Traders Now Betting Against Second-Half Growth

No attempt at a midday rally. How can you rally when there seems to be no bids? Volume is seasonally light, but when you have no bids, even seasonally light selling will create a big down day like today.

Throwing in the towel on growth in the second half? Forget early/mid cycle names (transports, big industrials): traders are dumping that group and looking longingly at late cycle/contraction trades. Think tobacco, staples, certain kinds of health care.

Strategists, include those at Goldman Sachs, have been taking down earnings estimates for the S&P 500 in the past week, and the Fed just confirmed their worries.

Look at regional banks: big names down 4 to 6 percent. "The Fed just killed their earnings power," one trader in financial stocks told me.

Indeed, big regional bank names like Regions and KeyCorp down 4 to 6 percent today.

Look at the Dow Transports...down 4.2 percent on a day when the Dow Industrials is down 2.1 percent! Twice as much! This is due to the slow growth environment, the lousy June trade numbers, and the recent China numbers.

Remember, it's not just the US. While China and Latin America are clearly emerging ahead of the US, they are not immune. Economic news was not good today from China or Japan, and with the yen at a 15-year high against the dollar, big Japanese names are all down 2 to 4 percent.

Watch this: China will announce another stimulus package and try to prevent the money from going to real estate, which will blow the shorts out of the water.

Bond funds continue to see inflows. No reversal of the overall trend for funds: INTO bonds, OUT of equities, according to Since May:

U.S. equity funds: $43 billion OUTFLOWS

Global equity: $5.7 b OUTFLOWS

Bond funds: $74 billion INFLOWS

This trend is now nearly THREE YEARS OLD. Secular vs. cyclical, anyone?

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