The broad market was slightly higher yesterday, with the S&P 500 setting a new two-year closing high and the Nasdaq setting a new three-year closing high. But the Dow Industrials were held back by a 3.4% decline in American Express Company (NYSE: AXP).
Stifel Financial Corp. (NYSE: SF) said that American Express is more exposed to the Fed’s increasing scrutiny of debit card issuers than its peers. But both Visa Inc. (NYSE: V) and MasterCard Incorporated (NYSE: MA) recovered some of last week’s losses. And financial stocks gained as bargain hunters chased sectors that have not performed this year.
In corporate news, 3M Company (NYSE: MMM) rose 1.1% on news that it is working on a succession plan for its CEO. The Boeing Company (NYSE: BA) fell 2.7% after Qatar Airways threatened to cancel orders for the 747 Dreamliner if there are any more delays. Jefferies Group, Inc. (NYSE: JEF) dropped 1.6% after preliminary fiscal Q4 profits fell sharply. AT&T Inc. (NYSE: T) was also hit following an announcement that it would purchase Qualcomm, Inc.’s (NASDAQ: QCOM) U.S. spectrum licenses. And Sara Lee Corp. (NYSE: SLE) closed higher by 2.4% following a breakdown in negotiations to be acquired by a Brazilian meat company.
In economic news, euro zone consumer confidence dropped unexpectedly in December due to continued debt problems. In Germany, producer prices gained in November with energy and consumer goods responsible for the increase.
Treasurys got off to a solid start on Monday, but it didn’t last, and the 10-year note closed flat at 3.336%. Volume was light and will probably continue to be below average this week since the bond markets will trade for only a half day Thursday and be closed on Friday.
The euro fell sharply on Monday as worries about some of the smaller European states continued to plague the currency. As of late Monday, the euro was at $1.3126 versus $1.3185 on Friday.
At the close, the Dow Jones Industrial Average fell 14 points to 11,478, the S&P 500 gained 3 points to 1,247, and the Nasdaq gained 7 points at 2,650. The NYSE traded 829 million shares with advancers slightly ahead of decliners. The Nasdaq traded 455 million shares with decliners slightly ahead.
What the Markets Are Saying
This report focuses mainly on the technical aspects of the markets versus so-called “fundamental analysis.” But I was struck by the success of some of the recent economic reports and want to pass them along. Of 18 economic reports last week, 11 beat expectations while just four were disappointments, according to Bespoke.
Jobless claims fell to their lowest level since August 2008. November retail sales beat forecasts, rising 0.8% month-over-month, and that’s against an upward adjustment of October’s sales from 1.2% to 1.7%. Consumer prices rose 0.1%, bringing inflation to 1.1% year-over-year, but the three-month annualized pace is accelerating at 1.8% driven by a 14.8% jump in energy prices and a 3.2% increase in commodities. Manufacturing is improving with November production up 0.4%, the highest in six years, according to the Philly Fed. Small business optimism was higher and the highest since October 2008, but employment in both the New York and Philadelphia areas were weak. November home starts increased 3.9%. And finally, the leading indicators had a 1.1% gain and a three-month annualized rate of 8.7%, which suggests that the economy is in fact getting better. (Editor’s note: The preceding numbers came from Choice Asset Management, a BB&T Corporation Affiliate.)
Well, that’s a lot of detail to swallow, but it does show that there is a fundamental reason for the stock market to be acting better. And, most important, a Bloomberg lead article this weekend titled, “Bears Turn Bulls as U.S. Gains from Roiling Markets,” says that the U.S. economy is accelerating amidst a “morass” in Europe, China and emerging countries who “struggle” to deal with inflation. Thus, many strategists are making the case for reallocating portfolio assets toward U.S. equities.
As for our stock market, despite all of the good economic news and the marginally new highs, the major indices have had a difficult time putting together a solid breakout. One analyst even described it as “flat lining,” but I’m not ready to go quite that far. In fact, the Nasdaq has been moving forward at a good pace. However, the Dow and S&P 500 are sluggish.
With just nine sessions remaining in this year and the holidays approaching, volume will likely dry up. But in periods of light volume, the markets are often subject to wild swings. This is great for traders but can shake investors’ confidence. If you are a long-term holder of high-quality stocks, you may want to read something other than just the financial papers until after Jan. 1. But if trading is your passion, stay tuned — Santa could bring some great presents.
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.
