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Stocks rallied and pushed the S&P 500 Index to a new 5-1/2 year high. The Dow Jones Industrial Average also reached its highest close of 2006, after lower oil prices and a better than expected consumer-confidence report eased economic worries.Today, the Dow Jones Industrial Average closed up 93.58 or 0.81% to 11,669.39, just 50 points from its all-time high of 11,722.98 set Jan. 14, 2000. The broader S&P 500 index closed up 9.97 or 0.75% to 1,336.34, closing at its best point since Feb. 2001. The Nasdaq composite index closed up 12.27 or 0.55% to 2,261.34.

Market breadth was positive. On the New York Stock Exchange, winners beat losers nearly two to one on volume of 1.711 billion shares. On the Nasdaq, advancers edged out decliners 15 to 13 as 2.058 billion shares changed hands.

Investors feel that the slowing economy, the recent drop in energy prices and the decline in bond yields mean the Federal Reserve won’t lift interest rates again any time soon. The strong read on the Consumer Confidence Report added support to this belief. The index rose to 104.5 against the expected rise to 102.5. While the report shows that the consumer is feeling better, it doesn’t suggest consumer spending is likely to ramp up enough to recharge the economy and force the Fed to raise rates again. Additionally, the Conference Board said that inflation expectations also eased in September. Expectations of inflation in the next year fell to 4.9% in September from 5.5% in August.

Stock of Lennar closed up $0.07 to $46.95, despite informing that quarterly earnings fell from a year ago and warning that fourth-quarter earnings would miss analysts’ estimates and its own earlier forecast. It reported a 39% drop in third-quarter net income to $206.7 million, from $337.3 million. However, its total revenue rose to $4.18 billion from $3.5 billion in the year-ago quarter. Its net orders in the third quarter fell 5% to 11,056 homes - which is better than most other home builders.

Stock of Lowe’s closed up $0.08 to $28.92, despite informing that its full-year earnings would be at or near the low end of its previous guidance. This is because of near-term pressures on consumers such as high energy costs, which are coming against a backdrop of a declining housing turnover. Its CFO is likely to provide an outlook, on the plan to add 155 and 150 stores in 2007 and 2008, respectively. The company sees its EPS to grow 10% to 14% in 2007, and 12% to 16% in 2008. It also expects the additional square to drive annual sales up 10% to 13% in 2007, and 11% to 13% in 2008.

In another warning, shares of PMC Sierra closed down $0.55 or 8% to $6.00, after warning that third-quarter revenue will be in a range lower than it previously forecast due to weaker business activity.

Stock of Visteon Corp. closed 10 cents lower at $8.35, as the auto-parts maker said that it doesn’t expect to hit its Aug financial targets because of lower customer-production levels in the second half of the year. The company currently expects second-half product sales to be about 10% lower than the first half’s $5.7 billion.

U.S. light crude oil for November delivery fell 44 cents to $61.01 a barrel on the New York Mercantile Exchange. Investors continued to try and gauge what the OPEC plans to do about production quotas, in light of sharp sell-off in oil over the last two months.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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