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Merrill Lynch’s new equity research ratings system could make the shop one of the harshest judges of company stocks on the street, according to a Lab Thomson report from Thomson Reuters’ Proprietary Research.

On May 14, Merrill Lynch said at least 20% of stocks in a given coverage group must be rated “underperform,” better known in English as a “sell” rating. The brokerage also decided that no more than 70% of the companies it covers can carry buy ratings, and no more than 30% can be rated “neutral.”

The change, Thomson said, will make Merrill the firm with the most sell-rated stocks out of the top 15 research firms.

“Based on the recommendation distribution as of today, Merrill Lynch will have a higher percentage of sell recommendations than the top 15 firms in terms of U.S. coverage,” which rate 7.9% of their stocks at sell, Thomson director John Butters wrote in the report.

Merrill’s move comes years after the dot-com bust sparked shareholder lawsuits that changed the way research is presented and restrained some analysts’ freedom to speak to the press. It was after the tech bubble that analysts’ stock ownership disclosures found their way into research reports. Brokers demonized for presenting too-rosy views of tech companies led the research firms to develop recommendations like “market perform” and “market underperform.”

Following the tech bubble, sell recommendations at the top 15 firms peaked at the end of 2002 at 13%, Butters said. The percentage has declined steadily ever since. The average year-end percentage of sell recommendations from 1998 to 2007 is 6.5%, he said.

If everyone said the economy was falling off a cliff, would you buy stocks?

Based on what JPMorgan U.S. Equity Strategist Thomas Lee says, you probably should.

On Tuesday, the Conference Board said its Consumer Confidence Index for May fell to 57.2, the lowest reading seen since October 1992, and well below the median estimate of economists surveyed by IFR Markets of 60.0. Lee pointed out that the index has only been that “terrible” just 5 times since the survey began in 1967.

Lee also said, however, that each time the reading was that bad, or worse, the S&P 500 Index averaged a gain of 23% over the next 12 months. “In fact, there has never been a single instance where the S&P 500 did not have a positive 6-month or 12-month return when Consumer Confidence registered 57.2 or lower,” he said in a research note Friday.

Lee offers 2 explanations why stocks perform so sell when U.S. consumers are so bleak. First, he said consumers are a lagging indicator; and second, he said they are a contrarian indicator.

“This reminds us of the Rockefeller legend where he cashed out of the stock market in 1929 when the shoe shiner talked about stock picks,” Lee said. “There is a logic to this. Think about toll lanes — it seems cars are always attracted to the biggest lines.”

The sectors that have performed the best are consumer discretionary, consumer staples and financials, with discretionary outperforming the S&P 500 by an average of 22 percentage points, staples outperforming by an average of 11 percentage points, and financials outperforming by 9 percentage points.

The SPDR Consumer Discretionary ETF (XLY) was last down 1.2% since the end of 2007, the SPDR Consumer Staples ETF (XLP) has lost 1.1% so far this year and the SPDR Financial ETF (XLF) has dropped 14.4% year to date, compared with a 4.6% decline in the S&P 500 Index.

Within those sectors, the top industries are homebuilders, followed by apparel retailer, brokers, specialty retailer and asset managers.

Wall Street looks set to rise for a fourth straight session Friday as investors take heart from strong earnings at Dell Inc. and a further drop in crude prices, while a flurry of economic reports will be carefully watched.

According to spread bettors IG Index, the Dow Jones industrial average is set to open up 9 points at 12,655, S&P 500 futures are 2.40 higher at 1,400.20, and Nasdaq futures rose 6.50 to 2,029.50.

Stocks rose for the third straight day Thursday as oil prices fell sharply and the government reported that the economy grew last quarter at a faster pace than previously estimated. The Dow Jones industrial average rose 52.19, or 0.41%, to close at 12,646.22, the Nasdaq composite index gained 21.62, or 0.87%, to 2,508.32, and the Standard & Poor’s 500 index advanced 7.42, or 0.53%, to 1,398.26. The 10-year Treasury note’s yield rose to 4.08% from 4.01% late Wednesday, and light, sweet crude fell $4.41 to settle at $126.62 on the New York Mercantile Exchange.

