Stocks Lower into Final Hour on Fed Policy Mistake Worries, Govt Shutdown Concerns, Global Growth Fears, Energy/Restaurant Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 29.6 +15.6%

• Euro/Yen Carry Return Index 132.48 -.43%

• Emerging Markets Currency Volatility(VXY) 9.54 -.93%

• S&P 500 Implied Correlation 51.48 +1.3%

• ISE Sentiment Index 56.0 -52.9%
  

• Total Put/Call 1.92 +53.6%

• NYSE Arms .82 -36.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 88.97 +4.46%
  

• America Energy Sector High-Yield CDS Index 758.0 +4.28%

• European Financial Sector CDS Index 108.22 +5.53%

• Italian/German 10Y Yld Spread 221.0 -2.25 basis points
  

• Asia Pacific Sovereign Debt CDS Index 11.62 unch.

• Emerging Market CDS Index 204.24 +1.61%
  

• iBoxx Offshore RMB China Corporate High Yield Index 151.09 +.10%

• 2-Year Swap Spread 14.75 +1.25 basis points

• TED Spread 40.5 -3.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -3.5 +11.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.04 +.17%

• 3-Month T-Bill Yield 2.38% unch.

• Yield Curve 12.0 -1.25 basis points

• China Iron Ore Spot 70.43 USD/Metric Tonne +.43%

• Citi US Economic Surprise Index -10.6 -.9 point

• Citi Eurozone Economic Surprise Index -74.60 +.4 point

• Citi Emerging Markets Economic Surprise Index -3.7 -.3 point

• 10-Year TIPS Spread 1.76 -4.0 basis points

• 21.3% chance of Fed rate hike at March 20th meeting, 27.0% chance at May 1st meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -167 open in Japan 

• China A50 Futures: Indicating -47 open in China

• DAX Futures: Indicating -79 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech/biotech sector longs and emerging market shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my emerging market shorts

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -2.5%

Sector Underperformers:

• 1) Oil Service -4.8% 2) Alt Energy -4.2% 3) Restaurants -3.3%

Stocks Falling on Unusual Volume: 

• GTHX, ECC, IMMU, GEF, MTLS, SQM, HQL, ETB, PCI, BNFT, DFP, HPS, THQ, PDT, THW, FOF, ACP, HYC, PRFZ, RNP, LDP, DESP, ALB, CNXM, AINV, CI, MIC, LADR, WK, STWD, APLS, PI, APU, KYN, ATNX, BPT, AIR, TWTR, HIIQ, CRC, CAG, ATU, AXGN, OII and APOG

Stocks With Unusual Put Option Activity:

• 1) OPK 2) EXAS 3) CL 4) AET 5) HYG

Stocks With Most Negative News Mentions:

• 1) PIR 2) NKTR 3) NCS 4) ESV 5) EB

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value -1.1%

Sector Outperformers:

• 1) Gold & Silver +4.9% 2) Utilities +.3% 3) Drugs +.1%

Stocks Rising on Unusual Volume:

• RCII, AIMT, CE, FGEN, BVN, SAFM, AU and AEM

Stocks With Unusual Call Option Activity:

• 1) PAYX 2) EVRI 3) ALLY 4) PTLA 5) CAG

Stocks With Most Positive News Mentions:

• 1) XPO 2) V 3) FDX 4) PBYI 5) X

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +31.1% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 44.9% of Issues Advancing, 52.4% Declining
• 4 New 52-Week Highs, 690 New Lows
• 14.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 33.7%
• Vix 26.4 +2.9%
• Total Put/Call 1.70 +36.0%
• TRIN/Arms .80 -40.0%

Thursday Watch

Evening Headlines

Bloomberg:      

• China M&A Loans Slump for Second Year.    

• PBOC Ratchets Up Monetary Support With `Low-Profile' Rate Cut. 

• Goldman Says China-U.S. Deal Would Be 2019's Top Economic Event.  

• Australian Jobless Rate Climbs in November as Workforce Expands.

• Asia Stocks Set to Slide as Fed Rattles Wall St.  Asian stocks looked set to decline after U.S. equities swung from gains to losses as Federal Reserve Chairman Jerome Powell failed to quell investor concerns that tightening policy will choke economic growth.  Equity futures slid in Japan and most other Asian markets before the open. The S&P 500 Index turned a gain of as much as 1.5 percent into a loss of the same magnitude to end Wednesday’s session at a 15-month low after U.S. policy makers raised interest rates for the fourth time this year. They also lowered their forecast for hikes next year to two from three, though markets had been priced for just one. Treasury yields slid and the dollar erased losses as Powell said the Fed’s balance sheet normalization would continue “on automatic pilot.”  Futures on the Nikkei 225 fell 1.6 percent in Singapore.  Australia’s S&P/ASX 200 Index futures lost 0.6 percent.  Futures on the FTSE China A50 fell 1 percent. 

