best way to return our cash to our shareholders.

>> that was dennis powell of cisco systems speaking with our suzy assaad. also making news today, a key senate vote on asbestos legislation on hold again. after a two-week delay, the senate judiciary committee today resumed debating chairman arlen specter’s bill that would create a $140 billion national trust fund to compensate asbestos victims. the legislation would end asbestos lawsuits that have forced more than 70 companies into bankruptcy. today, the committee approved several amendments, including a provision to pay the sickest victims from the fund’s start-up but after delay caused by the evacuation of the capitol, specter ended the markup for the day and says work will continue tomorrow and perhaps into next week. he warned that if the committee doesn’t vote soon, the legislation could be in jeopardy.

>> if we’re not in a position to present a bill to the majority leader so that he has is in june, if he has it in june, we’re going to be overrun by the proposings process -- appropriations process.

>> the national association of manufacturers supports the bill. insurance industry groups and some labor unions are pushing for more changes. checking shares of companies that may be affected by the legislation, u.s.g. corp. gaining 2.3% today. w.r. grace up 5.7%. in the meantime, billionaire carl icahn won a seat on the board of blockbuster after accusing the company’s chief executive of wasting money on attempts to get customers back into video rental stores and of paying himself too much. icahn, the company’s biggest shareholder, got enough votes at today’s annual meeting, to become a director, as did two of his nominees. the current chief executive will remain chairman. he and icahn locked horns over how to revive profit at blockbuster. it lost $1.25 billion in 2004 as customers defected. taking a break right now, then we’ll tell you more about disney. earnings rising more than 30% but shares end the day lower. we’ll talk about the company’s performance with the incoming chief executive, robert iger.
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gains across the board for the dow, s&p and nasdaq -- oil prices declined for the first time in six days, a report showed the trade deficit unexpectedly narrowed. economists expected it to widen to a second straight record amount. cisco earnings came in stronger than expected. all of those factors boosting stocks today. however in the treasury market , little change across the yield curve. the yields holding near the lowest in almost a week -- in currency trading, the dollar rose to the highest in almost a month against the euro. it erased a loss against the yen after that trade deficit report came in stronger than expected. for more perspective on the stock trade, cisco helping boost stocks and google one of the gainers, as well. robert gray with details from the nasdaq marketsite.

>> a number of factors contributing to the nasdaq’s .5% gain today. we had crude oil declining, we also had the trade balance numbers coming in and some economists saying they will revise higher their first-quarter g.d.p. we had the all clear after a plane flew into restricted airspace in washington, d.c. there was cisco’s better than expected earnings out after the close yesterday, that stock rising throughout the session today, closing at a two-month high coming in a penny higher than the average analyst estimates. raymond james upgrading the stock to a strong buy and lehman brothers raising its fiscal year 2006 forecast, as well. google shares rising to a record in the session today. google won a license to operate in china. it’s hiring staff there, looking to open an office in shanghai by year’s end. also yahoo rising today, starting a new subscription music site on the web, charging an annual fee or monthly fee for unlimited downloading of stongs. that sent that stock soaring today. apple and napster plunging on the news. those were weighing heavily on the nasdaq through the morning trading. dave landry, director of research at trading markets dot-com telling me to watch for overhead between the 1970 and 2020 levels. he said a lot of people bought in at this level and may be looking to sell. at the nasdaq, i’m robert gray.

>> and wal-mart adding upscale household goods and self-service checkout lines to fend off target. both companies set to announce quarterly earnings tomorrow morning. bob bowden has been comparing the performances of the two retailers and joins us with the earnings due out before the bell.

>> wal-mart’s glass half full reads like this. if wal-mart reports 12% profit growth it would be the 13th consecutive quarter of better than 10% growth. with the glass half empty reading like this, 12% growth would be the slowest in 10 quarters for wal-mart and right around half the earnings growth expected from rival target. this is not the only measure where wal-mart underperforms target. consider recent same-store sales data for the two companies. in march, when retailers benefitted from an early easter, wal-mart grew comparable sales at 4.3%, nowhere near target’s gain of 8.2%. in april, wal-mart’s same-store sales up .9% and target’s, 1.3%. this month, the forecast different, as well, wal-mart forecasts comp sales will rise in a range of 2 to 4% and target’s, 3 to 5%. target’s same-store sales los angeles grown faster than wal-mart’s for 10 months. robert buchanan says wal-mart is not running stores as well as they used to.

>> i think their business has slowed. they’re missing product in the scores and are slow at checkout so the crispness of the execution that’s characterized the company for many years isn’t there right now.

>> target is deliberately going after wal-mart shoppers. one portfolio manager for bb&t asset management says -- stock prices have been reacting to the sales and earnings growth disparities at the two companies. over the past year, wal-mart shares down 11% but target in the last 12 months, up 9%. checking today’s action in advance of tomorrow’s earnings reports and it’s the same trend. wal-mart down .25% and target up 1.5%. we’ll have the numbers when they break tomorrow morning.

>> thanks so much for that. also have news to tell you about microsoft. a challenge to the company from latin america. brazil encouraging other developing countries to follow its lead in replacing microsoft software with three alternatives such as linux. banco de brazil plans to begin a group to promote open source software in brazil . in that country, the bank, postal postal service and state oil company have switched to linux at the government’s suggestion. in brazil, the government is facing a national scale the type of challenge met by vienna and munich. those shares unchanged. taking a break. when we return, we’ll hear from cisco’s chief financial officer, dennis powell about, third-quarter earnings.

