Despite the possible financial crisis in Dubai, soft sales on Black Friday, high unemployment and a falling U.S. dollar, stocks staged a last-minute rally on Monday, and closed on the positive side.
And even though concern over Dubai’s situation was voiced by many, it was the financial stocks that led the late-afternoon rally. Some of that gain was made following the Federal Reserve of Dallas reporting that its index of general business activity rose from the previous month. And the Chicago Fed’s Midwest Manufacturing Index rose for its fourth consecutive advance, adding weight to the Dallas report.
The financial sector closed with a 2.7% gain, which outstripped the next highest gainer, utilities, which were up 0.8%. Part of the optimism stemmed from Dubai World’s discussion of the size of its debt. Most observers were thinking of debt in the range of $50 to $60 billion, but a spokesman for the state-owned conglomerate said that the debt amounted to roughly $26 billion.
Bank of America (BAC) closed 2.46% higher, JPMorgan Chase (JPM) gained 2.8%, and American Express (AXP) rose 2.4%.
At the close, the Dow Jones Industrial Average (DJI) had gained 35 points to 10,345, the S&P 500 (SPX) was up 4 points to 1,096, and the Nasdaq (NASD) rose 6 points, closing at 2,145.
The NYSE traded 1.3 billion shares with advancers over decliners by 17-to-12. On the Nasdaq, advancers slightly exceeded decliners issues on volume of 730 million shares.
January crude oil rose $1.23 to $77.28 a barrel, and the Energy Select Sector SPDR (XLE) fell 20 cents to $56.82.
Gold for February delivery rose $6.80, closing at $1,182.30, and the PHLX Gold/Silver Sector Index (XAU) gained 19 cents, closing at $183.71.
What the Markets Are Saying
Yesterday appears to have been more of a bounce by the financials and utilities than any change in trend.
After being pummeled last week, the financial stocks rallied on the “good” news that the crisis in Dubai wasn’t so as bad as they thought — only $26 billion instead of $50 or $60 billion. Well, you know the old Everett Dirksen adage, “A billion here, a billion there, and pretty soon you’re talking real money.”
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And it’s the “real money” that is troublesome — especially that money that has been lost since the top of the bull market in October 2007. And, yes, we have rallied 64% since March 2009, but that still leaves investors in the S&P 500 down more than 30% from that October high — and that is real money.
Most investors are still underwater by a huge amount — and many will never recover because they’ve given up on the market. The low volume is evidence of their absence.
I’ve commented on the declining volume, so S&P Chief Investment Strategist Sam Stovall’s recent comments on the subject are of interest. He has done a study of low- and high-volume periods in stocks, and the study suggests that high-volume periods usually lead to declining markets and low volume usually leads to advancing markets. His study of ETFs reached the same conclusion.
If that is the case, we must be headed for one heck of a rally, because volume has been “in the tank.”
This Sam hopes that Sam is on the money, and that there is billions and billions of real money to be gained in a rally that could kick off in January.
Today’s Trading Landscape
Earnings to be reported today: Beacon Roofing Supply, GigaMedia, Isle of Capri, Landauer, Staples, Universal Technical Institute, Thor Industries, Copart, Shanda Games and Shanda Interactive.
Economic reports due: motor vehicle sales (the consensus expects 7.75 million), ICSC-Goldman Sachs store sales, Redbook, ISM manufacturing index (the consensus expects 55), construction spending (the consensus expects -0.4%), and pending home sales.
Late news: President Obama will call for a limited surge in Afghanistan, according to the Wall Street Journal.
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