• There’s More Than One Reason Traders May Have Disliked the Fed's Message.

• Fed's Powell Presides Over Record Decision-Day Losing Streak.  

• Major Investors in Leveraged Loans Are Unloading Big Chunks.

• Markets Revolt as Steadfast Powell Downplays Recent Sell-Off.

• Powell Enters Era of Rate-Hike Caution as Growth Headwinds Mount.  

• Goldman’s $1 Trillion Asset Manager Is Betting on Stocks in 2019.  

• Guggenheim's Minerd Says Market Slide Can Become Systemic Risk.  

• Bond Rally May Have Just Begun, Say Investors Reeling After Fed.  

• Fed's Powell Gets an `F' From Bass Amid Emerging-Market Risks.

Wall St. Journal:

• Fed Raises Rates, Signals a Tentative Approach Next Year.

• Senate Leaders Agree on Stopgap Spending Bill.

• D.C. Attorney General Files Privacy Suit Against Facebook.

• Women in Latin America Are Being Murdered at Record Rates.

• Pfizer, Glaxo to Create Over-the-Counter Drug Giant.

• Pinterest Prepares for Early 2019 IPO.  

• Tight Job Market Opens Doors for Ex-Convicts.

MarketWatch.com:

• Here are the worst-performing stocks after Fed spooks the market.

• Recap: Live blog and video of the Powell press conference to explain the Fed’s rate hike and new guidance.

Fox News:

• Top conservative figures decry signs of 'gutless' retreat on border wall.

• Hikers ‘executed by terrorists’ in mountains, security sources say. 

CNBC:       

• Here’s what spooked the market about the Fed today.

• Most of the S&P 500 is already in a bear market.

• Tilray shares surge after announcing $100 million deal with AB InBev to study cannabis-based drinks.

• Fed hikes rate, lowers 2019 projection to 2 increases.

• Stocks making the biggest moves after hours: Tilray, Spectrum Pharmaceuticals and more.

• Powell says he doesn’t see Fed changing its strategy for shrinking the balance sheet.

• Altria board approves $13 billion investment in e-cigarette company Juul.

Zero Hedge:

• CNN's "Journalist Of The Year" Committed Journalistic Fraud "On A Grand Scale" At Der Spiegel.

• Global Auto Industry Enters First Recession Since 2009.

• Words Of Warning from Venezuela: Don't Give Up Your Guns!

• Maybe Trump Is Right To Hate Jerome Powell.

• "We Want Goldman Sachs Here": This Is Malaysia's Playbook For Prosecuting 1MDB Case.

• FOMC Delivers 'Not Dovish Enough' Rate-Hike: Cuts Outlook And Future Hikes By One.

• In A World Of Warnings, "This Is The Biggest Yet".

• Powell Breaks The Market.

Telegraph:

• Comment: China's shift back to state control is a cause for concern 

• Credit markets signal recession in early 2019 as central banks keep tightening.

• No-deal Brexit risks a rude economic shock for Germany and fragile eurozone.

Night Trading 

• Asian equity indices are -1.0% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 92.50 +1.5 basis points. 

• Asia Pacific Sovereign CDS Index 11.75 +2.25 basis points.

• Bloomberg Emerging Markets Currency Index 66.89 -.05%.

• FTSE 100 futures -1.25%.

• S&P 500 futures +.38%.

• NASDAQ 100 futures +.46%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (ACN)/1.86

• (BB)/.02

• (CCL)/.70

• (CAG)/.56

• (SAFM)/-1.28

• (SCHL)/2.16

• (WBA)/1.44

After the Close:

• (CAMP)/.23

• (CTAS)/1.68

• (NKE)/.46

Economic Releases

8:30 am EST

• The Philly Fed Business Outlook Index for December is estimated to rise to 15.0 versus 12.9 in November.

• Initial Jobless Claims for last week are estimated to rise to 215K versus 206K the prior week.

• Continuing Claims are estimated to rise to 1663K versus 1661K prior.

10:00 am EST

• The Leading Index for November is estimated unch. versus a +.1% gain in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The UK retail sales report, Bloomberg Economic Expectations Index for December, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (HIIQ) investor day and the (RCII) conference call could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower.  The Portfolio is 25% net long heading into the day.