Focus: Morgan Stanley & Warren Buffet

>> ford revising its profit forecast saying that for the second quarter is expects to earn from zero to 15 cents a share. previously, the company said the forecast was zero to a 15-cent losso the company, for the second quarter, revising the forecast higher. ford’s new forecast, it says, is due to earlier receipts of a tax refund. the full-year forecast remains unchanged at $1.25 to $1.55 per share. the company saying the new forecast is due to an earlier receipt of a tax refund. in the meantime, morgan stanley chairman and c.e.o. phil purcell making its first public presentation today since appointing awe new management team in march. he told investors at a u.b.s. financial services conference in new york that morale at the firm is good. allan dodds frank joins us now with the story.

>> phil purcell told investors that he tried to minimize breakage when he installed a new management team at morgan stanley in march. today, the new two co-presidents and firm’s chief financial officer helped purcell assure investors that morgan stanley is on track. since some high-ranking former morgan stanley officials began publicly attacking his eight-year reign, purcell has been on the defensive. after purcell came under attack; the board eliminating a bylaw that required a 75% vote to remove him. here, purcell talks about the impact of the spinoff.

>> it has been a source of earnings and capital to the consolidated firm and high returning business in its own right so we will feel the impact of the spin on all of those fronts. however, we believe that all the steps we’ve taken to integrate our securities business and align our management structure will ultimately result in returns above our peers.

>> purcell also cautioned that the operating environment in the second quarter could be%  difficult and that the firm’s margins in the brokerage business need work. we spoke with two investors whose firms hold morgan stock.

>> we reaffirmed my faith in their global franchise because i think that’s where the futures and i think they clearly have the right strategies overseas and that’s going to be one of the key drivers of the business in the future.

>> he basically glossed over the criticisms at the meeting and in the next year, you will―he glossed over underperformance and turnover and low moraleund you’ll know in the next 12 to 24 months when stock markets pick pick up and deal making picks up, they’ll fall behind and it will be gleerl in earnings releases.

>> purcell’s presentation ended just before the market opened. during the day, the stock was down as much as $1.40 and closed down about 2.6% or $1.33 a share.

>> thanks so much. also making news today, warren buffett’s general re faces growing pressure from regulators. the securities and exchange commission will probably pursue lawsuits against several executives of berkshire hathaway’s reinsurance company according to a person familiar with the probe. su keenan follows the story and joins us now.

>>. su?

>> federal regulators are trying to find out if executives in general re helped a.i.g. misstate finances with a type of reinsurance used to smooth earnings. emory university’s al hargraves, adviser to the enron bankruptcy examiner, says the investigation is unique.

>> you have a company that is normally a reinsureer buying reinsurance from a company that normally buys reinsurance coverage so one could say it’s bass ackward so general re is playing the role you would expect a.i.g. to play and vice versa and that in itself probably piqued the interest of investors.

>> persons familiar with the probe say a.i.g.’s former chief and former vice president received the wells notice. former law professor at columbia says the s.e.c. uses such a document to inform people a lawsuit is likely.

>> all of these cases involved a familiar pattern of plea bargaining, starting low and working up. i think the government is at a high level at general re but what it chiefly wants is testimony against both mr. greenberg at a.i.g. and others who may still be holding high managerial positions at a.i.g. that seems to be the number one target.

>> general re, nation’s biggest reinsurer, is owned by warren buffett’s berkshire hathaway. last month, the company said buffett had no knowledge of wrongdoing. an attorney who previously worked on the s.e.c.’s enforcement division says regulators may be preparing for the next move.

>> one question that opens up is whether the corporation itself, general re, will be subject eventually to s.e.c. action. the more senior managers you have involved in improper conduct, the more likely it is for the corporation itself to be sued by the s.e.c.

>> according to the person familiar with the investigation, a number of current or former executives are likely to receive notices. the story we’ll continue to follow.

>> thank you very much. when we return, a close look at oil.
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Listen Market briefing --- Ellen (slow)
Cisco --- Bob (fast)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)

i’m ellen braitman. cisco reporting fiscal third-quarter earnings about an hour ago. bob bowden is breaking down the numbers and joins us now. bob?

>> thank you, ellen. the headline is isat cisco reported operating earnings of 23 cents a share, up 21% from the 19 cents a share in the same period a year ago. it’s the seventh straight quarter of at least 20% profit growth. most investors said -- 10% improvement over the same quarter a year ago. the 6.19 was 30 million over the analysts’ estimates. as far as comments in the press release, cisco offered this -- we are maticle mon says he hopes he will hear on the conference call what cisco will do to make effective use of the cash. gross margin reported 66.7%, down 2% from a year ago. we’re seeing right now cisco systems shares up 14 cents at $18.35. checking networking stocks, there’s a rally, particularly in 3com, up 17 cents. tellabs, up four cents. a program note, c.f.o. dennis powell of the company, cisco systems c.f.o. dennis powell will appear on bloomberg television at 10:00 a.m. new york time tomorrow, the wednesday edition of bloomberg’s morning program.

>> certainly a lot of news today, besides anticipating cisco stocks ending the day lower. the closing numbers for the major indexes, dow, s&p and nasdaq all trading lower. the drop in stocks helping to push bonds higher. another reason treasuries rose. demand at an auction of $22 billion in 3-year notes surged, coming in at highest since the government resumed sales of the security in 2003. the 10-year note up 19/32, yield at 4.2%. on the shorter end of the curve, the gain of 5/32. stock indexes closing near session lows with concern on higher oil prices and hedge fund activity.

>> hedge funds may be taking on it too much risk, a wild card in the market moves today. michael driscoll telling us there are serious concerns. there are 9,000 hedge funds out there and there aren’t that many smart people in the world. all 24 groups tracked on the s&p 500 declined as the price of oil remained in focus, moving above $52 a barrel. investors are concerned economic growth may be slower than forecast. higher oil prices take a bite from corporate profits and has some investors worried that the market ‘s three-week rally may end.

