Investors appeared to back off yesterday, perhaps to reflect on Fed Chairman Ben Bernanke’s warning that an economic recovery “may not be self-sustaining,” although he said he didn’t see a double-dip recession coming either.
When pressed further about the state of the economy and inflation, Mr. Bernanke said that he saw no inflation now and was 100% certain that he and the FOMC could deal with it if and when it became a problem. He also said that the Fed could possibly commit to more than the $600 billion of asset purchases previously announced.
Telecommunications stocks rose yesterday, helped by a 6.4% gain for Sprint Nextel Corporation (NYSE: S).
Financial stocks took a hit after a Nomura analyst said that some U.S. banks could be downgraded early next year after credit rating firms review banks following the implementation of new government regulations with less government support.
MetLife, Inc. (NYSE: MET) increased its outlook and the stock rose over 10%, but it wasn’t enough to offset other losses in the sector. And Cisco Systems, Inc. (NASDAQ: CSCO) rose 1.9% following an upgrade by Oppenheimer Holdings Inc. (NYSE: OPY) to “outperform” from “perform.”
The U.S. dollar rose against the euro yesterday, as concerns of further problems in the euro zone rose. The euro was quoted at $1.3321, down from $1.3411 on Friday. Treasurys rose, which brought the 10-year note’s yield to 2.944%.
At the close, the Dow Jones Industrial Average fell 20 points to 11,362, the S&P 500 lost 2 points at 1,223, and the Nasdaq rose 3 points at 2,595. The NYSE traded 804 million shares with advancers and decliners at a stalemate. The Nasdaq exchanged 423 million shares with advancers ahead by 1.3-to-1.
Crude oil for January delivery rose 19 cents to $89.38 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) gained 22 cents at $66.04. Gold hit another new high with the December contract settling at $1,421.20 an ounce, up $5.90. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 3.49 points to 228.76.
What the Markets Are Saying
Last week’s test of the support at S&P 500 1,174 and its reversal from the 50-day moving average should put a smile on the bulls’ faces. But until the major indices are able to penetrate to new highs at Dow 11,451 and S&P 1,227, the picture is not perfect. The Nasdaq resolved its problem yesterday by setting a new high at 2,595, which confirms its long-term uptrend.
Today we may see an early move to new highs due to the agreement by President Obama and Republicans to extend the Bush-era tax cuts for two years, along with an extension of unemployment benefits and a 2% cut in payroll taxes. But this situation has been hanging over the market for some time, so an early rally could conceivably turn down this afternoon — you know, the old “buy the rumor, sell the news” thing.
Were that to happen, traders should concentrate on the next support levels for downside targets. For each index, the immediate support is at the indices’ 20-day moving averages:
- Dow 11,206
- S&P 500 1,200
- Nasdaq 2,536
We’ll consider upside targets when the Dow and S&P hit new highs. For now, the most positive technical development would be for stocks to rally on a convincing rush of high volume.
For one solid stock to buy, see the Trade of the Day.
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.
