Stocks Reversing Slightly Higher into Final Hour on Tax Reform Hopes, Economic Optimism, Short-Covering, Homebuilding/Restaurant Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 9.75 -1.11%

• Euro/Yen Carry Return Index 138.18 +.02%

• Emerging Markets Currency Volatility(VXY) 8.16 -1.69%

• S&P 500 Implied Correlation 22.26 -4.38%

• ISE Sentiment Index 112.0 +9.8%
  

• Total Put/Call .75 -9.64%

• NYSE Arms 1.12 +30.7%

Credit Investor Angst:

• North American Investment Grade CDS Index 56.86 -1.61%
  

• America Energy Sector High-Yield CDS Index 409.0 -.86%

• European Financial Sector CDS Index 60.2 +.88%

• Western Europe Sovereign Debt CDS Index 5.16 +3.93%

• Asia Pacific Sovereign Debt CDS Index 17.69 +3.36%

• Emerging Market CDS Index 186.59 -1.38%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.99 unch.

• 2-Year Swap Spread 25.5 +.25 basis point

• TED Spread 28.75 +2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -39.75 -7.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.60 +.17%
• 3-Month T-Bill Yield 1.05% unch.
  

• Yield Curve 86.0 +3.0 basis points

• China Import Iron Ore Spot $62.89/Metric Tonne -1.96%

• Citi US Economic Surprise Index -8.50 +.8 point

• Citi Eurozone Economic Surprise Index 54.10 +8.4 points

• Citi Emerging Markets Economic Surprise Index 13.30 -.5 basis point

• 10-Year TIPS Spread 1.88 +1.0 basis point
  
• 69.9% chance of Fed rate hike at Dec. 13 meeting, 71.1% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +7 open in Japan 
• China A50 Futures: Indicating +10 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Bull Radar

Style Outperformer:

• Large-Cap Growth +.1%

Sector Outperformers:

• 1) Restaurants +1.0% 2) Drugs +.8% 3) Papers +.8%

Stocks Rising on Unusual Volume:

• AAAP, BBRY, CLDR, SPPI, OMN, SYRS, SELB, THO, JBL, ORA, KEM, LOXO, REV, ABBV, GGSL, IHG, ABT, EBIX, MKC, BLUE, PBPB, CUTR, EDIT, AWR, ABEO, KURA, BLUE, ABBV, KIM, CLDR, UCTT, GBT and ZAGG

Stocks With Unusual Call Option Activity:

• 1) MNST 2) ALK 3) ABT 4) TXN 5) MON

Stocks With Most Positive News Mentions:

• 1) EMN 2) PBPB 3) AMAT 4) MCD 5) MKC

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -.7% Below 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 39.5% of Issues Advancing, 56.5% Declining
• 82 New 52-Week Highs, 10 New Lows
• 47.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.9%
• Vix 10.0 +1.32%
• Total Put/Call .90 +8.43%
• TRIN/Arms .77 -9.15%

Thursday Watch

Evening Headlines

Bloomberg:

• China's Great Wealth Transfer Falls to Reluctant Heirs. Liu Chang, the daughter of a billionaire industrialist, went to boarding school in the U.S., traveled the world, and married a hip Chinese film director. Next move in her charmed life: Running one of China’s largest pig feed and dairy companies. “With my background, I am almost an outsider to the family business. Once I step in, I can bring new perspectives, new thoughts, fresh ideas,” says the 37-year-old, now being groomed to take over New Hope Group, the $15 billion agribusiness company founded by her father, 66-year-old Liu Yonghao.

• U.K. Consumer Confidence Rises to Highest Level in Six Months.

• Bonds Slide as Dollar Climbs on Tax Plan, Economy. Australian bonds joined a global sell-off and Treasury yields reached the highest levels in two months as investors raised their expectations for the Federal Reserve to raise rates one more time this year despite some of Chair Janet Yellen’s colleagues continuing to push back at her contention more hikes are on the way. Bitcoin extended its rally this week to 15 percent as Morgan Stanley CEO James Gorman said it’s "certainly something more than just a fad." Japan’s Topix index advanced 0.4 percent as of 9:15 a.m. Tokyo time. Australia’s S&P/ASX 200 Index gained 0.3 percent, while South Korea’s Kospi index was 0.2 percent lower. Hang Seng Index futures slid 0.5 percent.

• Five Things You Need to Know to Start Your Day. (video)

• Fed's Rosengren Says `Regular and Gradual' Tightening Warranted. Federal Reserve Bank of Boston President Eric Rosengren said the central bank should raise rates in a “regular and gradual” way despite low inflation, because weak price pressures appear temporary and a tight labor market risks overheating the economy. “Appropriate risk mitigation would argue for continued gradual removal of monetary accommodation, even though we are currently below the inflation target,” Rosengren said in prepared remarks for a speech Wednesday in New York. “I believe policy makers should not overreact to low current inflation readings that are widely expected to be temporary.”

• Stocks Catch Tax Cut Fever. (video) As they have done repeatedly, investors used the public unveiling of details on Donald Trump’s tax overhaul as an occasion to celebrate in the stock market. Whether Wednesday’s plan ends up being a net positive for equities is something they’ll worry about later.

• FDA Approves First Finger Prick-Free Device for Diabetics. 

Wall Street Journal:

• GOP Tax Overhaul Aims for Corporate Cuts, Simpler Code. Plan would lower corporate tax rate to 20%, end state and local tax deductions for individuals.