>> i think we’ve quoten to the―gotten to the point that it’s more evident that higher energy prices are with us.

>> among loser, delta air lines falling 14%. higher fuel costs hurting delta and other airlines. delta may i have to file for bankruptcy.

>> all the airlines are having problems and higher oil prices exacerbates those problems. you’re really going to have to go through a period of consolidation or some of the players will have to leave the market to make it a more profitable business.

>> shares of priceline.com fell as much as 14%. the online travel company said second-quarter sales will be less than forecast. piper jaffray says growth is declining for the ont travel market . the pharmaceutical group saw earnings shortfalls. bristol-myers squibb closed down after the company set aside more money to settle lawsuits. bristol-myers squibb closed down near 1.5%. technology bellwether cisco affecting trading sentiment tomorrow.

>> indeed, thank you very much. to get more on the trading action today, here’s a report from deborah kostroun at the big board.

>> three things impacting the market today. that was oil, the economy and also speculation about hedge funds. all 24 industry groups in the s&p 500 were lower. looking at how the best gainers in the s&p 500 fared. best gainers lower, as well. real estate a little bit lower. autos and household products, some of the best performers. look at the lagars in the -- laggards in the s&p 500, insurance and diversified financials and energy wreaking havoc. concern that oil prices hovering above $52 a barrel and may slow economic growth more than forecast. oil was above $53 a barrel but ended the day above $53.10. speculation that hedge funds may be taking on too much risk, weighing on share prices throughout most of the day. there was talk that hedge funds may be trading on stocks because of trading decisions gone awry earlier this year. michael driscoll saying people are waiting for a blowup but conjecture out there today with serious concerns. remember, there are 9,000 hedge funds and not all of those people may be smart. delta air lines, biggest drop on the s&p 500 on the day. the number three u.s. carrier said in a filing to the s.e.c. that they may not be able to generate enough cash from operations to meet their needs for this year―the last nine months of this year. boeing at its highest level in four years. we’ve been talking about boeing for the past several days, hitting on all these new highs. this is the best gainer in the dow jones industrial average and one airline agreeing to buy 16 aircraft. i’m deborah kostroun at new york stock exchange for bloomberg news.

>> at the nasdaq, transports led the decline. robert gray has details from the nasdaq marketsite.

>> concern over higher fuel prices sending the nasdaq composite lower. concern that oil prices closing above $52 a barrel could slow economic growth more than forecast, a double whammy for transports, hit with higher fuel costs and the possibility of fewer goods to ship. sending transports lower, worst performing group in the session, down nearly 2%. it was a wide selloff. also tech-related shares falling. financials and insurance stocks lower. basically, all of the groups except for the nasdaq and biotech index falling. one of the worst performers in the group, e.g.l. falling on a profit disappointment. the company managing freight shipments for other companies. concerns over valuation weighing on this market . barry ritholtz with maxim group saying he’d rather see the market cheaper, stocks less expensive and stocks have been more sold off even than they have been before he would be aggressive and change the bearish stance. nasdaq composite falling nearly 1% today. x.m. satellite radio falling, saying its largest u.s. pay radio company saying american honda motor will sell as much as 12 million shares from its stake and receive $27 per share once the sale is settled. priceline.com falling on earnings and revenue. they sell discount travel services. first-quarter revenue coming in below the average analyst estimates. first-quarter net income falling 2.2% as they spent more to promote its european and hotel travel business. also seeing shares of emmis rising in the session as the company which owns radio stations in new york, l.a. and chicago hiring the blackstone group to evaluate the potential sale of its 16 television stations.

>> we have headlines crossing on fannie mae. representative richard baker of louisiana is saying president bush supports the house bill on a regulator for the government-sponsored enterprises―fannie mae, freddie mac. he says a full house vote is likely on the regulator by august. also requesting a pay review for fannie mae’s harold raines. in the meantime, morgan stanley embattled chief executive telling investors to focus on the company’s successes. are they listening?

Interview: Morgan Keegan

>> the opec president says the organization is pumping almost as much as it can causing a surplus of 1.2 million barrels a day. among the other energy movers today, unleaded gasoline, heating oil and natural gas are all trading higher. one other energy note, chevrontexaco changed its name to chevron. that’s the name it had before the company’s $46 billion acquisition of texaco in 2001. the change effective immediately. even after last week’s rally, the benchmark stock indexs are down for the year. s&p 500 has fallen almost 3%. the dow dropped almost 4% while the nasdaq is losing about.2%. our next guest says that we have seen the lows of the year. mike gibbs, senior equity strategist of morgan keegan, joining us from his firm in memphis with an outlook for stocks. mike, let’s talk about what you are seeing in terms of the markets . investors seem to still be a little nervous although you say that we have seen the lows of the year. tell me a little about your outlook for the rest of the year.

>> yeah, i think we have seen the lows for the year. i think what you have seen is that the markets in general do not like it when the fed is tightening. the fed has been tightening for the last 10 months. they’re worried that the fed will go too far and create a recession or too much of a slowdown. i think given the length of the cycle, of the tightening and the place we are in the cycle, i think we’re about done. if you think about it, since last june when they started, the markets are almost flat. the s&p is up better than 2%. nasdaq is down more than 4%. so i think there’s some factors going on in the market that will cause the fed to quit tightening. when they do, the market will focus more on earnings and let it move higher.

>> also when you look at it, it seems that investors are still sensitive to the swings in crude prices. as we have seen on many days, crude prices would move higher and stocks move lower. so how do we get past the nervousness on that end?