ECONOMIC DATA:

• Personal income for April, 8:30 a.m. ET, 0.2% estimate
• Chicago purchasing managers index for May, 9:45 a.m. ET, 48.5 estimate
• The final Reuters/University of Michigan consumer sentiment index for May, 10 a.m. ET, 59.5 estimate

AFTER-HOURS ACTION:

After Thursday’s closing bell, Dell said its profit and sales grew in its fiscal first quarter, beating Wall Street expectations. Marvell Technology Group Ltd. said it swung to a profit in its fiscal first quarter on stronger-than-expected sales and cost-cutting measures, and J. Crew Group Inc. said fiscal first-quarter profit rose 24%, but the company offered weak second-quarter and full-year guidance. Bristol-Myers Squibb Co. reaffirmed its full-year profit forecast.

As a consumer’s interest in what to buy strongly correlates with what he or she is actually able to afford, it’s no surprise that advertising rates closely follow larger economic trends and that many analysts look to them as a reliable gauge of economic conditions. Hardly unusual then, that analysts took it badly when Viacom reduced its second-quarter domestic advertising growth outlook, even as some firms questioned how much of an impact it would really have on the media giant’s bottom line.

Viacom now sees 3% to 4% growth, down from a prior view of 7%. The company cited lower car ads for the revised view (not surprising, as sales have been down lately). But because Viacom maintained its prior view up to a month into its second quarter, Merrill Lynch said the new outlook suggested that the drop-off in ad revenue was “recent and perhaps severe,” and that it didn’t bode well for the upfront advertising events or for stocks exposed to advertising.

Wall Street seemed to agree, and Viacom shares dropped to an intraday low of $35.79, their lowest price since September 2006.

This despite the fact that on a dollar basis, the lower view only translates to about $30 million to $40 million. Lehman Brothers called this amount a “small drop in the bucket,” equal to only 1% of projected second-quarter revenue. Domestic ads only accounted for 28% of Viacom’s 2007 revenue, the firm went on, despite their reputation as the company’s primary revenue driver.

Viacom is hardly the only company to be hit by weak ad trends. On April 30, Wachovia downgraded CBS Corp. to market perform, arguing that while the company’s management was doing “the best it can with the assets it has,” it couldn’t overlook the “challenging” ad environment that it expects will continue unabated through the year.

But not all is dark for Viacom. So far this quarter, the company’s TV ratings are up 5% all day with primetime ratings up 7%. If this seems incongruous, ask yourself this: wouldn’t you watch TV more if it didn’t have so many ads?

Chief executives of the nation’s fastest-growing private companies are not feeling too good about the current state of the economy - but who would, with oil and commodity prices surging on a daily basis?

According to a recent survey for PricewaterhouseCoopers’ Trendsetter Barometer, optimism in the U.S. economy hit a 16-year low in the first quarter of 2008, with only 26% of CEOs reporting a positive outlook on the economy. That compares to last quarter’s record-low of 29%.

A major concern among the 255 CEOs surveyed was - surprise, surprise - higher oil prices. About 44% of CEOs said higher oil and energy prices were a barrier to growth for their companies, up from 25% a year ago. But, that could change soon as financial executives from oil and gas companies reported earlier in the month that they expect oil prices to fall below $100 by the end of the year.

In the meantime, Trendsetter companies said they are increasing prices to maintain profitability.

“As a result of significant increases in commodity prices and fuel costs, many companies are negotiating price increases to restore or maintain profitability.” Ken Esch, partner with PricewaterhouseCoopers Private Company Services practice, said. “Most customers can relate to the need for price increases because they feel the impact of increased costs at the gas station and the grocery store.”

Among the 225 Trendsetter companies - with 112 companies in the product sector and 143 in the service sector - 77% are projecting growth over the next 12 months, and 47% are projecting double-digit growth.

