Wednesday, September 12, 2007

Stocks Slightly Lower into Final Hour on Rising Apprehension Ahead of Fed

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is slightly negative today as the advance/decline line is lower, most sectors are rising and volume is below average. The Bear Stearns High Yield Index and JPMorgan Emerging Market Bond Index both continue to rebound, rising 0.4% and 0.5% respectively the last five days. In this morning's mortgage applications report, the 30-year average fixed-rate mortgage rate came in at 6.25%, down from 6.42% the prior week. This is down 49 basis points from mid-June and down 32 basis points from the peak of the credit market turmoil in mid-August. As well, the average fixed-rate jumbo mortgage rate is falling 15 basis points today to 7.18%. This is the largest single-day drop since Feb. 7 and the lowest this rate has been since Aug. 14. This is a large positive, especially considering how many said last month that most mortgage rates would just keep climbing. So far this year, “growth” stocks continue to substantially outpace “value” stocks. Here is a summary year-to-date performance summary:

  • Russell 1000 Growth Index, +8.3%;
  • Russell 1000 Value Index, +2.4%;
  • Russell Midcap Growth Index, +8.9%;
  • Russell Midcap Value Index, +1.3%;
  • Russell 2000 Growth Index, +5.2%;
  • Russell 2000 Value Index, -5.3%.
I continue to believe that the growth stock outperformance trend is just in its early stages. While I don't believe that the U.S. economy is heading for recession, modestly below-trend growth is likely over the intermediate term, notwithstanding Fed rate cuts. Low interest rates, combined with below-trend growth, are conducive to growth stock investing. While the major averages are flat today, many leading growth stocks are again posting substantial gains. As I said last month, that is what makes timing the market so tricky. Most growth stock investors I know are at their highs for the year in performance, while the major averages are well off highs. I expect US stocks to trade mixed-to-lower into the close from current levels on rising apprehension ahead of many market-moving events over the coming days.

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