Stocks Higher into Final Hour as Long-term Rates and Energy Prices Fall

BOTTOM LINE: The Portfolio is substantially higher into the final hour on gains in my Biotech longs, Semi longs, Computer longs, Retail longs and Energy-related shorts. I exited my (IWM)/(QQQQ) shorts, added to my (RACK) long and added to my (VLO) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. After the bubble burst in 2000, the U.S. was swimming in overcapacity in multiple sectors and many companies lost pricing power, thus sending earnings plunging at a historical rate. Most recent inflation data show prices increasing at above-average rates vs. long-term averages. However, current readings are not high for prior expansionary periods. There is little evidence that some inflation is bad for equities. In fact, modest inflation has historically been a positive for stocks as companies regain some pricing power. I continue to believe measures of inflation are peaking for the year this quarter as commodities continue to weaken through year-end. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower commodity prices, lower long-term rates and bargain hunting.