Stocks Sharply Higher into Final Hour on Big Reversal Lower in Rates and Strong Economic Data

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Software longs, Medical longs and Retail longs. I covered my remaining (IWM)/(QQQQ) hedge this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Mortgage applications surged 6.6% this week, with a 7.2% spike in purchase applications even with higher mortgage rates. Notwithstanding today’s strong economic data and a higher-than-expected import price index, the 10-year yield is falling 13 basis points from session highs, to 5.19%. This is the type of action I would expect to see near a top in yield. Gasoline supplies rose less than estimates as refinery utilization remains at historically low levels as a result of a rash of refinery “problems” and the cancellation of a planned 500,000-barrel-per-day increase in refinery capacity earlier this year on "worries over demand." The Fed just released its Beige Book report. Here is a summary via Bloomberg:

1. Some districts reported a stronger economy.
2. Consumer spending was generally up in late April/May.
3. There is continued weakness in residential real estate.
4. The committee saw increasing strength in commercial real estate.
5. Hiring picked up in late April/May.
6. Wage pressures do not seem to have increased.
7. Four districts reported disappointing retail sales.
8. Most areas didn't see a rise in overall price pressures.
9. Most districts reported that manufacturing was up.

Overall, this report paints a picture of moderate growth and inflation, which boosted stocks further. I expect US stocks to trade mixed-to-higher into the close from current levels on falling long-term rates, short-covering and bargain-hunting.