Stocks Surging into Final Hour on Bargain-Hunting, Short-Covering, Diminished Credit Fears

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Medical longs, Semi longs and Retail longs. I covered my (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, most sectors are rising and volume is heavy. My intraday gauge of investor angst is at an above-average level. I continue to believe recent credit fears are way overdone. We have been hearing for a couple of years now that a recession was imminent as consumer spending plunged as a result of housing. Second-quarter GDP came in at a very healthy 3.4%. As well, the core PCE showed a substantial deceleration, even with $70 oil. Inflation readings are already below long-term average rates. If oil falls meaningfully from current levels, as I suspect, inflation readings will actually reach low rates. Even if stocks stabilize and begin moving higher over the coming weeks, as I expect, I do not believe the 10-year yield will move anywhere near the 5.32% seen six weeks ago as a result of the substantial deceleration in inflation I foresee. As well, GDP growth should average around 3% through year-end, which will provide a very positive backdrop for investing as earnings continue to exceed estimates. I also see the Nasdaq outperforming the other major averages as growth stocks, specifically technology growth stocks, lead the broad market substantially higher. Growth stock outperformance last week was incredible, which will likely result in more large investors increasing exposure to these types of stocks that can grow meaningfully, even if global growth slows from recent booming levels. Again today, many quality growth stocks I monitor are posting huge gains, substantially outperforming the major averages. As well, several indicators I monitor are exceeding the extreme levels seen at the March market lows. Odd-lot short-selling soared last week, easily eclipsing levels seen during the previous fear spike in March. As well, the CBOE total put/call surged near March levels, and NYSE Advancing-Declining Volume surpassed March levels last week. Finally, the Rydex Nova/Ursa Ratio and NYSE Ticks exceeded levels seen during the March lows. These are several of the indicators I follow that are around levels normally associated with meaningful market bottoms. While there could be more near-term turbulence, I still expect stocks to rise substantially from current levels as credit/housing fears subside, interest rates remain low, M&A activity surges into the fall, energy prices fall meaningfully, inflation decelerates further, consumer/investor sentiment rises, consumer spending accelerates, the U.S. dollar firms, earnings continue to exceed estimates, unemployment remains historically low, wages continue to substantially outpace inflation, and technology spending accelerates. I still expect the S&P 500 to return about 17% for the year. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, diminishing credit fears and short-covering.