Stocks Finish Sharply Lower on Higher Energy Prices, Rising Economic Pessimism

Evening Review
Market Summary
Today’s Movers
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 Sharply Lower into Final Hour on Higher Energy Prices, Rising Economic Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Biotech longs and Software longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short 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 declining and volume is below average. Investor anxiety is elevated. Today’s overall market action is bearish. I do have an unusual amount of stocks on my monitor pages in positive territory given today’s headline losses. As well, very few stocks are falling on above-average volume. Volume is below average on the NYSE and Nasdaq and above average on the AMEX, where many ETFs trade. This likely indicates quite a bit of new shorting and selling by hedge funds which were already positioned very bearishly, according to most recent data. The VIX is surging 6% to 24, the total put/call is a high 1.25 and the ISE Sentiment Index hit a depressed 68.0 this morning. For the fifth day in a row, the NYSE Arms is high, hitting an elevated 2.58. The 30-day US asset backed commercial paper yield is plunging another 81 basis points today and is down 155 basis points in three weeks and down 170 basis points from September highs. Fed funds futures now imply a 58.8% chance for another 25 basis point rate cut at the upcoming Fed meeting, up from a 46.8% chance last week. The last time the DJIA fell this much on a percentage basis on the first day of the year was 1983. However, the DJIA finished the year 20.3% higher that year. I suspect Asia will trade lower again tonight which could pressure stocks here further in the morning. I still expect a decent rally to materialize in the broad market over the next few days. I expect US stocks to trade mixed into the close from current levels as more economic pessimism, increased shorting and higher energy prices offsets bargain hunting and seasonal strength.

Today's Headlines

Bloomberg:
- Federal Reserve officials said economic growth in 2008 will be less than forecast.
- The cost of borrowing in dollars, euros and pounds fell, extending more than two weeks of declines, as central bank measures to relieve a year-end logjam in money markets continued to show signs of success.
- US gasoline demand fell last week, according to Mastercard Inc. Consumers purchased an average 9.5 million barrels of gasoline a day in the week ended December 28, down 5.5% from the same week last year.
- Crude oil reached a record $100 a barrel and gold rose to a record on commodity/hedge fund inflows and a weaker dollar.
- Ken Miller, vice president for crude oil and refining analysis at Purvin & Gertz in Houston, says “there’s no justification for any of these prices levels. There’s no shortage of crude anywere.”

Wall Street Journal:
- President Bush to Push Congress for Housing Remedy.
- Democratic presidential candidate John Edwards said he would cap executive pay.
- United Technologies(UTX) may say today that it’s teaming with US Renewables Group to introduce a technology that uses molten sale to store solar heat for conversion to electrical power even when the sun isn’t shining.
- Financial, Housing Stocks and High-Yield Bonds Draw Interest From Bargain Hunters.

NY Times:
- John Edwards says that if elected president he would withdraw the American troops who are training the Iraqi army and police as part of a broader plan to remove virtually all American forces within 10 months.

CNNMoney.com:
- $100 oil and the ‘S’ word. Is it growing demand and tight supply, or merely rampant speculation that has pushed crude to record highs?

Handelsblatt:
- Agco Corp.(AG), a US maker of tractors and combine harvesters, expects sales to increase to $8 billion by 2011, $1 billion more than previously estimated, citing CEO Martin Richengagen.

Seoul Economic Daily:
- EBay(EBAY) is in talks to buy South Korean online auctioneer Gmarket Inc.(GMKT) for more than $427 million to expand its operations in the country.

ISM Manufacturing Declines, Construction Spending Unexpectedly Rises

- ISM Manufacturing for December fell to 47.7 versus estimates of 50.5 and a reading of 50.8 in November.

- ISM Prices Paid for December rose to 68.0 versus estimates of 65.0 and 67.5 in November.

- Construction Spending for November rose .1% versus estimates of a .4% decline and an upwardly revised .4% decline in October.

BOTTOM LINE: Manufacturing in the US fell, triggering speculation that the Fed will cut interest rates by half a percentage point, Bloomberg reported. According to Norbert Ore, chairman of the ISM’s survey, the index would have to fall below 41.9 for two consecutive quarters to indicate the potential for a recession across the broad economy. The New Orders component of the index fell to 45.7 from 52.6 the prior month. The Inventories component fell to 45.5 from 46.9 in November. The Employment component of the index rose to 48 from 47.8 the prior month. The ISM Manufacturing Index fell below current levels for nine months during the 1995/1996 mid-cycle slowdown without pushing the economy into recession. It also fell below today’s reading in December 1998 during the Asian crisis without signaling contraction in the broad economy. I continue to believe the economy will grow around 1% in 4Q, but rebound to average around 2% GDP growth for all of 2008. I expect the ISM Manufacturing Index to bounce back next month on inventory rebuilding.

Spending on US construction projects unexpectedly rose in November as work on schools, power plants and factories surged, Bloomberg reported. However, construction on private homebuilding fell 2.5%, the most in five years, versus a 2.3% decline the prior month. Home construction has now declined for 21 consecutive months. Non-residential building jumped 18% from year ago levels. Private non-residential construction climbed 1.7% for the month. I continue to expect overall construction to remain muted over the intermediate-term as homebuilders work down inventories.

Bear Radar

Style Underperformer:

Small-cap Value (-2.0%)

Sector Underperformers:

Semis (-3.59%), Airlines (-3.47%) and Retail (-3.06%)

Stocks Falling on Unusual Volume:

HHS, NCMI, MELI, PANL, COCO, TISI, CACB, POWI, FOSL and WAL

Bull Radar

Style Outperformer:

Mid-cap Growth(-.40%)

Sector Outperformers:

Oil Service (+.49%), Construction (+.38%) and HMOs (+.33%)

Stocks Rising on Unusual Volume:

MTE, FFH, GHI, AKNS, GLAD, CMED, HOKU, ULBI, SYNA, EPIQ, FISV, GPOR, GMKT, CTXS, CSUN, AMZN, GRNB, PLLL, PCLN, MLNM, HGSI, HDNG, MSSR, AUY, KGC, ANW, CAM, MLNX and HLIT