CLOSING COMMENTS 5-8-06

The Last Week in Review:

Current economic growth remains strong while interest rates continue to rise. Most economists expect to see these conditions remain over the next three to six months. The Federal Reserve should confirm this view on Wednesday when it is expected they will raise the Fed Funds rate another 25 basis points. The overall market view is still a bit cloudy as investors continue to underestimate the risk that the Fed may hike rates two or more times and bond rates will continue to rise. Those moves would curtail economic growth and undermine valuation measures.

There are always opportunities, however, and prudent choices in appropriate sectors frequently present great opportunities. Right now, basic materials and industrial stocks are worthy of a close look as the late economic cycle plays itself out.

The Employment Report last Friday sent the Dow Jones Index to its third highest close ever, up 1.9% for the week and up 6.9% for the year and just 150 points below its January, 2000 all time high. The S&P 500 rose 15 points on the week, while the NASDAQ rose 20 points. Both indexes are up 6.2%so far this year. The Russell 2000 small-cap index, established another all-time high on Friday and is up an amazing 16% year-to-date.

The Week Ahead:

On the earnings front this week, Cisco Systems (CSCO) announces their results along with Walt Disney (DIS) on Tuesday. On Thursday before the open Wal-Mart (WMT) reports earnings along with American International (AIG) and Nvidia (NVDA) after the close. Two market moving presentations this week include Tuesday's KB Home (KBH) analyst meeting and Thursday's Google (GOOG) annual stockholders meeting where some significant new developments are expected to be announced.

Conferences this week include, Jeffries & Co. who is hosting a three-day Gaming/Lodging/Media/Entertainment Conference starting Monday in Las Vegas. On Tuesday Bear Stearns holds their two-day Global Transportation Conference in New York, while CIBC World Markets begins their two-day Media, Internet & Telecom Conference in Boston. Also on Tuesday Merrill Lynch starts its three-day Global Metals, Mining & Steel Conference in Miami. On Wednesday Piper Jaffray begins its two-day 8th Annual Hardware & Communications Conference in New York City.

The economic calendar looks busy again this week with the all important FOMC policy announcement on Wednesday afternoon. Also on Wednesday the March Wholesale Inventories will be released along with the Weekly Crude Inventories. Thursday prior to the open the March Business Inventories and April Retail Sales will be reported. Also on Thursday Chicago's Fed President Moskow gives opening remarks at the Chicago Fed Conference followed by a speech from Chicago Fed Governor Kohn on payment innovations. On Friday the April Import/Export Prices and the March Trade Balance will be released along with the May Preliminary Michigan Sentiment Index announcement shortly after the opening bell.

In summary: Investors need to focus on the continuing earnings reports this week and listen to the Federal Reserve's statement on Wednesday.

Stay tuned!