Stocks Sharply Higher into Final Hour as Long-term Rates Fall

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Internet longs, Retail longs and Biotech longs. I added to my (PWR) long and covered my remaining (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, almost every sector is rising and volume is about average. Many are suggesting that recent stock gains are just a function of increased speculation that the Fed is done. The Fed is only done if inflation fears have peaked, which I believe to be the case. The 10-year yield, the best predictor of future inflation, would not be falling if inflation fears were rising. Other Fed pause speculation periods were accompanied by higher long-term rates as investors anticipated a pickup in growth and inflation. This is an "inflation has peaked" rally, which has meaningful longer-term consequences that are overwhelmingly positive for U.S. stocks. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, mostly positive earnings reports, lower long-term rates, lower energy prices and bargain-hunting.