Stocks Lower into Final Hour on Emerging Market Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Semi longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is above average. The S&P 500's P/E has contracted for three straight years. A recent Morgan Stanley report concluded that the S&P 500's P/E has only contracted for four consecutive years twice since 1905. The report says that each point of multiple expansion is equivalent to a 6.6% gain in the S&P 500.P/E multiple expansion is the many bears' worst nightmare. I expect significant P/E multiple expansion this year to eventually result in the "mother of all short-covering rallies." The developing commodity bear market -- CRB Index is currently down 20.6% from its May 2006 high -- raises the odds of substantial S&P 500 P/E multiple expansion dramatically as inflation concerns continue to rapidly subside. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism and bargain-hunting.