Stocks Rising into Final Hour on Tax Reform Hopes, Economic Optimism, Seasonality, Energy/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 9.57 -1.54%

• Euro/Yen Carry Return Index 140.22 -.05%

• Emerging Markets Currency Volatility(VXY) 7.93 +2.85%

• S&P 500 Implied Correlation 36.62 +1.52%

• ISE Sentiment Index 74.0 -32.11%
  

• Total Put/Call .83 +3.75%

• NYSE Arms .59 -30.40%

Credit Investor Angst:

• North American Investment Grade CDS Index 48.57 -1.48%
  

• America Energy Sector High-Yield CDS Index 374.0 -.41%

• European Financial Sector CDS Index 44.86 -1.13%

• Western Europe Sovereign Debt CDS Index 3.96 unch.

• Asia Pacific Sovereign Debt CDS Index 13.25 -.23%

• Emerging Market CDS Index 121.01 +.39%
  

• iBoxx Offshore RMB China Corporate High Yield Index 145.81 unch.

• 2-Year Swap Spread 20.75 -.5 basis point

• TED Spread 31.5 +7.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -65.25 -9.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.72 -.08%
• 3-Month T-Bill Yield 1.34% -4.0 basis points
  

• Yield Curve 60.5 -3.0 basis points

• China Iron Ore Spot 515.0 CNY/100 Metric Tonnes -.39%

• Citi US Economic Surprise Index 73.90 -4.5 points

• Citi Eurozone Economic Surprise Index 53.20 -.6 basis point

• Citi Emerging Markets Economic Surprise Index .6 +.7 basis point

• 10-Year TIPS Spread 1.95 +2.0 basis points
  
• 69.0% chance of Fed rate hike at March 21 meeting, 71.7% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +30 open in Japan 
• China A50 Futures: Indicating +46 open in China

• DAX Futures: Indicating -19 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail/biotech sector longs

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running -7.3% Below 100-Day Average
• 9 Sectors Rising, 1 Sector Declining
• 64.9% of Issues Advancing, 32.3% Declining
• 115 New 52-Week Highs, 29 New Lows
• 60.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 50.0%
• Vix 9.6 -1.4%
• Total Put/Call .81 +1.3%
• TRIN/Arms .66 -22.9%

Thursday Watch

Evening Headlines

Bloomberg:

• Asian Equities Dip as Cheer Ebbs Over U.S. Tax Cut. (video) Benchmark gauges in Sydney, Tokyo and Hong Kong dipped after the S&P 500 Index gave back a rally of as much as 0.4 percent to close down for the session in New York. Treasuries continued to slide Wednesday, led by the long-end, with 10-year yields breaching 2.5 percent for the first time since March. The euro is within a cent of its high for the month. Japan’s Topix Index fell 0.2 percent as of 10:35 a.m. in Tokyo. The Nikkei 225 Stock Average declined 0.4 percent. Hong Kong’s Hang Seng Index fell 0.2 percent, and the Shanghai Composite Index lost 0.4 percent. Futures on the S&P 500 Index were little changed after the underlying gauge slid 0.1 percent to 2,679.25 Wednesday. Australia’s S&P/ASX 200 Index was down 0.2 percent.

• Five Things You Need to Know to Start Your Day.

• House Republican Leaders Push Bare-Bones Temporary Funding. Republican leaders in the House are pushing lawmakers to pass a bare-bones stopgap funding plan that would avert a government shutdown on Saturday and force the Senate to abandon attempts to add provisions on health care and other issues.

• Top Weedkiller Found in Some ‘Natural’ Bigelow Tea, Lawsuit Says.

Wall Street Journal:

• Sweeping Tax Bill Heads to Trump But Uncertain When He Will Sign. Congressional Republicans score big legislative win with passage of $1.5 trillion tax cut.

• GOP Tax Plan: Live Coverage.

• Tables Turned: Saudi Arabia Hunts for Oil Assets in the U.S. Aramco has held initial talks with Tellurian, other U.S. producers about energy assets.

• Trump Threatens Countries That Oppose His Decision on Jerusalem. U.S. president suggests he will cut aid to nations voting at U.N. for reversal of Washington’s declaration on Jerusalem as Israel’s capital.

MarketWatch.com:

• 10 things you need to know about the new tax law.

• This dominatrix makes men mine cryptocurrency for her — and she now has over $1 million.

Fox News:

• McCabe draws blank on Democrats’ funding of Trump dossier, new subpoenas planned. (video)

CNBC:

• Wells Fargo(WFC), Fifth Third Bancorp(FITB) unveil minimum wage hikes after tax bill passage.

• AT&T(T) is giving $1,000 bonuses to 200,000 employees after tax bill. (video)

• Trump celebrates tax bill with GOP leaders: 'We are making America great again'.

• Stocks could see another year of double-digit gains, says Credit Suisse. (video)

• Al Franken will resign from the Senate on Jan. 2.

• FedEx(FDX) projects a nearly $1.5 billion earnings boost from tax cut

• The unlikely ‘dogs of the Dow’ picks that could howl in 2018. (video)

• Apple(AAPL) could ring in the New Year with $1 trillion market cap. (video)

• Chipotle(CMG) shares drop on yet another report of possible food safety issues. (video)

Zero Hedge:

• Ex-FBI Assistant Director: Patriots Within The FBI Will Soon Step Forward And Expose The "Cabal".

