The Telmar 25 Ad Impact Index is experiencing some winter turbulence similar to the storm that rocked the north east last week. Among members of the Telmar 25, HAVS reported that it sees spending on marketing and communications increasing by 4.4% next year. Both PUB and IPG have forecast higher ad spending next year as the economy improves and the Olympics is scheduled to take place.

On Friday, the University of Michigan released its index of consumer sentiment, which declined after a rise two months in a row. The dollar continues to be weak, as interest rates remain lower than those in other countries, making U.S. government debt unattractive to foreigners that can get a higher return in Europe and elsewhere. Natural gas and crude oil continued their respective rallies as the prospects of a cold winter increased, driving demand and prices higher.

Despite Friday’s loss, the Telmar 25 Ad Impact Index remains 3% higher for the last two-week period, slightly outpacing both the SPY and the DIA. Among members of the Telmar 25, Standard & Poor’s issued a statement saying that the repurchase by L of 25 million shares of its common stock will not affect its credit rating. OMC received an upgrade by Morgan Stanley from under-weight to equal-weight helping it advance 8% over the last two weeks. Other agency stocks were also rose including HAVS, up a whopping 14%, WPPGY gained 6%, PUB was 4% higher, IPG added 2%, and GREY edged up 1%. Within the advertising industry, Merrill Lynch raised its forecast for the increase in ad spending for 2004 from 5.4% to 5.8%.

On Friday, the Commerce Department reported that the U.S. non-farm payrolls added 57,000 new jobs in November, lower than the forecasts that ranged from 150-200K. This gives the Federal Reserve a good reason to keep interest rates steady and indeed, the yield on the 10-year bond has gone down to 4.21%. The dollar has been declining against the Euro, Sterling and the Yen, partly as a result of the low yields on U.S. investments. This weak dollar, low interest rate environment puts pressure on the Fed to raise interest rates, which could weaken the economic recovery. The blizzard that struck the east coast helped lift energy prices, especially natural gas as demand is perceived to increase due to the cold weather, thereby raising prices. Finally the lifting of steel tariffs was a welcome and long overdue move as the effect of these tariffs was to provide limited protection to the steel industry while hurting virtually every other industry that purchases steel and steel products.

During this holiday-shortened week, the Telmar 25 Ad Impact Index has recovered last week’s losses as have the SPY and DIA. Within the Telmar 25, it was reported today that McDonald’s, which in the past, had split its massive advertising business between OMD, a division of OMC, and PUB, will now consolidate that business solely with OMD. HAVS offered to buy a put option on a convertible bond for 50 million Euros if the bondholders agree not to exercise a put option for repayment. This will have the affect of easing an upcoming debt pay back in January 2006.

The U.S. economic recovery appears to be accelerating. On Tuesday the Commerce Department revised its 3rd quarter GDP growth figures from 7.2% annualized growth to 8.2%, the fastest growth rate for a quarter since 1984. This week’s drop in the price of oil below $30 can only help stimulate the economy. Today’s Wall Street Journal reports that earnings rose by 30% in the third quarter compared to last year, and for the first time, profits surpassed $1 trillion. Despite this strong economic news, the dollar doldrums continue. One reason is that the markets perceive that despite the strong economic data, the Federal Reserve will keep interest rates at the current level. However the yield on the 10-year bond gained 10 basis points to 4.26%.

As earnings season has subsided and as we come closer to the Thanksgiving holiday, the roaring bull has taken a breather as the Telmar 25 Ad Impact Index is down for 6 of the last 8 trading sessions with the broader SPY and DIA posting similar results. Among members of the Telmar 25 making news, L announced a $4.5 billion debt reduction plan. Of that total, $2 billion will be retired by the end of this year with cash on hand. Some debt will also be restructured with longer maturities. In other news, NYT announced higher newspaper advertising revenue of 3.9% in October. TWX is considering bids for its music group by an investor group led by Edgar Bronfman Jr. and Thomas H. Lee Partners a second bid by EMI Group Plc. The Bronfman group appears to have the edge. A successful sale would allow TWX to pay down debt.

The dollar continues to be weak due in part to the political stability centered on Iraq, Turkey and Saudi Arabia, driving up the price of crude oil to over $32.00 per barrel. When viewed over a long period of time, high oil prices have a slowing effect on the economy making this metric a good proxy for future economic strength. However interest rates remain steady with the benchmark 10-year bond at 4.16%.

With its peaks and valleys, the Telmar 25 Ad Impact Index has been far from dull, but nonetheless has managed to remain little changed. The same has held true for the SPY and the DIA. Among members of the Telmar 25 reporting earnings, PUB reported a 56% gain in revenue compared to the same period last year, mostly due to the acquisition of Bcom3. PUB CEO Maurice Levy predicted that 2003 would be the first year of revenue growth since 2000. GREY reported both higher revenue and profits compared to last year, though these gains were helped by a weaker dollar. IPG did not fare as well as it reported a loss of $327 million vs. $89.6 million last year. This was due to various one time restructuring charges, the impairment of assets, and legal costs. Finally HAVS reported negative organic revenue growth of 5.5%, exacerbated by the poor performance of subsidiaries that are either being closed or reorganized.

On the interest rate front, Federal Reserve Bank of St. Louis President William Poole cited the low inflation, moderate growth economy and said that the Federal Reserve may be able to keep interest rates at this low level beyond March of next year. Inflation has been held to a 1.2% increase over the past year with little risk of rising prices as there does not appear to be economic overheating. On the other hand, the bombings in Saudi Arabia helped spark a rise in oil to over $31.00 a barrel as political instability in the Middle East, the cradle of oil production, usually leads to higher oil prices.

The Telmar 25 Ad Impact Index is up about 3% for the last two-week period, in line with the SPY and DIA. Earnings reports are driving the gains along with positive economic reports. The number of companies reporting quarterly earnings is beginning to taper off. Among members of the Telmar 25, NWS reported earnings more than double the level of a year ago. This gain in earnings was mostly attributed to video sales. CCU reported sharply higher earnings due to a one-time gain. Excluding the gain, earnings were a penny short of the consensus estimates. CWG also reported higher earnings in large part due to various one-time items such as restructuring provisions and the recovery of future income taxes.

There is new evidence of a growing economy. October payrolls rose by 126,000, twice as much as expected and unemployment fell to 6% from 6.1%. This is the third month in a row that the economy gained jobs, indicating an emerging trend. Initially this report helped stocks, but later in the day, a sell-off ensued. Bonds had the opposite reaction, dropping sharply on the news and recovering some of their losses later in the day. Robust economic growth hurts the bond market as inflation is implied (though in this case, inflation is virtually non-existent). Bonds recovered some of their losses later in the day.

The wave of earnings reports continues as a market rally has more than offset last week’s market retreat. The Telmar 25 Ad Impact Index has posted a gain of 1.5% over the last two weeks,after being down as much as 3% last week. Among agencies reporting earnings, OMC reported a 15% increase in revenue and a 7.3% increase in net income. WPPGY reported organic revenue (revenue that excludes the impact of acquisitions and foreign currency fluctuations) rose for the first time in two years while at the same time urging caution for the future. CVC reported net income much higher than last year due to a one-time gain from the sale of QVC, the shopping channel. However the share price dropped as there was a large defection of cable subscribers to satellite TV. MDP reported a 3% growth in revenue due to growth in its broadcast and publishing segments.

Perhaps the economy has turned a corner. Yesterday the commerce department reported that GDP grew at an annualized rate of 7.2% in the third quarter. That is a very robust number. While it would be difficult to repeat that next quarter, another strong quarter could be interpreted as confirmation that a full-fledged recovery is under way. The Fed is cooperating as they indicate that interest rates will remain at current levels for the foreseeable future. Energy prices are dropping. The missing piece of the economic puzzle is jobs. Next week, the Labor Department will report on unemployment for October.

Scores of companies have reported earnings this week including several members of the Telmar 25 Ad Impact Index. After a nice run-up over the last few months, the Telmar 25 is in a mild correction along with the rest of the market despite the fact that the majority of companies have reported earnings that are above expectations. Among members of the Telmar 25, VIA reported a 9% increase in earnings for the quarter vs. last year helped by advertising revenues that were up 8%. ARB 3rd quarter net rose 10% on an 8% increase in overall revenue. MHP said net income rose 5.1% for the quarter, aided by its strong financial services sector and a weak dollar. NYT reported lower earnings due to printing costs but noted higher advertising revenue with overall revenue rising 4.1%. At GCI, revenue rose 4% and earnings rose 5%. On the negative side, Wachovia Securities cut its rating on CCU from “outperform” to “market perform.”

It remains to be seen how long this mild correction will last as fundamental economic data remains mixed. The dollar continues its weakness, contributing to higher foreign earnings of U.S. based companies. Bonds have held their own with the ten-year bond currently at about 4.25%.

As the earnings season for the third quarter has hit full stride, the Telmar 25 Ad Impact Index has exhibited strength that exceeds both the SPY and DIA. The Telmar 25 is up 5% for the two weeks ended October 17 compared to about 3% for both the SPY and DIA. WPPGY is up 10% in the last two weeks, PUB and HAVS were up 5% for the same period and OMC was up 3%. However IPG was slightly lower. None of these companies has reported third quarter earnings as of this writing. So far, the earnings of companies announcing have been strong. Part of that is attributed to a weak dollar that inflates foreign revenues and expenses when converted to U.S. dollars. There have been few negative surprises.

The dollar has gained back some of its losses against the Euro and Yen. But the yield on the 10-year note has gone from 4.25% to 4.38% in the last week, which is an indication of coming interest rate hikes. There are also signs that the next rate move to be made by the Federal Reserve will be up. Some very welcome news is that the winter may not be as cold as previously forecast. This news, combined with rumors of OPEC production increases drove down the price of crude oil and natural gas.

After an anemic September, the Telmar 25 Ad Impact Index, in unison with the SPY and DIA, has shown its resiliency, making a broad based move to the upside in the last two weeks. Ad agencies have been mixed with WPPGY, HAVS, OMC and PUB showing good gains while IPG was little changed. Other members of the Telmar 25 were also strong including YHOO, ARB, CCU, CUC, MHP, VIA and DJ. GE bucked this trend and has drifted lower over the last two weeks. GE released earnings on Friday and an unfavorable article appeared in the Wall Street Journal’s Heard on the Street Column, highlighting its move from industrial businesses into potentially higher risk industries.

The economic news is good but not without potential problems. The greenback continues to be week against the major currencies. The price of the 10-year bond has gone down as the yield has climbed to 4.25%. Crude oil is flirting with $32 per barrel, a bleak development for a recovering economy.

The Telmar 25 Ad Impact Index has been under pressure over the last two weeks, down 5% at one point before rebounding and gaining most of that back. This week’s issue of Barron’s contains an article commenting on the high level of insider selling in various industries including the advertising industry. Apparently the bull market that has prevailed over the last 6 months has been seen as a selling opportunity for insiders in the ad industry, as well as those in other industries. Insider selling is widely considered a bearish signal because insiders are considered to have the most knowledge of their respective industries. Given the selling in the advertising agencies within the Telmar 25 Ad Impact Index, that signal appears to be valid. IPG, HAVS, GREY, PUB and OMC invariably spent the last week or two of September dropping. However the beginning of October has brought a rebound in these stocks and in the market in general.

While unemployment remained steady at 6.1%, payrolls added 57,000 workers in September, the largest gain in 8 months. This news lifted the stock market but bonds dumped on the news as a strong economy nurtures fear of inflation and with the 10 year bond at 4.20%, there is not much inflation built into the price of bonds. On top of that, crude oil is closing in on $30 per barrel, a level that could hurt the economic recovery.

In typical bearish September-October fashion, this week, VIA unexpectedly cut back its earnings and revenue forecast for the rest of the year citing slower than anticipated growth in advertising spending. This announcement, combined with the travails in the currency and oil markets (see below), weighed on the stock market as the Telmar 25 Ad Impact Index was down over 3% for the week. The stocks of advertising agencies were especially hard hit by this news. IPG, PUB, OMC and HAVS all trailed the general market, dropping from 5% to 10%. Before VIA’s guidance, comments were made during the G-7 meetings last week, pressuring China to let the Yuan float. The Yuan is perceived as undervalued and it is widely thought that it would rise against the dollar if allowed to float in a free market. This revaluation would make imports from China more expensive and help U.S. manufacturing. This was seen by observers as an abrupt change in monetary policy and U.S. manufacturers praised the comments as if economic strength can somehow be derived from weakness in a currency. Markets more accurately interpreted this reversal of a strong dollar policy in a negative way. OPEC contributed to the bearish sentiment by announcing plans to cut production levels of oil, driving up the price of a barrel of crude by well over $1 and threatening an already fragile economic recovery. On the other hand, the U.S. economy grew at a 3.3% annual rate in the second quarter, higher than expected despite the lack of vigorous job creation. However this growth rate is lower than previous recoveries casting doubt on its sustainability.

Last week the Telmar 25 Ad Index had its first weekly loss in over a month. While there was some weakness on the part of ad agencies last week, on balance they have been neutral to slightly positive over the last two weeks. OMC and IPG were little changed. But HAVS soared 20%, PUB gained 5% and GREY was 3% higher. On the other hand, WPPGY dropped 4%.

There are many mixed signals on the economic front. Structural changes are taking place in the economy including a shift of workers from manufacturing to services, improved productivity and the reduction of inventories, indicating both some wariness on the part of producers and also better techniques in the management of inventory levels. But high regulation has also had a dragging effect on the economy. Sarbanes-Oxley has proven to have very high compliance costs and the unintended consequences of this legislation are still not fully known. Furthermore the 10-year note is higher, currently yielding about 4.29%. This bond rally highlights the markets skepticism on the vitality of the economic recovery. The dollar has been strong and commodity energy prices continue to edge lower though one would not know this from filling up at the gas pump.

This week, a significant rally continues as all three of our indices, the Telmar 25, SPY and DIA, have reached new 52-week highs, though today’s negative employment data led to an across the board retracement. Over the last two weeks, ad agencies have been strong. HAVS was the star of the sector, gaining about 20% over the last two weeks, IPG jumped 12%, PUB rose nearly 10% and OMC was up 5%. None of these companies had specific news to account for the gains. Other members of the Telmar 25 also showed good strength including YHOO, vaulting nearly 9% and CCU, spiking up 8%.

Today’s release of employment data showed mixed results. Non-farm payrolls shrunk by 93,000, yet the unemployment rate dropped to 6.1%. There seems to be a shift in employment as manufacturing payrolls have dropped, offsetting gains in health care and construction. This information is helping the bond market today, as the 10-year note is higher, currently yielding about 4.40%. The dollar has held steady against the Euro, the Yen and the British Pound. Commodity energy prices have staged a welcome retreat with crude oil under $29.00 and unleaded gasoline futures are well off their highs. It will be interesting to see when these price drops are reflected at the gas pump. The sooner the better for the economy because paying $1.95 per gallon for gas is a heavy burden on an economy struggling to grow. GDP has been revised upward to 3.1%, though not as robust as previous economic recoveries.

As we come into the holiday weekend and the end of the summer looms, observers can take heart that all three of our indexes, the Telmar 25 Ad Impact Index, the SPY and the DIA, are near their 52 week highs and advertising agencies are a big part of the reason why. Most of the pure agencies within the index are up by 4% to 10% over the last two weeks. Overall earnings for the second quarter were the highest in 6 years. Compared to the comparable quarter last year, earnings are 12.5 % higher. This should lead to greater business investment and increased hiring which should stimulate the economy. Significantly, many companies have increased their dividends highlighting the quality of earnings when a company is willing to pay cash to its shareholders. On the downside, there is pricing pressure, which is good for consumers, but doesn’t harbor well for revenue or profitability gains in the future.

The Telmar 25 Ad Impact Index, the SPY and the DIA, have enjoyed a nice rally of 5 to 7% over the last two weeks. Among ad agencies within the Telmar 25, WPPGY said that it expects a rebound in the advertising market in 2004. They also said that revenue was little changed on a local currency (British Pound) basis. Profits were lower primarily due to the write-down of goodwill. Goodwill is the excess of cash paid for an acquisition over the book value of the acquired company. WPPGY is up about 7% over the last two weeks. Other ad agencies were also strong including OMC and HAVS, both up about 10%; PUB, up 8% and IPG up 6%. Many other stocks within the index rose more than 5%. Only one stock within the index lost ground over the last two weeks. VNUVY lost about 6%; most of it occurred on the day its earnings were released.

Based on reports, last Thursday’s blackout may have had a greater economic impact on Canada than on the U.S. There seems to be a more positive economic outlook in the U.S. As mentioned above, stocks are higher and the U.S. dollar has rallied strongly, indicating a willingness for foreigners to invest in the U.S. and the U.S. 10 year note has stabilized within a fairly narrow trading range. Of course not everything can be sweetness and light. Commodity prices remain stubbornly high. Gold is up 15% from a year ago, crude oil remains above $30 per barrel and other energy commodities are also trading higher. As has happened before, these high commodity prices could have a deleterious effect on the economy.

