Some late profit-taking and tax selling reduced yesterday’s early gains, but the Dow Jones Industrial Average, S&P 500 and NYSE Composite still managed to hit new multi-year highs.

Energy stocks again led the early rally and held their own throughout the day and into the close, gaining 0.8%. Halliburton Company (NYSE: HAL) was up 2.7%, Schlumberger Limited (NYSE: SLB) gained 1.7%, and Apache Corporation (NYSE: APA) was up 1%. Noble Energy, Inc. (NYSE: NBL) confirmed that its Leviathan gas reserve off the coast of Israel is the largest energy discovery in that country, and the stock rose 2.18% on the news.

Energy wasn’t the only strong play yesterday. The fertilizer and agricultural group rose with Potash Corporation of Saskatchewan (NYSE: POT) up 4.7%, The Mosaic Company (NYSE: MOS) gaining 4.2%, and Agrium Inc. (NYSE: AGU) rising 4%. And Sears Holdings Corporation (NASDAQ: SHLD) rose 6.4% due to promotions of its movie download deal. 

Treasurys rose yesterday, knocking the yield on the 10-year note down to 3.343%. The U.S. dollar fell 2.4% versus a basket of currencies, and the euro rose to $1.3225, up from $1.3119.

At the close, the Dow rose 10 points to 11,585, the S&P 500 gained 1 point to 1,260, and the Nasdaq added 4 points at 2,667. The NYSE traded 648 million shares with advancers over decliners by almost 2-to-1. The Nasdaq crossed 469 million shares with advancers ahead by 1.2-to-1.

Crude oil for delivery in February rose 17 cents to $91.29 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) gained 25 cents, closing at $67.42. Gold made new highs again with the metal at $1,410 an ounce in London late yesterday, up almost 30% for the year. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 225.67, up 0.78 points.

What the Markets Are Saying

Despite the lack of volume, it is clear that there are certain sector trends that are continuing to make big runs late in the year — precious metals, energy, agricultural commodities, to name a few. These trends will most likely continue into the new year. But stocks, even powerful ones in precious metals, don’t move in a straight line. And if “past is prologue,” then we can almost count on some profit-taking in January.

But stocks should rise for at least a week or so after we enter the new year as a result of pension plans, 401(k) contributions, new IRA money, etc., that automatically push stocks along. Following that initial thrust, I wouldn’t be surprised to see the Fed raise rates by a small amount in response to the Chinese interest rate hike last week. And if that were to occur, the current rally could hit a brick wall.

With the economy growing at a slightly higher pace, there is little doubt that an inflation-sensitive Fed, who nevertheless keeps printing money at a record rate, must eventually raise rates, and my guess is that this will happen earlier rather than later in the year. So, with a yield curve that will likely steepen (long-term bond rates rising faster than short-term rates), bond prices will fall.

We’ve already seen a lot of downside pressure on bonds and especially on bond funds. How does a bond holder protect against this inevitable decline in bond prices?

Our Trade of the Day has an answer to this dilemma. As always, there is something for everyone in the stock market, and retirees and bond holders need not lose sleep if they can hedge their income-producing investments with sensible alternatives rather than relying on stocks to continue to offset their bond losses. 

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.