However, revenue growth forecasts have dropped sharply, with the composite average growth estimate down to 11.9% from 15.5% in the previous quarter and 18.3% last year.

Also Thursday, a Lab Thomson report by Thomson Reuters Proprietary Research Group showed that by aggregating the current mean of analyst target prices for each company in the S&P 500, Wall Street is expecting the the index to appreciate by more than 15% by the end of 2008.

The expected target, 1,603.99, represents upside of about 15.3% from the index’s Wednesday’s closing level of 1,390.84.

Wall Street is looking at a slightly higher open Thursday ahead of a report expected to show modest growth in the U.S. economy in the first quarter, with earnings from Sears and H.J. Heinz also set to provide an early focus.

According to spread bettors IG Index, the Dow Jones Industrial Average was up 23 points at 12,617. Separately, S&P 500 futures were up 0.90 points at 1,392.40 while Nasdaq 100 futures rose 1.25 points to 2,006.25.

On Wednesday, stocks ended higher after investors found some comfort in upbeat data on durable goods orders. A speech from Federal Reserve chairman Ben Bernanke on the subject of risk transfer mechanisms and financial stability will likely garner attention later in the session.

Ahead of the Fed chief’s speech, revised gross domestic product figures are likely to show the U.S. economy grew 1 percent in the first quarter, up from an advanced reading of 0.6 percent, according to the median estimate of economists polled by IFR Markets. Weekly jobless claims are also scheduled for release.

Crude futures edged lower ahead of inventory data expected to provide further evidence of falling demand for gasoline in the U. S. New York light sweet crude for July delivery was last down 79 cents at $130.24 a barrel. Costco Wholesale shares could move higher out of the gate after the retailer posted better-than-expected third quarter results.

ECONOMIC DATA:

• Preliminary first-quarter gross domestic product, 8:30 a.m. ET, 1.0% estimate
• Initial jobless claims, 8:30 a.m. ET, 370,000 estimate

EARNINGS HIGHLIGHTS:

Company                      Symbol    Period     Estimate

Big Lots                       BIG       1Q       $   .36
Canadian Imperial Bank         CM        2Q          1.72
Costco Wholesale               COST      3Q           .65
Dell Inc.                      DELL      1Q           .34
H.J. Heinz                     HNZ       4Q           .61
Joy Global                     JOYG      2Q           .72
Royal Bank of Canada           RY        2Q           .99
Sears Holdings Corp.           SHLD      1Q           .15

The U.S. is seeing record levels of investment growth in clean energy projects and with more than $9 billion in new investment in 2007, is set to become the world’s largest wind power market by the end of next year.

Revenue growth at wind power companies totaled about $30 billion last year and is expected to soar to $83 million in 2017, according to industry research firm Clean Edge. Revenue growth across the clean tech sector was around $77.3 billion last year, Clean Edge wrote in a March report.

Amid this burgeoning interest in clean energy the Department of Energy has laid out a scenario in which wind-generated energy would provide 20% of total U.S. energy output by 2030, or about 300 gigawatts, when electricity demand nationwide is expected to reach 5.8 billion megawatt-hours.

Wind power capacity nationwide is currently around 18.3GW and projects totaling some 5.74GW capacity are currently under construction, industry advocate the American Wind Energy Association estimates. Texas outstrips all other states in both existing and planned project capacity, followed by California, Minnesota, Iowa and Washington, the AWEA said.

But even those growth levels remain far from the 2030 goal: Under the 20% wind scenario, wind power generation would provide around 1.16 billion megawatt-hours of electricity, enough energy in 2030 to displace around 50% of natural gas electric utility consumption and about 18% of coal consumption.

Reaching that goal isn’t without challenges. While the capacity of new projects online outpaces last year’s installation rate of 5.24GW, the pace of wind turbine installation would have to pick up to 16GW a year from 2018 through 2030 to reach 300GW, the Energy Dept. said.

