Market Report – December 12, 2011

In the Rear View Mirror: It won’t go down as the best week on record, or this year for that matter, for U.S. stocks, but news that European policymakers moved toward a stricter anti-deficit agreement fueled an impressive rally for riskier assets on Friday. That was enough to send the S&P 500 into the weekend with a Friday gain of almost 1.7% while the Dow Jones Industrial Average added nearly 190 points.

Really what the news out of Europe amounted to was plans to make another plan and who knows when that’s going to happen. That said, perception is reality in the financial markets and as long as news out of the Euro Zone is less bad, or even good, we’re likely to see the Santa Claus rally so many investors are hoping for. On a more positive note, there were a couple of good economic data points to take note of in the U.S.

The Markets @ 12/9/2011
Index Close Weekly % Change YTD Change YTD%
DJIA 12184.26 164.84 1.37% 606.75 5.24%
NASDAQ 2646.85 19.92 0.76% -6.02 -0.23%
S&P 500 1255.19 10.91 0.88% -2.45 -0.19%
NYSE Comp 7502.88 49.33 0.66% -461.14 -5.79%
NYSE Amex 2291.91 39.54 1.76% 83.53 3.78%
RUS 2000 745.4 10.38 1.41% -38.25 -4.88%
VANG INTL 13.75 -0.03 -0.22% -2.01 -12.75%
USX CHINA 4762.12 -91.59 -1.89% -1325.75 -21.78%


Market Report

The Dow, NASDAQ and S&P 500 closed up on Friday which moved all three back into positive territory for the week. The European saga continues to drive investor sentiment far beyond what seems to be rational. The volatility can work both ways and certainly will if this agreement hits a snag as we have seen in the recent past.

As we close in on the end of the year, two benchmarks are flashing YTD green numbers…the DJIA is +5.24% and the NYSE Amex is +3.78%. The NASDAQ and S&P 500 are close behind at -0.23% and -0.19% respectively. The NYSE Comp is the laggard of the big five that we follow at -5.79% YTD.

Gold gave back $34.20, closing at $1,712.80 on Friday; crude oil lost $1.55, closing at $99.41; the dollar moved in the other direction very slightly… +0.0002 or 0.7470 euros; the 10-year bond lost 0.250 to $99.438 and the 30-year bond was down 1.625 to $100.344.

Economic and Financial comments

On Thursday, investors were treated to news that weekly jobless claims fell by 23,000 to 381,000 last week, good for the lowest reading in nine months. Economists expected a reading of 395,000 new claims. On Friday, the Thomson Reuters/University of Michigan preliminary consumer confidence reading for December showed an increase to 67.7 from 64.1 in November.

Don’t get too wrapped up in that jobless claims number because a lot of the folks finding work are finding seasonal jobs tied to the holiday shopping rush and they’ll probably be out looking for jobs again in January. That said, every week the initial claims number resides below 400,000 is a good sign. It’s a pretty easy scenario to figure out: The more folks that are working means more of them will feel better about the economy, boosting consumer confidence and spending along the way, and that’s important since the consumer accounts for two-thirds of U.S. GDP.

The Bottom Line for Stocks

On a historical basis, the fourth quarter is prime time to be owning consumer discretionary and technology stocks. Should the NASDAQ retake its 200-day moving average at 2,670 this week, it would be reasonable to expect a tech-led rally into year-end. It’s also worth noting that retail stocks tend to perform best in the first quarter, so now might just be a good time to embrace names from that sector before those companies start delivering earnings results that include the holiday shopping season.

Of course, the major caveat to any bullish sentiment is Europe. Simply put, equities and any other risky asset will have limited upside if Europe struggles to piece together a legitimate deficit-cutting plan. Under that scenario, the only safe havens would be the U.S. dollar and dividend stocks for investors with long-term time horizons.

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Research and Editorial Staff
MicroCap MarkePlace