>> it’s kind of interesting. today we saw really somewhat of a different move there. early this morning we rallied off the better than expected inventory numbers and then crude spiked up better than a dollar and the stocks sold off. we gave back most all the gains. the rally at the end of the day even with crude still up was healthy. now i really think it will shift gears and focus on the fed and i think what will happen for the balance of the year is when the fed stops tightening, we’ll focus more on earnings and if we look at history, right now we’re 10 months into this tightening cycle. the last five cycles, the phafrpblg tightening schedule has been 12 months. it’s been 135 to 150 basis points. now we have done 175. i think a second factor why they may stop is what you touched on earlier with crude oil prices. not how it affects investors but more so how it affects the economy. crude oil prices typically have a one-year lag before they get into economic data. we ht first spike in crude last june. we spiked to $47. we then spiked to $48 in august. our final top, $55 in october. that’s a little over a year from now. the numbers will start coming in and they’ll give the fed a little more confidence to back off. then finally we have had a really flat yield curve and it’s worried the fed. since the fed started tightening the 10-year went from 4.58% to 4.25%. when we get inverted yield curve that almost always signal a recession or slowdown. the news we had on friday about the treasury potentially issuing 30-year bonds again will be the catalyst to move the long end up and keep the short end down and give the fed confidence they can back off. when we do that, we’ll focus on earnings which will move stock prices higher.

>> let’s talk about that in anticipation of what a you see as stocks moving higher. what kind of groups or stocks are you looking at now maybe in aeplgs for that? some people look at market and say that we’re undervalued here.

>> i think we are shifting gears in the economy. we’re in a mid cycle slowdown. cyclicals have done well up to this point. it’s time to shift gears and look more at health care. the dow jones and s&p health care exchange traded fund both broke to new highs today. soy think the market will shift and rotate and be a little more defensive in those names. i think you avoid consumer discretionary stocks and maybe look at staples. if we get a steepening of the yield curve, financials will do very well. i think that’s really important because no bull market moves higher without financials involved. so all in all, a very positive. s&p earnings are $77 12 months out. that’s low inflation, low interest rate environment. put a 17 multiple on that and you have a 1,300 s&p which is 11% higher than it is today. it won’t be a straight line. it will be tough because the market will trade off news. the balances are going higher.

>> let me ask you a quick question. with the health care, i hear a lot of people talking about health care these days. if everybody is sort of moving toward health care, is it getting too crowded at that end?

>> i don’t think so. i mean a lot of things we do from our group are technically oriented. we watch what is going on in the groups. we’re seeing a lot of accumulation in the groups, a lot of money flowing into that. you have to pay attention to where the money is going. they’re going in that direction now. health care stocks, if you take out pharmaceuticals, health care stocks are producing nice earnings growth with a very relative valuations.

>> we have to leave it there. mike gibbs of morgan keegan. general motors is reviewing the cash tender offer made by kirk kerkorian. su keenan will be along with the latest in the battle for g.m. and more on the dividend, next.
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Listen Market briefing --- Monica (fast)
Market aciton --- Deirdre (slow_
NYSE --- Deb (fast)
Nasdaq --- June (slow)
Merger in electricity industry --- Bob (fast)

markets rose as duke agreed to buy cinergy and e-trade plans to purchase ameritrade. philip dow says when you see mergers and acquisitions it’s a sign of confidence and companies looking to the future. cinergy shares up 4.5%. ameritrade’s stock gained more than 18.5%. monday’s merger talk boosted a market worried about interest rates and energy prices. in addition to duke and ameritrade, investors focused on dynegy whose stock gained more than 11%. the power producer hired credit suisse first boston to review a possible sale of its gas business. yet some market watchers say market gains will be short lived if oil and gasoline prices remain high.

>> investors may continue to stay on the sidelines. they’re not likely to break out of the range they have been in this year until we see prices begin to recede.

>> oil rose above 51.50 pushing shares of energy stocks including chevrontexaco and concophilips higher. earnings news set the tone for other stocks with king gaining after the maker of blood pressure pills beat analyst forecasts for the first quarter. a strategist at prudential expects corporate profit growth to support higher stock prices for the rest of the year. he says investors are underestimating the strength of the economy and revenue growth.

>> the economy is doing a little better than the g.d.p. report would indicate.

>> sales of the major companies grow at same rate as the economy. but this time we’re seeing that sales look like they’re significantly faster than nominal g.d.p. growth. >> one stock that moved lower on concerns about earnings results, hewlett-packard. the stock fell more than 1%. that after bank of america securities put out a note saying the personal computer maker will not meet full-year earnings estimates. monica, back to you.

>> ok, deed rafplt the market was up but volume was disappointing. for more on today’s trading action, here’s a report from deborah kostroun at the big board.

>> the dow jones industrials closing near its best level of the day, however, wachovia securities c.i.o. rod smyth talking about the stock market is hard to please because welcome signs of economic strength such as friday’s employment numbers quickly turn into worries about inflation and higher interest rates. so that’s one reason he says we may not see this market going up too much. stocks, however, rising on that m&a activity with duke energy agreeing to buy cinergy while e- trade agreeing to buy rival ameritrade. look at dow gainers. unite oed technologies were higher in friday’s session as they may be interested in a takeover of honeywell. mcdonald’s up after the restaurant chain saying april sales rose 2.8% spurred by higher priced u.s. menu items. general motors was also a big gainer in the session. after the close of trading, general motors lost $1.1 billion in the first quarter and last week had $291 billion in debt cut to junk status saying it will still pay its 50-cent a share quarterly dividend as scheduled. that decision to make the quarterly dividend countered speculation that they may cut or slash the dividend. they announced that after the close of trading. take a look at some of the laggards in the dow jones industrial average. boeing on friday rose to a four- year high. i.b.m. has been seeing trouble recently. during the month of april it fell 16%. so far in the months of may down 2.2%. hewlett-packard another big story in monday’s session because bank of america had a bearish note on the stock. e-trade offering to buy rival ameritrade. both the stocks ending the day on the plus side and general electric talking about plans that they’ll more than double their spending on research and development to about $1.5 billion a year by 2010 for cleaner products ranging from power generation to locomotives to everything to water processing as well. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> well, financial shares led a rally at the nasdaq. june grasso has more from the nasdaq market site at times square.