The U.S. has more than 8,000GW of available land-based wind resources that could be captured economically. But increasing the capacity to generate even 300GW of wind power would involve high initial capital costs to install the production and transmission infrastructure – at today’s prices the cost of transmission expansion would be $20 billion, the report said. Turning the hypothetical scenario into reality would also require improving turbine technology, altering and adapting current electricity transmission systems and expanding wind power purchase markets. Government policy and regulation would also need to support the alternative resource.

In some cases, for example, new transmission lines connecting high-wind resource areas to load centers could be cost-effective, while in other instances, high transmission costs could offset the advantage of land-based generation.

Wind power has plenty of advantages over the conventional alternatives. Clean energy generation can increasingly take advantage of economies of scale, which will bring down costs for manufacturers, installers and developers, Clean Edge noted.

Wind power projects are cheaper to construct per megawatt than other alternative energy sources, the research company said. At $1.4 billion to $1.8 billion per gigawatt, utility-scale wind turbines provide electricity at a better rate than both nuclear and solar power plants, at $2 billion to $6 billion and $5 billion to $10 billion per gigawatt, respectively.

Wind power in the U.S. emerged in California amid the 1970s oil crisis, when the cost of electricity generated from oil rose along with higher crude prices. The industry thrived with the sustenance of new government tax credits and contracts that included state-mandated minimum levels of alternative energy. But as tax credits expired in the mid-80s and then were intermittently reinstated and withdrawn over the next 15 years, the wind sector sputtered. That’s the one major hiccup ahead, analysts say: the federal production tax credit for capital-intensive wind power facilities expires at the end of the year. If it’s not renewed, wind power could lose some of its appeal to investors.

That said, the prospects aren’t entirely dim. Americas Growth Capital analyst Zack Lesko sees large, publicly traded wind energy companies continuing to dominate the wind power landscape at the utility level. But the sector as a whole shows great promise, he said. “We believe wind energy is a particularly attractive and cost-effective solution to the increasing electricity demands of the U.S.”

The use of the word “green” in reference to Apple’s iPod may soon carry another designation besides that of body color, according to a recent MacRumors.com report, which uncovered a patent filed by employees of the computer giant seeking approval for a technology that would enable solar cells to be inserted beneath a touch-sensitive screen like those in the company’s iPhone and iPod.

The patent could be the next arrow in Apple’s quiver in its bid for the top spot among smart phones and mp3 players. The company’s iPhone, which is no stranger to complaints about its battery life, ranked 15th in CNet’s quick guide to talk-time battery life, and the solar cell application is a sign that Apple is ready to attack the few complaints surrounding its smartphone all-star.

If the patent application is successful, according to a report in the Times Online (U.K.), it has the potential to “dramatically” increase the battery life of iPhones and iPods. This is important, as the article notes, because once a faster, third-generation version of the iPhone is released, “the device will become even more power-hungry.”

But headlines and hype are nothing new for the 3G iPhone, which Bernstein Research said is widely anticipated to debut around June 9 at Apple’s worldwide developers conference. The firm said that based on recent carrier announcements, Apple will introduce the 3G iPhone into at least 50 additional countries, some of which will feature more than one carrier.

Data from U.S. customs records show Apple is also readying a big product roll-out in early June, according to ImportGenius.

Yet, before Apple investors go running into the street to perform cartwheels, Bernstein cautioned that a surge in iPhone adoption is unlikely to “substantially” boost the company’s earnings in fiscal 2009, citing Apple’s subscription accounting. “For earnings-per-share to jump 50 cents, we estimate Apple will need to sell roughly 27 million phones in fiscal 2009, which would represent penetration of nearly 4% in all countries outside the U.S., which we think is aggressive,” Bernstein said.

Instead, the firm estimates fiscal 2009 iPhone sales of 15 million to 20 million units, generating roughly 20 cents per share in earnings for the Cupertino, Calif.-based company, based on expected lower average carrier payments because of Apple’s transition to multiple carriers in the same country.