• Bank Of Japan Leaves Policy Unchanged As Expected - Admits "Inflation Weakening".

• Litecoin Founder Cashes Out, Sells Entire Stake After 9,300% Rally.

• What Bubble? Silicon Valley Homes Going For Nearly $2 Million Over Asking Price.

• Bank of Japan Decision Preview: Here's What Wall Street Expects.

• Rosie O'Donnell Offers GOP Senators $2 Million To Vote Against Tax Bill, Angry Backlash Follows.

• Illinois Lost 1 Resident Every 4.3 Minutes In 2017, Dropped To 6th Most Populous State.

• McCabe Testimony Contained "Numerous Conflicts" With Previous Witnesses; Subpoenas Planned.

• Trump Tax Bill Sparks Worst 2 Days For Stocks & Bonds In 2017. (graph)

Business Insider:

• Congress is going to investigate whether Obama undermined an investigation into a major terror group to secure the Iran deal.

• Companies are rushing to announce special bonuses and pay hikes after the GOP tax plan.

• The amazing changes intermittent fasting does to your body and brain. (video)

Telegraph: 

• Kim Jong-un has nuclear chief executed for test delays and tunnel collapse, according to reports.

Night Trading 

• Asian equity indices are -.5% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 68.25 -.25 basis point. 

• Asia Pacific Sovereign CDS Index 13.25 unch.

• Bloomberg Emerging Markets Currency Index 73.78 unch.

• S&P 500 futures +.07%.

• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ACN)/1.67

• (APOG)/.96

• (KMX)/.81

• (CAG)/.52

• (FINL)/-.36

• (HOV)/.01

• (LNN)/.36

• (PAYX)/.59

• (CTAS)/1.28

• (NKE)/.40

Economic Releases

8:30 am EST

• The Philly Fed Business Outlook for December is estimated to fall to 21.0 versus 22.7 in November.

• 3Q GDP is estimated to rise +3.3% versus a prior estimate of a +3.3% gain.

• 3Q Personal Consumption is estimated to rise +2.3% versus a prior estimate of a +2.3% gain.

• 3Q GDP Price Index is estimated to rise +2.1% versus a prior estimate of a 2.1% gain.

• 3Q Core PCE QoQ is estimated to rise +1.4% versus a prior estimate of a +1.4% gain.

• Initial Jobless Claims for last week are estimated to rise to 233K versus 225K the prior week.

• Continuing Claims are estimated to rise to 1898K versus 1886K prior.

• The Chicago Fed National Activity Index for November is estimated to fall to .5 versus .65 in October.

9:00 am EST

• The FHFA House Price Index MoM for October is estimated to rise +.4% versus a +.3% gain in September.
  

10:00 am EST

• The Leading Index for November is estimated to rise +.4% versus a +1.2% gain in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoJ rate decision, weekly Bloomberg Consumer Comfort Index and the EIA natural gas inventory report could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Profit-Taking, Rising Long-Term Rates, Technical Selling, Utility/REIT Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 9.74 -2.89%

• Euro/Yen Carry Return Index 140.38 +.77%

• Emerging Markets Currency Volatility(VXY) 7.65 +1.59%

• S&P 500 Implied Correlation 36.47 -.87%

• ISE Sentiment Index 122.0 +32.61%
  

• Total Put/Call .71 -20.2%

• NYSE Arms .78 -21.08%

Credit Investor Angst:

• North American Investment Grade CDS Index 49.25 -1.1%
  

• America Energy Sector High-Yield CDS Index 376.0 -.6%

• European Financial Sector CDS Index 45.44 +.13%

• Western Europe Sovereign Debt CDS Index 3.96 unch.

• Asia Pacific Sovereign Debt CDS Index 13.28 -.08%

• Emerging Market CDS Index 120.50 -1.05%
  

• iBoxx Offshore RMB China Corporate High Yield Index 145.81 -.1%

• 2-Year Swap Spread 21.25 unch.

• TED Spread 24.5 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -56.0 +3.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.79 +.15%
• 3-Month T-Bill Yield 1.38% +2.0 basis points
  

• Yield Curve 63.5 +2.25 basis points

• China Iron Ore Spot 510.0 CNY/100 Metric Tonnes -.2%

• Citi US Economic Surprise Index 77.40 -.6 point

• Citi Eurozone Economic Surprise Index 53.80 -5.3 basis points

• Citi Emerging Markets Economic Surprise Index -.1 +.2 basis point

• 10-Year TIPS Spread 1.93 unch.
  
• 69.0% chance of Fed rate hike at March 21 meeting, 71.0% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -13 open in Japan 
• China A50 Futures: Indicating -20 open in China

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail/biotech sector longs

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth unch.

Sector Underperformers:

• 1) REITs -.7% 2) Drugs -.6% 3) Restaurants -.6%

Stocks Falling on Unusual Volume: 

• AYX, RHT, WGO, RIOT, NAV, ATU, LOGM and MELI

Stocks With Unusual Put Option Activity:

• 1) MNK 2) DPZ 3) RIOT 4) GGP 5) HBI

Stocks With Most Negative News Mentions:

• 1) THC 2) WGO 3) RHT 4) JD 5) DRI

Charts:

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