>> the sixth gain in seven trading sessions for the nasdaq. ameritrade is one of the most actively traded stocks on the nasdaq today. its shares surging after rival e  trade offered to buy the company. career education was one of the best performing members by percentage on the nasdaq 100. it said a special committee formed last year to investigate allegations of securities law violations found wrongful conduct by some employees but cleared senior management of any wrongdoing. the securities and exchange commission and the justice department are still conducting their own investigations into the company. but if you look at rest of the education stocks which tend to rise and fall together, you will see the corinthian colleges, apollo and strayer education higher. m.c.i., second largest u.s. long distance telephone company, has agreed to pay more than $118 million to settle a tax dispute with the state of mississippi. the state accused 6 m.c.i. known as worldcom of underpaying taxes before its reorganization in bankruptcy. telecommunications shares rallied early in the day. research in motion said its blackberry email pager has more than three million subscribers with one million added in less than six months. it was one of the best performers by percentage on the nasdaq 100. now wynn resorts, one of the worst performers by percentage on the nasdaq 100. the casino company headed by steve wynn was cut to in-line from outperform at goldman% -psachs. the report said that casinos are “our least favorite industry and wynn represents one of the more speculative companies in the group.” june grasso at the nasdaq market site in times square.

>> more on the merger in the electric utility industry. duke has agreed to buy cincinnati-based cinergy. bob bowdon has been following this story. he joins me now with more. bob?

>> thank you, monica. something of a merger monday you might say. the energy consolidation marches on. two weeks ago the refinery merger announcement between valero and premcor. duke energy, largest u.s. utility, agreeing to buy cinergy for $9 billion in stock. each share exchanged for 1.56 duke shares. based on friday’s closing price, it values cinergy at $45.80 a share or 13.4% premium. chairman and c.e.o. of duke, paul anderson, will be chairman of the combined company. cinergy’s chairman and c.e.o. will be president and c.e.o. of the combined company. this reflects a need for anderson to cut costs amid rising fuel prices. duke and inner skwreu expect $400 million in annual savings as a result of the merger including as much as 125 million from putting their wholesale electricity operations in the midwest under common management. also, duke plans to cut about 1,500 jobs of the 29,000 at the combined company or 5% of the work force. an analyst with jefferies & company says the deal will improve duke’s balance sheet.

>> we believe it’s a very fair price. duke is estimating initial accretion of 10 to 15 cents. we believe they’ll have an extremely powerful balance sheet with a debt to total capitalization of only 45% initially leaving them in a great position to do additional share repurchase or add value after the deal closes.

>> james halloran who helps manage $33 billion at national city in cleveland says the deal provides needed management debt.

>> paul anderson came into duke a couple of years ago to sort of resalvage the company. he has done an excellent job in doing so. he says at the time this was a finite stay with him. he will not stay around forever. it brings jim rogers who has done a good job at cinergy to be c.e.o. from a management standpoint, it works out well for both companies.

>> but some question the deal like robert rubin of deutsche bank who wrote in a note titled “we don’t really get it.” he said “we do not believe the most meaningful strategic rationalal outlined here, the ability for duke and cinergy to combine is a reasonable foundation for a deal.” duke fell almost 2% on the day. cinergy shares up. not near the $45.50 valuation price that duke is paying for cinergy. closing at $42.32. monica?

>> thanks. dynegy may sell their natural gas processing plants. credit suisse was hired to review a possible sale and other strategic alternatives for the gas business. the transaction would raise cash for the expansion of dynegy’s electricity business. dynegy is a power producer brought close to bankruptcy after enron’s collapse three years ago. stocks rallied on m&a news. but still the benchmark stock indexs are lower for the year. we’ll speak with one equity strategist who is calling for resistance ahead. we’ll hear more from mr. gibbs of morgan keegan after the break. .

Interview: Vice President of Capital Markets at American Express Financial Advisors

>> today’s stronger than expect the job growth sparks some enthusiasm on wall street, so what will drive stocks in the coming weeks? a question for our next guest david joy, vice president of capital markets at american express financial advisors. he joins us from our boston bureau. thank you for joining us. we mentioned some enthusiasm, but enthusiasm waned at the end of the day with the ups and downs of oil. are people still more concerned about oil and inflation and costs than they are about economic growth at this point?

>> well, i am not sure about that, other than to say i think it all translates into how aggressive the fed is going to be. i think that’s what’s really got people on hedge here. i am disappointed the unemployment report didn’t result in stronger action. i think it has to be because it means the fed is going to be quite diligent between now and the end of the year.

>> how, at this point, are companies being affected by interest rates? so far the fed raised rates eight times. wife gone up two percentage points, yet earnings in the first quarter,er than people expected.

>> i don’t think it’s affecting corporate earnings quite yet. rates are up, but they are still at quite low levels. you would expect to see it in some of the consumer discretionary areas, housing and oughtos. oughtos in the aggregate have been quite strong. just some u.s. manufacturers are having some trouble. mortgage rates are still quite low. i think we have further to go before you have any real economic impact from higher rates.