• 5 Takeaways From the GOP Tax Framework. What we know so far about the effect on households’ tax burdens, budget deficits, business, and more.

• Trump Weighs Waiving Law Barring Foreign Ships From Delivering Aid to Puerto Rico. The Jones Act has been waived following past natural disasters.

• In Vetting Refugees, U.S. Plans to Assess Ability to Assimilate. Officials say government would still consider need for protection; policy change driven by White House adviser Stephen Miller.

• Tax Reform, If You Can Keep It. The GOP outline is a pro-growth boon, but rates can’t rise further.

Fox News:

• Fox News Poll: Fifty-five percent of voters in the latest Fox News poll see kneeling during the national anthem as an inappropriate form of protest.

CNBC:

• Trump has a much better shot with tax reform than health care, ex-legislators from both parties say. (video)

• Trump says GOP tax reform plan will create 'revolutionary change'.

• Stocks that get this specific tax break under GOP plan helped lead the market higher Wednesday.

Zero Hedge:

• The “Trump Tax Plan” - Details & Analysis.

• Stephen Roach Warns: Central Bankers' Broken Models Are "Today's Biggest Risks".

• Zuckerberg Fires Back At Trump, Admits "Russian Ads" Were Meaningless.

• S&P Wants You To Know They "Stress Tested" Subprime Auto ABS Structures And They're "Very Stable".

• How Much Longer Can NFL Owners Afford To Sanction Anthem Protests?

• "Fake News" Writer Who "Felt Responsible For Trump's Election" Found Dead In Phoenix.

• Teachers Demand $3,200 From Each Kentucky Household To Fund Pension Ponzi For 2 Years.

• Six-Figure Pensions For University Of California Teachers Surge 60% Since 2012.

• NFL Viewership Is Down 11% This Season As Fans "Take A Knee".

• Small Caps Surge Most Since Election As Bonds Suffer Worst Rut In Over 50 Years. (graph)

Business Insider: 

• FBI report: Murder, violent crime increased significantly in 2016.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 83.0 +1.0 basis point. 

• Asia Pacific Sovereign CDS Index 17.25 +.75 basis point.

• Bloomberg Emerging Markets Currency Index 73.41 -.08%.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ACN)/1.46

• (ANGO)/.16

• (BBRY)/.00

• (CAG)/.40

• (MKC)/1.06

• (RAD)/-.01 

• (MTN)/-1.85

• (KBH)/.47

Economic Releases 
8:30 am EST

• 2Q GDP is estimated to rise +3.0% versus a prior estimate of a +3.0% gain.

• 2Q Personal Consumption is estimated to rise +3.3% versus a prior estimate of a +3.3%.

• The GDP Price Index is estimated to rise +1.0% versus a prior estimate of a +1.0% gain.

• The Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.

• Initial Jobless Claims for last week are estimated to rise to 270K versus 259K the prior week.

• Continuing Claims are estimated to rise to 1993K versus 1980K prior.

• Advance Goods Trade Balance for August is estimated at -$65.1B versus -$63.9B in July.

• Wholesale Inventories MoM for August are estimated to rise +.4% versus a +.6% gain in July.
  

11:00 am EST

• The Kansas City Fed Manufacturing Activity for September is estimated to fall to 15.0 versus 16.0 in August.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's George speaking, German CPI report, $28B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, Sidoti Conference, B. Riley Consumer Conference, JPMorgan Investor Forum, (AFL) analyst briefing and the (AAL) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial 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 Surging into Final Hour on Tax/Healthcare Reform Hopes, Economic Optimism, Yen Weakness, Tech/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Around Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 9.69 -4.7%

• Euro/Yen Carry Return Index 138.15 +.15%

• Emerging Markets Currency Volatility(VXY) 8.27 +2.35%

• S&P 500 Implied Correlation 22.47 -3.51%

• ISE Sentiment Index 110.0 +4.76%
  

• Total Put/Call .80 -15.79%

• NYSE Arms .91 -25.49%

Credit Investor Angst:

• North American Investment Grade CDS Index 57.63 -2.16%
  

• America Energy Sector High-Yield CDS Index 417.0 -3.55%

• European Financial Sector CDS Index 59.57 -1.46%

• Western Europe Sovereign Debt CDS Index 4.98 -2.74%

• Asia Pacific Sovereign Debt CDS Index 17.13 +3.79%

• Emerging Market CDS Index 189.69 +.12%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.99 +.08%

• 2-Year Swap Spread 25.25 -1.5 basis points

• TED Spread 26.75 -2.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -32.75 -.5 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.50 -.59%
• 3-Month T-Bill Yield 1.05% unch.
  

• Yield Curve 83.0 +3.0 basis points

• China Import Iron Ore Spot $64.15/Metric Tonne -1.23%

• Citi US Economic Surprise Index -9.30 +3.8 points

• Citi Eurozone Economic Surprise Index 45.70 +8.0 points

• Citi Emerging Markets Economic Surprise Index 13.80 -.8 basis point

• 10-Year TIPS Spread 1.87 +2.0 basis points
  
• 73.4% chance of Fed rate hike at Dec. 13 meeting, 74.4% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +163 open in Japan 
• China A50 Futures: Indicating +28 open in China

• DAX Futures: Indicating +24 open in Germany

Portfolio: 

• Higher: On gains in my retail/tech/biotech sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 100% Net Long