INVESTORS DIGEST BETTER THAN EXPECTED JOBS GROWTH AND EYE CORPORATE EARNINGS

10/06/2007

After Friday's focus on the good September jobs report, this week Wall Street will turn its attention to third quarter corporate earnings. Meanwhile, we ended the week with a 1.2 percent gain in the Dow Jones Industrials. The broader S&P 500 index gained 2 percent, hitting an all time trading high Friday at 1,561.91. The NASDAQ rose nearly 3 percent for the week. On Friday, the notable gainers were Apple (AAPL) up 5.21 at 161.45, Research in Motion (RIMM) 12.83 higher at 113.37, and Google (GOOG) rose 15.02 to finish at 594.05. That stock is still a buy and going higher.

Investors were encouraged by the better than expected in increase in payrolls for September. 110,000 non-farm payrolls were added. We also got a higher revision for the August job numbers. 89,000 jobs were added. That's much better than the 4,000 loss reported earlier. Unemployment is at 4.7 percent. A rate cut looks more likely for the Fed's next meeting October 30th and 31st. It's all great for stocks, and the perfect goldilocks scenario, in my view. Economic conditions are better than the street thought, with less threat of a recession. Expect continued momentum to the upside in equities.

Johnson and Johnson (JNJ) is just way too cheap here. It's just a great healthcare company with real growth going forward. Real strength is in the over the counter items. They've also got their drug-coated Cypher stent that's favored over both Medtronic's (MDT) Endeavor and Boston Scientific (BSX) Taxus stents. In fact, the FDA questions the effectiveness of Medtronic's stent. At 18 times earnings, JNJ is cheaper than MDT, BSX, and the likes of Merck (MRK) and Proctor and Gamble (PG). JNJ closed Friday up .14 at $66.25. The stock is a buy here and going to $75.

Earnings season gets into high gear in a few weeks. But some special companies of note report this week. Yum Brands (YUM), the owner of Taco Bell and Pizza Hut, reports Monday after the close. Monday is the Columbus Day holiday, but a regular stock trading day. The bond market will be closed. Tuesday is the unofficial start to earnings season when Aluminum maker Alcoa (AA) has quarterly results. Wednesday its discount store Costco (COST) and Pepsi (PEP) is on tap for Thursday.

Minutes from last month's FMOC meeting come out Tuesday. In it, Wall Street may get some clues about the likelihood for further cuts. Friday will be retail sales and a reading on wholesale inflation, the PPI. I don't expect the PPI to be a big market mover since the Fed shifted its attention from inflation to economic stability. Also a preliminary report on consumer sentiment comes from the University of Michigan.

-Dave Harris