Stocks Soaring into Final Hour on Less Economic Fear, Diminishing Financial Sector Pessimism, Subdued Long-Term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Steel longs, Technology longs, Biotech long, Medical longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is about average. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is falling 3.16% and is very high at 25.18. The ISE Sentiment Index is low at 108.0 and the total put/call is above average at .92. Finally, the NYSE Arms has been running low most of the day, hitting .31 at its intraday trough, and is currently .49. The Euro Financial Sector Credit Default Swap Index is rising 3.32% today to 84.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 4.18% to 114.99 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.23% to 28 basis points. The TED spread is now down 438 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 8.5% to 38.94 basis points. The Libor-OIS spread is rising 1.29% to 26 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.90%, which is down 76 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is down 1 basis point today. The broad market’s reaction to today’s news is very impressive. All industries are participating, with many market leading stocks up significantly. Small-caps are especially strong. The bond market is holding onto gains achieved over the last two days despite supply fears, equity gains and dovish FOMC comments, which is a large positive. The Citi US economic surprise index is now up to +57.10 versus a reading of +41.50 in Europe. US scrap steel prices are up another 3% this week, which is an economic positive. On the negative side, credit default swap indices are higher again today, despite equity market gains. As well, the Shanghai Composite is now down 10.3% in 8 days and is testing its 50-day moving average for the first time since March. Further weakness in China would be a concern for US investors. Nikkei futures indicate an +200 open in Japan and DAX futures indicate an +33 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, diminishing financial sector pessimism, investment manager performance anxiety, subdued long-term rates and declining healthcare reform concerns.