Stocks Lower into Final Hour on Economic Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Biotech longs, Semi longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is very negative today as the advance/decline line is substantially lower, every sector is declining and volume is above average. Money market funds reported net cash inflows totaling $20.1 billion, bringing the total net assets invested in the sector to a record $2.87 trillion. Potential bull firepower continues to amass on the sidelines even as the DJIA just hit a new record just one week ago. The dollar-based three-month Libor rate is falling again today and is down 58 basis points from September highs. This is the lowest it has been since May 2006, which is a big positive. The 10-year yield is falling another 10 basis points, to 4.39%. Moreover, the odds of another rate cut at the upcoming month-end meeting have risen to 76% from 70% yesterday and 32% one week ago. It is interesting to note, however, that the odds of a recession beginning next year have plunged on Intrade.com to 31% from 59% in September. There has been a lot of talk once again about recession, especially from some CEOs. I have to wonder though why insider selling is at levels more associated with a meaningful market bottom rather than a top if a recession is imminent. Insiders were selling in droves right before economic growth began plunging in 2000. The U.S. economy had been booming over the last few years and is in the process of slowing to modestly below-trend rates. In my opinion, many CEOs want the Fed to cut much more to get growth back to booming levels. Thus, the constant talk of recession. I think it is wise to look at what insiders are doing rather than what they are saying. I still believe a booming global economy combined with the drag from U.S. housing will produce modestly below-trend growth in the U.S. of around 2% to 2.5% over the intermediate term, which is the perfect backdrop for growth stocks. Oil's $.87 per barrel decline is also noteworthy heading into a weekend with the Turkey/Iraq situation still uncertain. The gasoline crack spread is plunging to a very low $1.56 per barrel, and I still think the refiners make good shorts at current levels. As well, Schlumberger (SLB), the favorite stock in the loved oil service sector, had a good report and is getting pounded. Cyclicals are underperforming today, falling 2.95%. As I said at the beginning of the year, I still believe the most economically sensitive companies will underperform over the intermediate term despite their perceived low valuations. It is interesting to note that the stocks that I consider the "growth" leaders are either higher or down much less than the averages today. They continue to lead during market advances and decline less during pullbacks. Talk of crashes and recessions is spiking once again today. That is a big positive as this usually coincides with market bottoms. In the current U.S. "negativity bubble," this type of talk seems to come sooner and sooner after every surge higher. This is likely the result of the explosion in low/negative correlation U.S. stock strategies since the bursting of the bubble in 2000. Many of these funds badly need a bear market to survive after the S&P 500's recent 110% move higher during what was supposed to be a secular bear. Maybe this is the start of a major bear market, but the odds are substantially against it. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, rising fed rate cut odds, falling energy prices and short-covering.