Stocks Falling into Final Hour on Worries in the Financial Sector

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Biotech 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, almost every sector is falling and volume is heavy. Notwithstanding everyone's assumption that the Fed is done cutting rates, fed fund futures now imply a 62% chance for another 25-basis-point cut at the December meeting, up from 42% yesterday. My intraday gauge of investor angst is elevated. Many market-leading stock are holding well. Some, such as Google (GOOG) are higher. Tech stocks, in general, continue to substantially outperform. Despite today's worries, the investment grade credit default swap index is 1.03% lower over the last five days. As well, the speculative grade credit default swap index is 1.5% lower. The Bear Stearns High Yield Index is up .42% over the last week and the JPMorgan Emerging Market Bond Index is .93% higher over that period. The 30-day asset backed commercial paper yield is falling another 6 basis points today to 4.82%, which is down 151 basis points from September highs. Wall Street research downgrades are again running 3-1 over upgrades as the analyst community continues to display historical pessimism with stocks just off record highs. Yesterday, on CNBC's "Fast Money," Barton Biggs said that hedge funds are at their lowest levels of being net long in four years, according to his prime brokerage sources. Biggs' comments correspond with what I am hearing from my sources and the most recent Greenwich Alternative Investments hedge fund survey, which found a record low 8% of hedge fund managers were bullish on U.S. stocks. While it is still too early to tell whether or not it has already begun, I continue to believe the "mother of all short-covering rallies" is inevitable. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, lower energy prices and short-covering.

Personal Incomes Healthy, Spending Decelerates Slightly, Inflation Contained, Job Market Still Healthy, Manufacturing Slows Slightly

- Personal Income for September rose .4% versus estimates of a .4% gain and an upwardly revised .4% increase in August.

- Personal Spending for September rose .3% versus estimates of a .4% increase and a downwardly revised .5% gain in August.

- The PCE Core for September rose .2% versus estimates of a .2% increase and a .1% gain in August.

- Initial Jobless Claims for this week fell to 327K versus estimates of 330K and 333K the prior week.

- Continuing Claims rose to 2588K versus estimates of 2534K and 2523K prior.

- ISM Manufacturing for October fell to 50.9 versus estimates of 51.5 and a reading of 52.0 in September.

- ISM Prices Paid for October rose to 63.0 versus estimates of 63.0 and a reading of 59.0 in September.

BOTTOM LINE: Consumer spending rose slightly less than forecast in September, Bloomberg reported. The core PCE, the Fed’s favorite inflation gauge rose 1.8% year-over-year, which matched the smallest gain since August 2004 and is within the Fed’s comfort zone. Spending on services, which included utilities, dropped .1%. I expect spending to improve modestly, incomes to remain healthy and inflation to decelerate further over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits declined last week, Bloomberg said. The four-week moving average of claims rose to 327,000 from 325,250. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, ticked higher to 2% from 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Manufacturing in the US slowed slightly more than expected in October, Bloomberg reported. The New Orders component fell to 52.5 from 53.4 the prior month. The Exports component rose to 57 from 54.5 the prior month. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and exports remain strong.

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Thursday Watch

Late-Night Headlines
Bloomberg:
- China unexpectedly increased fuel prices by as much as 10% in an “’urgent step” to help the nation’s oil refiners cover surging costs. To “guarantee domestic refined oil supply and promote energy conservation,” gasoline, diesel and jet fuel prices will rise $67 a metric ton starting today, the National Development and Reform Commission said.
- The dollar snapped seven days of losses against the euro on speculation the currency’s 1.6% decline over the past month was too fast as the Federal Reserve signaled it may be done with cutting interest rates.
- The US has destroyed as much as 80% of the al-Qaeda in Iraq group’s propaganda network since the deployment of additional American troops in the country, a spokesman for coalition forces said.
- Australia’s retail sales increased more than expected in September as higher wages and job gains boosted spending on furniture, electronics and food.
- A team of US nuclear inspectors travels to North Korea today to witness the communist nation start dismantling its nuclear program, Assistant Secretary of State Christopher Hill said.

Wall Street Journal:
- A report on the competitiveness of economies around the world released yesterday puts the US out front and highlights the growing potential of energy-producing countries awash in oil and natural gas revenue.

TheStreet.com:
- Barton Biggs, of hedge fund Traxis Partners, said last night on CNBC’s “Fast Money” that the Fed did what it should have done and the market is being set up for a big surge higher. He also mentioned that he is hearing from the prime brokers that hedge funds are at their lowest levels of being net long in 4 years. He expects a stampede into year end in big cap multinationals, tech, Asia and emerging markets.

