Stocks started off the year yesterday with an enthusiastic rally that drove the major indices to new highs and the biggest gain in more than a month.
Financial stocks were the best stock picks and led the rally with a gain of 2.3% with Bank of America (NYSE: BAC) climbing 6.4%. The financial giant said that it will take a provision of about $3 billion in Q4 to buy back loans from Freddie Mac and Fannie Mae that had been issued by Countrywide Financial.
Alcoa Inc. (NYSE: AA) and The Boeing Company (NYSE: BA) also pushed the Dow industrials ahead with Alcoa gaining 2.7% and BA up 1.8%. Both stocks rose as a result of upgrades from Wall Street analysts.
In corporate news, Barnes & Noble (NYSE: BKS) jumped 9% after saying that its preliminary holiday same-store sales rose 9.7%. The Clorox Company (NYSE: CLX) was hit with a 2.7% decline due to weaker sales of household products that caused fiscal Q2 earnings to fall below analysts’ estimates.
In economic news, construction spending for November increased by 0.4%, which was above the consensus of a 0.2% increase, and the third consecutive monthly increase. The ISM manufacturing index for December improved to 57 from 56.6.
Treasury yields rose to 3.3344% on the benchmark 10-year note, a continuation of a rise in rates that began in October. The euro fell to $1.3351 versus $1.3370 on Friday.
At the close, the Dow Jones Industrial Average rose 93 points to 11,671, the S&P 500 gained 14 points at 1,272, and the Nasdaq jumped 39 points to 2,692. The NYSE traded less than 1.2 billion shares with advancers over decliners by 2.8-to-1. The Nasdaq crossed 502 million shares with advancers there ahead by over 3-to-1.
Crude oil for delivery in February rose 17 cents to $91.55 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) closed at $68.76, up 3 cents. February gold fell $6.80 to $1,416.10 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 223.75, down 2.83 points.
What the Markets Are Saying
Yesterday’s trading opened with a bang, up about 90 Dow points in three minutes, while the remainder of the day was spent supporting the opening move and adding about 40 more points, which eroded by reason of profit-taking on the close. But it was a wonderful, if not expected, opening for the new year.
Birinyi Associates, via The Wall Street Journal, reminded us of the worn-out phrase, “So goes January, so goes the year.” Birinyi pointed out that in the past 82 years, when the S&P 500 rose on the first day of the year, it has averaged a gain of 10.6% for that year. And if stocks climbed for the month, the S&P 500 rose for the year 73% of the time, according to S&P.
But it is the exception that catches us all. Last year, the S&P 500 fell in January, following a strong start, and the index gained 12.6%. The bottom line is that January really has little bearing on the year since the S&P 500 has risen about 70% of the time on a year-to-year basis regardless of January’s performance, according to iStockAnalyst.com.
On Dec. 28, I proposed the near-term indices’ targets:
- Dow 11,785
- S&P 500 1,278
- Nasdaq 2,700 to 2,710
Yesterday’s close puts the Dow just 115 points from the near-term target, while the S&P 500 is a mere 6 points from its goal, and Nasdaq is only 8 points from the bottom of its targeted range. Yesterday’s powerful beginning with a new continuation gap from the Nasdaq may run the indices somewhat above projections before we see a meaningful correction.
One of the pleasant surprises of the current strength is the rotation of sector leadership. And one of the most unexpected leaders of the advance is the financial sector. The performance of the Financial Select Sector SPDR ETF (NYSE: XLF) since the double-bottom in late August has been spectacular, up 22.6%. And yesterday that sector led all others with a gain of 2.3%. For these reasons, our Trade of the Day is one of the Financial sector ETFs.
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.
