Tuesday, June 12, 2007

Stocks Lower into Final Hour on Rise in Long-term Rates

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Software longs. I added to my (IWM)/(QQQQ) hedges this morning and then took profits in some of them, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is above average. Cyclicals and small caps are under the most pressure today as each step up in long-term rates raises the likelihood of much slower economic growth later this year after this quarter's snapback. Today's rate rise is once again accompanied by a falling gold price, declining TIPS prices and a 0.25% gain in the U.S. dollar. As well, weekly retail sales rose a below average 1.7% this week. True growth stock leaders are displaying relative outperformance again today. My intraday gauge of investor angst is slightly above average levels given today's declines. Former Fed head Greenspan spoke this afternoon. He said there is no evidence that China is selling U.S. Treasuries and that China's growth is likely to slow. He also said that people take the risks he outlines as forecasts when they shouldn’t and that he gets more credit for his market impact than he really has. The 10-year yield is pulling back from session highs again. I suspect that a decline in the 10-year yield back around 5.2% or lower on upcoming inflation data will likely trigger stock gains over the coming days. I still think those reports will help bring long-term rates back down. I expect US stocks to trade mixed-to-lower into the close from current levels on rising long-term rates.

No comments: