Stocks Mostly Higher into Final Hour on Lower Energy Prices, Bargain-Hunting, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Semi longs, Medical longs, Retail longs and Commodity shorts. I covered my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is slightly higher, most sectors are rising and volume is above average. Back in August and September, we were told by many pundits that the U.S. economy was plunging into recession. Economists now expect 3.1% third-quarter GDP growth. Many of the same pundits are still predicting imminent recession, as they have for several years, even though there is little evidence of this, in my opinion. The odds of the U.S. entering recession next year have also plunged to 31% from 57% in September, according to Intrade.com. I continue to believe that booming global growth, combined with the drag from U.S. housing, will leave U.S. growth around 2%-2.5% over the intermediate term. The Fed's Kroszner said this morning that the "Fed will act as needed to help markets function" and that the "Fed should consider markets impact on the economy." If the economy were to slow more than I anticipate, the Fed has more than enough ammunition to jumpstart economic growth if needed. The U.S. Dollar Index is jumping 0.84%. The dollar-based three-month LIBOR rate is falling another 6 basis points today, to 5.09%. This is now down 63 basis points from September highs and the lowest since April 2006. As well, the 30-day Asset Backed Commercial Paper Yield Index is falling another 13 basis points today, to 5.04%. This is down 125 basis points from September highs and the lowest since May 2006. Commodities are under pressure on the strength in the U.S. dollar and worries over demand. As well, Dow Jones is reporting that Iraq's President said that the Turkish Kurd rebel group will call a ceasefire on TV today. Oil is falling $1.04 per barrel on the news. I still see substantial downside for oil from current levels before year-end. Fed fund futures now imply an 86% chance for a 25-basis-point cut at the upcoming meeting, up from 70% on Friday and 32.0% one week ago. As well, the 10-year yield is down to 4.40%, which greatly increases rate cut odds, in my opinion. According to Reuters, the blended earnings growth rate for the S&P 500 for the third quarter, which combines reported numbers with estimates for companies yet to report, is -0.1%. Earnings expectations have come down so much that remaining reports may now provide a positive catalyst for stocks. Last week's sharp decline in equities seemed way overdone given the news. This was likely due to market's overbought state, options expiration and the "crash" anniversary. Furthermore, S&P 500 futures traders are still positioned near historically net short levels. 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.