>> we had a rough month last month, barely went anywhere. last year you predicted the second quarter would be the weakest of the year. what you do see for the second quarter this year?

>> that remains our forecast this year. for the full year we’ve got a 3.6% growth rate with about 3.3% in the second quarter. that implies the first quarter was stronger than the estimate of the first one. the slowdown in business investment that occurred in march took us by surprise. we’ll see how that gets revised, if at all. we think the second half should be stronger than the first.

>> why that? why such a slow turnaround from this slow patch?

>> second quarter you’ve got higher energy prices beginning to kick in and begin to have an impact. we see energy prices moderating around these levels, so you absorbed that after a certain while. you also have the impact of taxes. we think tax payments have been running quite high. that falls in the second quarter of the year by and large. so once we get beyond that i think we get to an environment where consumer spending can ramp-up a little bit. i think fixed investment, equipment investing on the business side can ramp-up a little bit.

>> where do we put our money?

>> well, this is a tough market to try and pick sectors. i would say the only sector why we’ve got some unanimity is in terms of energy. you can expect volatility short run, but longer term we believe there is a balance between supply and demand. i i think beyond that telecommunications is an area we like. there are structural places taking change there because there is content on the one side driving higher revenues. i think health care is interesting, but beyond that, i think it’s a tough market to say you’ve got to be overweight or underweight. it’s more of a stock by stock-type environment.

>> a lot of times when you have a tough market people want security they go into treasuries. tough day to own treasuries today, but overall this year, hasn’t been a bat return. what about bonds?

>> no. it hasn’t been a bad return. if you look at the lehman aggregate, it’s up about 1%, at least going into today’s trading. the broader averages were down about 3% or so on the equity side. it’s been a good place to be. however, we still think the fed has room to go. we think the overnitrates will be 4%, 4.5% before it’s done. we think the 10-year note yield is going to push towards 5% and maybe up towards as high as 5.25%, 5.5%. we think between now and the better of the year the better returns will come from stocks. they are just not going to be that great in our view.

>> tell knee what we want to look for next week that will affect trading?

>> you know, if you look at the economic calendar, it’s not that heavy. i think my expectation as a result would be the energy patch is going to be an area of focus. i also think the relative strength of the dollar will be a focus, but my overall expectation is that next week is going to be a week of digestion of what we just experienced this week and maybe we turn sideways. until we get to the following week and you start to get to the inflation numbers for april, and that will give us greater insight to what we can expect out of the fed going forward.

>> thank you very much, david joy, vice president of capital markets at american express financial services. still to come, today’s jobs report may have been positive, but some economists are not convinced wages are rising. details in our “chart of the day” next.
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Listen Market briefing --- Mike (fast)
NYSE --- Deb (fast)
Money & sports --- Mike (slow)

major indexes. dow jones industrials finished up five points at 10,345. s&p 500 zoun on the day by a little over a point, 1,171 your close there. the nasdaq up by 5 1/2 points, 1967. another volatile week in the stock market . deborah kostroun is at the new york stock exchange with more on the action as we close out

>> thanks, mike. as you are talking about a lot of ups and downs. quite a bit of news coming out. we had the g.m., the ford news and the fed. one of the things we did see for the week, the s&p 500 and the dow were up for the week along with the nasdaq. in fact, the dow and s&p 500 up fiore a third straight week. you can see the gains there. dow up 1 1/2 -- 1.5%, s&p 500 1.3% and nasdaq increase 2g.4%. take a look at the biggest gainers in the week for the dow jones industrial average. general motors gaining 15%. it is still the worst-performing stock in the dow this year. it is still down 23%. for the week the best performer. this on that news about kirk kerkorian wanting to double his stake in buying 28 million shares of the company, and even with the down grade we got from s&p 500, a.i.g. another big gainers. insurance stocks performing well this week on quite a bit of earnings news and home depot on the rise. dow lag guards for the week, you saw verizon at the bottom of the list. also i.b.m. along with general motors, one of the worse performers this year in the dow. in fact, i.b.m. at another low this week. in fact, it is down about 23% for the year. g.e. this week down 1%. cytec industries said their 2005 net income will be less than the average estimates by analysts and thomson financial survey. that stock lower. dolby laboratories said in a statement their revenue going to be less than expected. so dolby on the lower side today. middle steel rising. this is the world’s largest steel maker. they may build their first steel plant in india after meeting with officials in part of the northeast part of that country, so those steel stocks performing well. weight watchers on the rise today much this is the world’s largest chain of diet centers saying their 2005 profit will be as much as $1.98. that is about three cents more than their march forecast of $1.95. back to you in the studio.

>> deborah kostroun at the new york stock exchange. turning now to our weekly “money and sports” update, break out the mint juleps and the hats, it’s kentucky derby stein. we are joined by our bloomberg news reporter out of our atlanta news room. mike, we in new york are used to steinbrenner buying whatever it takes to buy a chape for the new york yankees. is he doing the same thing for horse racing?

>> you would think so. you would think money is no object and that would go to horse ration. unlike the $20 million yankees, bellam road, early favorite for tomorrow’s race, $87,000 is all it cost george, a bargain-basement price. noble causeway, $1.15 million. going wild, $600,000. you look at 2000 when pegasus won. that horse cost $4 million. george is shopping for the bargain base me. here.

>> another sport people are not watching lately, the national hockey league lockout and its 233rd day today. they had a couple of meetings, the unions and the league. what is going on there?

>> they met a couple of times this week up in toronto. they are going to meet next week in new york. they’ll have another meeting in toronto mid may. there hasn’t been too much news out of it except commissioner gary bettman has intimated the two sides are speaking the same language, so you have to think they are making some progress, but it certainly is slow. the national hockey league is just an afterthought at the moment.