BusinessWeek.com:
- Why Delta Should Buy Northwest. With a new CEO and a clean balance sheet, Delta is pondering expansion. Here’s why Northwest is the logical choice.

Financial Times:
- Google(GOOG) plans network to rival Facebook.
- Goldman(GS) shares at new highs.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (IACI) to Buy, target $37.
- We believe conservative expectations are appropriately factored into current retail stock prices & retailers could deliver upside to our +1% comp est. driving the stocks higher given 1) pent-up demand from weak Fall sales, 2) cooler weather, 3) easier comparisons, 4) negative investor sentiment, and 5) the end of tax loss selling(Oct.31). Our top picks for Holiday sales are 1) GPS and 2) TJX, as we believe both retailers are best positioned to deliver upside to current 4Q sales and EPS expectations given conservative inventory management and cost reductions.

CSFB:
- Reiterated Outperform on (MA), raised estimates and boosted target to $160.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 futures -.18%.
NASDAQ 100 futures -.02%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (BBI)/-.18
- (CLI)/.26
- (PTEN)/.55
- (RDN)/.38
- (D)/1.68
- (ATK)/.39
- (CVS)/.44
- (RDC)/1.14
- (NMX)/.64
- (BDX)/.97
- (PDE)/.80
- (MHS)/.69
- (ED)/1.06
- (ABC)/.64
- (TBL)/.49
- (AMSC)/.13
- (ASF)/.43
- (KBR)/.31
- (S)/.22
- (EK)/.28
- (VCLK)/.16
- (GGC)/.15
- (OII)/.85
- (EDS)/.41
- (FLS)/.92
- (CLF)/1.51
- (PSYS)/.38
- (ERTS)/.20
- (LVS)/.29
- (CA)/.26
- (VRSN)/.27
- (XOM)/1.74
- (IGT)/.38
- (OMX)/.63
- (TSO)/.84
- (SINA)/.27

Upcoming Splits
- (ATU) 2-for-1

Economic Releases
8:30 am EST
- Personal Income for September is estimated to rise .4% versus a .3% gain in August.
- Personal Spending for September is estimated to rise .4% versus a .6% gain in August.
- The PCE Core for September is estimated to rise .2% versus a .1% gain in August.
- Initial Jobless Claims for this week are estimated to fall to 330K versus 331K the prior week.
- Continuing Claims are estimated to rise to 2534K versus 2530K prior.

10:00 am EST
- ISM Manufacturing for October is estimated to fall to 51.5 versus 52.0 in September.
- ISM Prices Paid for October is estimated to rise to 63.0 versus a reading of 59.0 in September.

Afternoon:
- Total Vehicle Sales for October is estimated to fall to 16.0M versus 16.2M in September.

Other Potential Market Movers
- The Challenger Job Cuts report, weekly EIA natural gas inventory report and Oppenheimer Restaurant Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply Higher on Less Economic Pessimism, Fed Rate Cut

Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Stocks Surging into Final Hour on Less Economic Pessimism, Fed Rate Cut

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Software longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, almost every sector is rising and volume is heavy. Mastercard (MA) reported excellent results and boosted its stock buyback program. I have heard many bears say that the company's positive results of late are just a function of how strapped the U.S. consumer is. However, Mastercard attributed these strong results to strong international and emerging market demand. The stock, with short interest near record levels, is soaring 22% on the report. As I have said a number of times, I don't usually highlight the Investors Intelligence survey because I don't think it is a good contrary indicator. I choose to highlight the AAII survey, which recently showed exceptional bearishness, given how close the S&P 500 is to a record. Many others have been pointing to the Investors Intelligence survey, however, as recent evidence that investors were too complacent. That survey came out today and shows a seven-week low in investor optimism. I haven't heard anyone even mention this. The Fed cut the fed funds rate and discount rate 25 basis points, as expected. The Fed also explicitly stated that the balance of risks are now equal with respect to inflation and growth. I think, overall, the policy statement was slightly more hawkish than many investors expected. I view those statements as a positive, however. The odds of another 25-basis-point cut at the December meeting are now 51.8%, down from 60.7% before the meeting. I still think the market is in a win-win situation as the Fed has massive firepower available if needed. If growth remains extraordinarily resilient, many companies will continue to post stellar earnings results -- even with the drag from housing on a few sectors. Google (GOOG) is already back near session highs and I agree with those who think that the company should split its stock. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less economic pessimism, investment manager performance anxiety and short-covering.