The Telmar 25 Ad Impact Index, along with the SPY and DIA, remains within a 3% trading range over the last two weeks. Among Telmar 25 members, L reported a much smaller net loss than last years, which was inflated by one time write-downs in its holdings of publicly held companies. On Tuesday, BNP Bank Paribas speculated that HAVS is a potential acquisition target and that PUB is the most likely suitor. PUB dismissed this outright and emphasized that it had no major acquisitions planned for the near future.

It remains to be seen what lasting affect Thursdays blackout will have on the economy. It does indicate an imbalance between supply and demand that will be examined by the Congress upon its return from summer recess. Despite this imbalance, there was little change in the energy markets on Friday. Bond prices fell as the Fed indicated that the economy is doing well but that it would maintain an accommodative interest rate policy for the foreseeable future.

To look at the latest chart for the Telmar 25 Ad Impact Index would lead one to believe that the market has been quiet. However intraday price movement has been volatile with 2 – 3 percent swings being commonplace. Among ad agencies, HAVS estimated that its first half revenue would be lower than the same period last year in good part to an appreciating Euro vs. the greenback and Sterling. It also announced a strategic reorganization to increase revenue growth and profitability. The market didn’t like this news as the stock traded 7% lower. OMC and WPPGY are both up about 1% for the last two weeks. While IPG and PUB have been little changed. Among other stocks, VIA is down 7%, DJ is down 6%, and CCU is down 5%.

On the economic front, the one place to avoid like the plague over the last two months has been bonds. However prices seem to have leveled off after a nosedive that saw yields on the 10-year note go from 3.13% to 4.40% in six weeks. Since then, the yield has come back to about 4.25%. The theme continues to be indecision and confusion, as the market tries to decide if this environment is receptive to economic recovery. Some reports indicate that inventory levels are dropping, signifying some future increase in production. One apparent contradiction is high commodity prices coupled with pricing pressure. Crude oil is remains over $30 per barrel and natural gas futures are over $5.00, yet there is still great pricing pressure in industries across the board. Companies are increasing profits through cost reduction (including productivity gains), and not through revenue growth. Because of this pricing pressure, there has been little increase in capital expenditure and little new hiring to increase capacity.

The barrage of earnings reports in July has tapered with the arrival of August but the narrow trading range continues for the Telmar 25 and the benchmark SPY and DIA. Among ad agencies reporting earnings, OMC reported a 1.8% increase in profit along with a 12% increase in revenue. Much of the revenue increase was related to a declining dollar, but there was also growth within the U.S. Management of OMC was somewhat optimistic for the rest of the year which helped other ad agencies. For instance, WPPGY and GREY are up nearly 4% over the last 2 weeks, IPG gained about 3% and PUB rose about 2% during the same period. AOL is down on an SEC investigation into its accounting for revenue.

On the economic front, talk of deflation that prevailed several months ago has ended. On June 13, the yield on 10 year U.S. Treasuries was 3.13%. Since then, the yield has rocketed to 4.40% as bond prices have plunged in a very short period. This may be the markets way of indicating that economic growth is ahead. The rise in rates will also slow home mortgage re-financings that have been so hot over the last year. Today’s announcement that the economy lost 44,000 jobs last month casts some doubt on a strong economic recovery and the up and down price movement of the stock market indicates the market is not convinced the economy is rebounding as it should. If the reader is confused, the market is in full agreement.

Today’s market surge caps off a period featuring stock charts with numerous peaks and valleys as many companies, including several members of the Telmar 25 Ad Impact Index released their earnings for the second quarter this week. Within the reports are some conflicting data. Among them, VIA said its earnings rose 21%, boosted by higher advertising revenue. AOL reported much higher net income due to the sale of Comedy Central but cautioned that advertising revenue is likely to decrease for the remainder of the year. Several ad agencies within the index were little changed including WPPGY, PUB, OMC and IPG. However GREY was up 4% and WPPGY was up 3%. In the Internet sector, AOL and YHOO were both down nearly 10%.

This has been a good traders market and the first break out in prices either up or down through the range that has persisted for a month may be an indicator of the next major direction for the market. Stay tuned.