>> any chance they are beginning to recognize they are in danger of becoming irrelevant or nonexistent?

>> when you ask a lot of people, the nhl is already nonexistent. it’s really caused some damage to the league. it’s the longest northern american sport passing baseball. it’s been a long time since they dropped the puck. as long as there are people willing to own the teams, the teams will exit and they have to come to agreement when they will start playing games.

>> malcolm glazer wants to own manchester united soccer team over at england. they are telling him to go away. the fans are going to make a boycott of saturday’s game maybe?

>> telling him to go away and not so nicely telling him to get out of town. last week they rejected a $1.5 billion takeover. people applauded that. people in london, fans of manchester united, one of the most popular sports teams in the world. essentially the game this saturday is the last home game they have. there is some organizers, some fan groups trying to organize a boycott of the game, asking people with tickets not to show up at the game. that is like asking yankee fans not to show up at yankee stadium. that could be a tough sell. if you don’t want to give up your ticket show up 45 minutes before the game and join in a protest march. we’ll have to see what happens with this one.

>> we’ll see you next week. thank you for join us. a jump in jobs. will stocks follow suit next week? we’ll take a look at today’s market action and where stocks are headed with david joy.

Interview: The Dean of the George Washington University

>> the better than expected april jobs report caused treasuries to fall as investors bet the strong jobs report meant the fed will not stop raising rates any time season. susan phillips joins us for a closer look inside the fed. she is the dean of the george washington university school of business. welcome, dean phillips. a month ago everybody was talking about a soft patch, the jobs number disappointing. today everybody’s afraid the fed is going to have to start raising rates faster. where’s the truth?

>> clearly there was a revision from last month. we have seen a spending slowdown, but these employment data were very encouraging. i think the fact the fed remained on a solid track is consistent with this.

>> are they likely to begin consideration of any faster series of rate moves because of this report?

>> i don’t think because of this report. they tend to like to look at trend data. they are going to be looking at spending activity. and there’s been concern people have been having to pay more to fill up their gas tanks, so people are not spending as much. they are making money, but having to spend it on gasoline.

>> you mentioned making money. that is a key point in today’s report. the average hourly earnings rose .3% and pushed up the year over year gain to 2.7%. the fed’s got to be starting to think there is some inflation on the horizon, correct?

>> and i think they have indicated that inflation concerns are becoming a bit more prevalent. they dropped the line about gasoline prices not feeding through to final prices. so inflation, i think, yes, definitely a developing concern.

>> speaking about dropping a line the fed left out originally, that long-term inflation expectations are under control. they rushed to get that back in a few hours later. anything necessity fairous there?  anything nefarious there?

>> i think they were trying to make a point that they believe that inflation concerns may be short-term, but they are not seeing more of a long-term concern about inflation. that is something they are going to watch and obviously they are watching.

>> how could something like that happen? you’ve been in the room as the fed debates its statement and gets it ready to put out?

>> they usually start out with a draft, then people try to get something added or something taken out, and my guess is that it was just purely a transcription mistake and they used the wrong version.

>> if inflation is picking up, how quickly is that going to happen? we are going to get c.p.i. and p.p.i. numbers in a week. are we going to be seeing inflation picking up to the point where the fed might have to move faster?

>> well, of course as you know, the fed really focuses on the deflators more, particularly personal consumption expendture deflator. they tend to look a bit more long term, but they’ll certainly be looking particularly at the core c.p.i. producer price index don’t feed through quite as directly, but it’s good input. it’s good information. they’ll definitely be watching it. i don’t think with one c.p.i. number you are going to see a change. they’ll be watching for trends developing.

>> the fed seems to have changed its philosophy, no longer trying get ahead of inflation, more like react to the numbers that come in. they’ve almost told us that in so many words in their statement. can they do that or are they taking a risk by trying to catch up if inflation suddenly gets out of control?

>> well, my reading of it is that they believe that long term underlying inflation is not as much of a concern. in other words, we don’t have sort of a built-in psychology of price increases, and people aren’t making their investment and spending decisions on the basis of inflation. what they are concerned about is if a short term trend starts to take hold and then we start to see inflation expectations building, and that whole psychology changing, so i think that they are drawing a real distinction between short-term run-ups in prices that may well be reversed as production and expendture did he significants are made, and longer term inflation psychology.

>> in 10 seconds, give me a number where they stop. how high does the fed funds rate go?

>> oh, good heavens. i think they have to start reconsidering things when they get to about 3.5%. that would be where i would say a reconsideration.

>> all right. a couple of more meetings then. our thanks to susan phillips, former fed governor now dean of george washington university school of business. some investors are saying stocks are cheap, now is the time to buy.
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>> i think we’re going to have strong job creation going forward. the economy remains basically strong. we have low inflation environment. we have good productivity, but not as high as it’s been. and we have underlying good growth.

>> well, this is going to strengthen the hand on the hawks of the fomc committee who will be talking more and leaning more toward continuing the rate increases as we go through the year in the next five meetings of the fed between now and december.

>> this is all telling me that temporary slott patch is no more. that, in fact, we are seeing good improvement in labor market conditions. for the time being, i think financial market players are going to take that word out of the dictionary.

