Stocks Lower into Final Hour on Economic Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour as losses in my Retail longs and Semis longs more than offset gains in my Medical longs, Software longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is substantially lower, most sectors are falling and volume is about average. Investor anxiety is above average again. Today’s overall market action is bearish. True “growth” stocks are once again substantially outperforming “value” stocks today. The Russell 2000 Small-cap Value Index is this year’s worst performing style, falling 10.2% for the year. The Russell 1000 Large-cap Growth Index is this year’s best-performing style, rising 12.6% year-to-date. I continue to believe the trend of substantial growth stock outperformance is just beginning and will last for several more years. The US dollar-based 3-month LIBOR rate is falling another 2 basis points to 4.97% today and is down 76 basis points from September highs. The investment grade credit default swap index and speculative grade credit default swap index are falling 1.16% and .37%, respectively, over the last week. February home price futures remain stable at $207,800, the same as the prior week. These are all positives. Despite the better-than-expected economic data and higher headline inflation readings, fed fund futures still imply a 78% chance for another 25 basis point rate cut at the January 31 meeting. The US dollar continues to trade very well, which should pressure most commodity prices further over the intermediate-term. There are a number of market moving events next week. Given how bearishly positioned many funds are, I wouldn’t be surprised to see the lifting of uncertainty surrounding these events provide an upside catalyst for stocks next week ahead of the holidays. I expect US stocks to trade modestly higher into the close from current levels on falling energy prices, bargain-hunting and short-covering.