Many members of the Telmar 25 Ad Impact Index released their earnings during the last two weeks as the market has been doing a pretty good imitation of a roller coaster that has changed vertical direction six times in the last two weeks. Many stocks have lurched higher and just as quickly retreated, often on low volume that exacerbates sudden price movements. Among those reporting earnings, GE said its earnings were 14% lower than last year. But this was on the high end of expectations fueling a rally late last week. DJ reported a 43% drop in earnings but again, this was expected and they envision a brighter second half of the year. GCI posted stronger earnings than last year but were cautiously optimistic on the prospect for a pickup in advertising revenue. NYT’s results were lower than last year, denying the Jayson Blair debacle had any affect on its bottom line. In a bit of a paradox that is common on Wall Street, YHOO reported higher than expected earnings but dropped in the after hours market as earnings were higher but did not meet the “whisper” number. CWG also reported earnings in line with expectations. Among agencies, WPPGY was up 5% but others including PUB, IPG and OMC were all higher and lower before settling at about the same price as two weeks ago.

The earnings season will continue until the end of the month before subsiding.

Earnings season is in full gear and this week many companies, including many of the members of the Telmar 25, will release their quarterly earnings report including GCI, NYT, DJ and CWG. GE released their earnings last Friday. The stock market has been fairly volatile with prices trending higher as earnings reports have generally been in line with expectations with few surprises. The Telmar 25 is up over 2% since 6/26 with the SPY and DIA gaining a smaller percentage during the same period. Some Ad agencies were among the strongest performers with an 11% rally in WPPGY, HAVS forging ahead 8%, IPG advancing over 4% and OMC gaining 3%. However GREY and PUB remained virtually unchanged. Print media was mixed as NWS rose 5%, GCI gained 3% but NYT slipped nearly 3%. Other movers within the Telmar 25 include MDP surging 9%, CVC driving 10% higher and CWG rising 6%.

This week, nearly 400 companies are scheduled to release their quarterly earnings reports. Last week, in an otherwise slow news week, Fed Chairman Greenspan spoke on the affect of natural gas prices on the economy, pointing out the high prices resulting from inadequate supplies can adversely impact a struggling economy. Prices are double the levels of a year ago and are at historic highs for the summer months.

The stock market is going into the Fourth of July weekend in the middle of a retracement. The Telmar 25 is down about 4% since 6/17 and the other benchmark averages are down about 3% each. Few stocks within the Telmar Index were able to make gains besides internet representatives YHOO and AOL. One other strong gainer was MDP, rising nearly 8%. Advertising agencies have declined from 5 – 8% in this period. OMC, IPG, PUB and WPPGY continue to be a drag on the market.

Today’s announced unemployment rise from 6.1% to 6.4% was worse than expected and shows that there is still inherent weakness in the economy. This news also perplexes Fed observers who now wonder why the rate cut was only 25 basis points instead of 50. Since the market anticipated a 50 BP cut, bonds dropped on the news. The net result was a 25 BP interest rate increase instead of a decrease. The FOMC doesn’t meet until August so the market can’t expect further monetary relief until then. On the other hand, reduced federal withholding and rebate checks should provide stimulus.

Lazy, hazy days of summer have arrived along with summer doldrums that have cast a pall over the stock market. Since June 12, the Telmar 25 is down over 3%, slightly lagging the SPY and DIA, both down less than 3%. Within the Telmar Index, the loss is broad based as few stocks have advanced over the last two weeks. After a strong May, advertising agencies have declined. Grey, IPG, PUB and WPPGY have pulled back over the last two weeks. GE, DIS and VIA, companies with TV holdings, continue to lag. Among print media firms, DJ, GCI and NYT have struggled. On the other hand, YHOO, after a brief pause, has exhibited moderate strength in a down market.

On Wednesday, the market sold off on the Federal Reserve’s announcement of a 25 basis point drop in the fed funds rate. The bond market had factored in a 50 basis point drop and bond yields have risen about 25 BP’s since the rate drop. The dollar has firmed on the smaller rate cut. On Thursday, the market retrieved Wednesday’s losses and Friday is a down day going into the weekend. The market seems to be looking for a reason to go up or down but light volume betrays a lack of conviction.