>> those comments following news u.s. employers added 270,000 workers in april, 100,000 more than expected. companies betting the economy is gownsing back from a first quarter slowdown. employment rate holding at 5.2%. here is the bond market reaction. the 10-year note finishing down on the day by just about 7/8, yield at 4.26%. the belly of the curve, five-year note finishing down by 5/8, yield at 14 basis points to 3.95%. the two-year note down by a little less than 3/, but yield soaring 16 basis points, 3.71%. the dollar on the day finishes out trading for the week with a good day. it is higher against the yen, the euro and the pound. we’ll see how today’s number plays out for the fed when we speak with former fed governor susan philips, dean of the school of business at george washington university. we’ll get the market side of the jobs record from david joy, equity strategist with a.x.p. financial services. let’s get you caught up on how we ended the day’s trading. dow jones industrials up five points, closing at 10,345. not quite as good for the s&p after an up-and-down day. finishes slightly lower, down a point, 1171. nasdaq finishing higher by more than five, 1967. for the week, dow jones industrials and s&p finishing up by more than a percentage point. nasdaq more than two percentage points higher. in the stock market , we did have a strong start after the jobs report and then some up-and-down trading during the day. deirdre bolton has details.

>> mike, it’s a case of “be careful what you wish for.” strong job growth says any slowdown in the economy will be short lived, but that also means interest rates will have to keep rising.

>> we got to a point today where good news was good news. i think that is good for the market and the economy.

>> that is a double-edged sword. hogan says the report means the fed will keep raising interest rates. that is not such good news for the banks. banks were among the worse-performing groups. bank of america, wachovia, wells fargo all moved lower. merrill lynch cut its price targets saying there is, “ruthless competition for new commercial loans and valuations are not compelling, especially if more borrowers default on their loans as is more likely when interest rates rise.”

>> there are certainly a couple of things you do in a rising interest rate environment. one is to not necessarily invest in financials. they do better after the fed and interest rates have leveled off, if you will.

>> movements in the oil market were felt on wall street. stocks slide to their lows midday as oil rose above $52 a barrel a stronger economy means rising demand for oil and rising crude prices. the jobs report sent some employment stocks soaring. monster worldwide gains pushed its weekly gain to 10%, biggest of the year. robert half at manpower outperformed today along with companies that reported better than expected earnings. pixar is one. its bottom line was lifted by the success of “the incredibles.” they lifted the earnings forecast this year for the second time and g.e. raised its second quarter earnings range by a penny. you can see how those stocks closed on the day. we have g.e. unchanged. pixar with a gain up around 5%. mcafee up around 14%. back to you.

>> deirdre bolton. for reaction to today’s jobs report here is a report from deborah kostroun at the big board.

>> we did see the rally fading a bit in the dow jones industrial average, even though we had that better than expected jobs report where employers added 274,000 workers, doing bet errant prediction of 174,000 workers. take a look how that transcended through the market today. we did see the rally fading on concerns that interest rates will rise. that had an impact on financial. s&p financial index this. was the worst performer of the 10 industry groups in the s&p 500. the concern that higher interest rates may reduce the value of bonds owned by banks and crimp demand for things like mortgages and loans. did you see many of the banks and other financials on the lower side today. one of the best performers in the dow jones industrial average today, that was honeywell. biggest rally in 2 1/2 years. this on word that it could be on speculation that united technologies may make another takeover offer for the rival aerospace conglomerate. spokes people declining to comment on that news, but honeywell getting a lift. take a look the at boeing at a four-week high. another big gainer in the dow jones industrial average, at its highest level since june 2001. this after boeing won an order from northwest airline force 18 of its new 787 dreamliners. that’s valued at about $2.16 billion. also t.g.i. on the rise. they had good earnings. over the past week we’ve been hering a lot of new abouts g.m. and ford. in fact, we did see g.m. losing in thursday’s session and friday’s session also lower, but ford a little bit of a mixed group here. many in the auto-related group, it has been an interesting week with kirk kerkorian talking about the fact he was going to double his stake in g.m. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> nasdaq had the biggest weekly gain in more than three months. june grasso has details in times square.

>> pixar was the leading mover by percentage on the nasdaq 100. first quarter profit more than tripled at the animation studio run by steve jobs. home video sales of its superhero film “the incredibles” helped boost revenue. a note from credit suisse first boston called it, “another blowout quarter.” and said this stock should be boosted by a new distribution deal. computer shares performed well today. siebel systems was one of the most active stocks and also one of the best performers by percentage on the nasdaq 100. the software maker said it plans to triple costs by $14 million this quarter. after the jobs numbers came out, shares of employment services companies advanced. monster worldwide, the owner of the most used internet site for employment advertising. they rose. paychex which provides personnel services has been one of the top performers on the nasdaq during the day. on assignment provider of temporary employees and health care and sciences also rose. dragging the nasdaq down were the banking stocks. the bank index was the worse-performing economic group at the nasdaq. the employment report reviving concerns about higher interest rates. so if you take a look, northern trust and fifth third bancorp, the largest bank on the nasdaq were among those stocks that were down. utstarcom dropped more $3.

>> bloomberg news has learned federal and state prosecutors are investigating whether maurice greene berg, former c.e.o. of american international group, seen here in file footage, tried to prop up the insurer’s stock price before an accounting probe forced him out. they are examining whether he ordered an executive to buy shares as the price was falling. stock price investigation adds to probes of greenberg’s role in accounting errors that helped inflate the company’s net worth by about $3 billion. news from berkshire hathaway. ahead of its rernings report. warren buffet’s company buying the medical practice insurance unit of general electric for about $825 million. medical protective insurances about 75,000 doctors and dentists and told $740 mfl policies last yeemplet buffet told shareholders of a pending acquisition last weekend saying the deal is one of the few opportunities he found to deploy some of his $44 billion in cash. we’ll continue our coverage of the april jobs report with a look at how the fed will view the data. we’ll get some insight into the fed with former federal reserve governor susan philips. that’s next.