Stocks at Session Highs into Final Hour on More Economic Optimism, Buyout Speculation and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, I-Banking longs, Semi longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive today as the advance/decline line is higher, most sectors are gaining and volume is below average. Just like last year before oil peaked on July 14 and then proceeded to plunge $28 per barrel in six months, it is just assumed by many that oil will continue heading higher forever. I am already hearing the $100 per barrel oil calls that came last year around this time. The fundamentals for oil are even worse this year, in my opinion. Core inflation is already decelerating meaningfully. I suspect a significant decline in energy prices that begins over the next couple of months will help bring headline inflation readings down even further before year-end, which should also help bring long-term interest rates back down. Significantly lower energy prices, lower long-term rates, higher stock prices, wages continuing to substantially outpace inflation, low unemployment and stabilizing home sales should help boost consumer spending back to above-average rates this fall. Retail stocks have held up very well despite the many perceived headwinds of late. I suspect retailers will begin to outperform the market again this quarter as investors anticipate these catalysts. I remain long Under Armour(UA) and Tractor Supply (TSCO). For the first time in a long time, domestic fund inflows substantially exceeded non-domestic fund inflows this week.

Here is a summary of AMG Data Services fund flows for the week ended July 3:

• Including ETF activity, equity funds reported net cash inflows totaling $5.83 billion, with domestic funds reporting net inflows of $5.15 billion and non-domestic funds reporting net inflows of $680 million.
• Excluding ETF activity, equity funds reported net cash inflows totaling $209 million, with domestic funds reporting net inflows of $269 million and non-domestic funds reporting net outflows totaling -$60 million.
• ETFs reported net inflows of $5.62 billion, with the largest flows being $4.85 billion to the iShares Russell 2000 Index (IWM) fund, -$2.18 billion from the SPDRs (SPY) fund and $640 million to the iShares Nasdaq Biotechnology Index (IBB) fund.
• Excluding ETF activity, international funds reported net outflows of -$46 million.
• Excluding ETF activity, taxable bond funds reported net inflows totaling $1.16 billion.
• Money market funds reported net cash inflows totaling $16.83 billion.

I expect US stocks to trade mixed-to-higher into the close from current levels on more economic optimism, bargain-hunting, buyout speculation and short-covering.