Over the last two weeks, the stock market has given back some of its gains, indicating a retrenchment is taking place. The Telmar 25 Ad Impact Index is down 1% over the last two weeks, lagging the SPY and DIA, which track the S&P 500 and Dow 30 respectively. Even within sectors of the Telmar 25, trends are not readily discernible. Advertising agencies have had strong performances from Grey, IPG and OMC over the last two weeks while WPPGY, PUB, and HAVS were all neutral or negative. Companies with holdings in TV media have been weak. DIS, GE, and VIA are all negative over the last two weeks. DJ, GCI and NYT had lackluster performances among print media firms.

The Federal Reserve is considering an interest rate cut to further stimulate the economy. The concensus calls for a .25% to .50% rate cut. While the Consumer Price Index has shown little inflation, one exception is the price of energy. Crude oil is over $30 per barrel and natural gas futures are hovering around $6 per BTU, more than double the historically normal level of $2 - $4, in a year when the weather has among the coolest on record. This is caused by regulatory restrictions on drilling and will have a direct impact on consumer’s utility bills until more sources are tapped.

The bull has paused to rest after a strong charge. The Telmar 25 Ad Impact Index is up 5.5% over the last two weeks, remaining in line with the (SPY) and (DIA), which track the S&P 500 and Dow 30 respectively. WPP made news with the announcement of its intention to acquire Cordiant. Predictably the price of WPP pulled back on the news as does the price of the stocks of most companies upon announcing its intent to acquire another company. Most other ad agencies held their own after strong gains over the last six weeks. This can be considered a consolidation phase for companies within the index and the market in general.

As the correction in stocks was triggered at least in part by the developments with Freddy Mac, it bears watching to keep an eye on it as well as Fanny Mae. These entities, that access the capital markets to buy mortgages from lenders to finance home purchases, have tremendous derivative exposure to hedge it’s interest rate risk. Significantly they are not subject to the same reporting requirements of its derivatives that apply to other publicly traded companies. While the situation may be well in hand, the impact their failure could have on the economy cannot be overstated.

The bullish sentiment in the stock market has been enhanced by the optimistic remarks by ad agencies. The Telmar 25 Ad Impact Index is up 6% over the last two weeks, surpassing both the broader based Spider (SPY) and Diamonds (DIA), which track the S&P 500 and Dow 30 respectively. Within the index, the ad agencies remain strong with IPG, PUB, WPP and OMC all enjoying 8 – 10% gains in their stock prices. As we noted last week, agencies are indicating an increase in ad spending and the market is showing its approval by bidding up the prices of these stocks.

Other sectors also remain strong with AOL and YHOO both advancing nicely in the internet sector. Notably, no stocks within the index lost ground over the two-week period.

The dollar seems to be in a trading range at the moment but that can change after the release of the U.S. jobs report on Friday and the ECB meeting on Thursday. While it would be premature to predict a peaceful outcome, the summit in the Middle East shows more promise than most past attempts. Any prospect of peace in the Middle East can only nurture any bullish outlook.

Despite a tumbling dollar indicating the withdrawal of foreign investors, the stock market has displayed resiliency in maintaining and extending its gains over the last two months. The interest rate environment bodes well as most observers predict any Fed policy change in interest rates will be friendly. On fiscal policy, the recently enacted tax changes lower the cost of equity capital by reducing the effective tax rate on dividends, provide greater take home pay for consumers and allow small business greater immediate expensing of new fixed asset investments. The Telmar 25 Ad Impact Index is up 2.5 % over the last 10 trading days despite a broad based market drop on May 19th. It has outpaced the broader based Spider and Diamonds, which track the S&P 500 and Dow 30 respectively. Among the brighter lights in the index, Publicis, up about 20% since May 5th, reported a surge in revenue and an upbeat outlook for the industry in general. Omnicom, Interpublic, Havas and WPP all strong gains for the same period in part due to this more optimistic outlook for ad agencies. Yahoo surging 19% since May 5th and AOL, up nearly 10% for the same period, ably led a robust Internet sector.

Among laggards, Cablevision was weak, down over 15% on the month. General Electric was down about 5%.

We believe that these companies have a significant impact on the overall performance of the ad industry and by tracking their relative stock changes over time in relationship to the general stock market, it will provide insight into the advertising decisions of all marketing and media planners.

It is also a way that Telmar can acknowledge clients, research suppliers and the industry in general for helping Telmar achieve its position as the world’s leading independent information services company dedicated to the advertising industry.