After The Close - Stocks meandered about in directionless trading for the better part of this final Friday of 2013, as the equity market geared up to commence trading over the final two days of the old year with many records having been recorded over the past 12 months. In fact, going into today's session, the Dow Jones Industrial had scored an even 50 records on the year. Moreover, Thursday's solid gain brought the sixth straight uptick for that blue chip composite, and as many record highs in a row for that old-line index.
Not only have records been set on a number of indexes, but the gains have been staggering. To wit, the Dow is up almost 26% for the year; the Standard and Poor's 500 Index is better by some 29%; and the NASDAQ, which remains almost a thousand points below its all-time peak, which was set during the ballyhoo days of the dot com mania, is up just about 38% on the year. Clearly, 2013 will be a tough act to follow.
But such heroics were not to be found during this week-ending session, although there was little if any damage done either, as few of the indexes veered very far from an unchanged reading, after some further initial gains on the day. All told, the Dow eased by a mere one and a half points; the S&P 500 Index fell by less than a point; and the NASDAQ pulled back by 11 points. In the smaller-cap sector, the Russell 2000 Composite, under modest pressure throughout, gave back two points.
Among various groups, there was some profit taking among a few high-profile tech names, while there was further bargain hunting in a number of basic materials issues. This latter group, which includes the aluminums, steels, coals, and some diversified metals providers, had been among the year's bigger casualties earlier in 2013. Lately, however, we have seen nice bounces in the group, as investors look for areas that offer underlining value, as opposed to just chasing momentum stocks that are overextended in many cases.
Of course, after such a year, the stock market does look selectively rich. However, when considering the market multiple, which is just a little over 18, and given the low inflation backdrop, which tends to allow stocks to retain more of a premium price-earnings ratio, the equity market, albeit not inexpensive, is not really overvalued either, but probably in the range of fairly valued, which should lend some support to stocks going forward into a new year.
Nevertheless, 2013 will be a tough act to follow. Indeed, we could see some profit taking early in the new year, if money managers, sensing the need to take some money off the table after the excitement of the year just ending, opt to do serious short-term selling. But many pundits have warned of an upcoming lessening in long positions before only to be surprised by additional moves to the upside. And it could happen again, as momentum is hard to change. In fact, as history teaches, it is hard to fight the tape.
Meanwhile, after today's listless end to a higher week, we will be looking ahead to a succession of key data releases in the coming holiday-shortened week. Specifically, Monday will see the release of the S&P/Case-Shiller Home Price Index for October. A gain of better than 13% is the consensus forecast, as real estate prices continue to advance along a broad front. That metric will be followed on Tuesday by the Conference Board's December reading on consumer confidence, where a strong gain is the expectation. Then following the New Year's break, Thursday will bring reports on construction spending for November, where a modest increase is the forecast. That same day also will see the issuance of monthly data on manufacturing activity and weekly results on initial jobless claims. The week will then conclude with the monthly report on motor vehicle sales on Friday.
Such key metrics, year-end portfolio adjustments, and the return from vacation of traders and managers should lead to a somewhat stepped-up pattern of trading and some additional cross currents, as investors and institutions try to better balance their books following a truly super year for those long equities. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
12:15 PM EST - Stocks are flat to modestly lower today after the market’s record-breaking run appears to have exhausted the bulls. Right around the noon hour on the East Coast, the Dow Jones Industrial Average is up a couple of points, but the NASDAQ is off eight points. Market breadth is equally unimpressive, with the number of declining issues outpacing those advancing, but it is hardly a landslide for the bears.
Trading commenced this morning with analysts and commentators alike extremely impressed with the gains stocks have posted this year, with the latest leg up being perhaps the most eye-catching. After all, years where the Dow posts an annual gain of more than 25% don’t come around that often.
But sooner or later, some profit-taking is bound to occur, and today seems to include a light dose of traders locking in such gains. That is certainly the case with this year’s star IPO, Twitter (TWTR). Hit with an analyst downgrade and in the spotlight following a spectacular climb, the stock of the social media company has backed off a bit. Although Twitter has yet to post financial results as a publicly traded company, investors had pushed the shares ever higher, at least until today’s reality check. Still, momentum is part of the stock market’s attraction, even if it is not at all clear if Twitter will make a good long-term holding.
Elsewhere, shares of United Parcel Service (UPS) are holding up well after the company took a lot of heat for not getting deliveries to customers promptly by Christmas. But too much business is not a bad problem to have.
Meantime, oil prices have pushed over $100 a barrel in New York trading as a result of problems in overseas producing countries, notably South Sudan, Libya, and Nigeria. That has led to a moderate rise in gasoline prices stateside over the yearend holiday travel season.
Fortunately, rising domestic oil production is keeping prices from getting out of hand. There is a good story to tell in this regard. Monthly crude oil production in the United States is projected to surpass eight million barrels a day for the first time since 1988, and top the level of imported oil for the first time since 1995.
Oil quotations would be even higher without extra oil being pumped from fields in Texas, which recently set a state record for oil production, and North Dakota. And stock prices might not be enjoying the free rein they have had of late without the surge in domestic oil production. At the company level, EOG Resources (EOG) could become the nation’s largest oil producer in several years time. - Robert Mitkowski
At the time this article was written, the author did not have a position in any of the companies mentioned.
Stocks to Watch from The Survey – Corporate news is fairly light this morning, as we wrap up a holiday-shortened trading week. However, there are some developments to be aware of. Notably, diversified manufacturer Textron (TXT) has inked a deal to acquire aircraft company Beechcraft. TXT stock is down modestly ahead of the bell, as a result. Elsewhere, automaker General Motors (GM), along with its China-based partner SAIC Motor Corp., have announced plans to recall approximately 1.5 million Buick and Chevrolet vehicles in that nation. Consequently, shares of GM are indicating a slightly lower opening this morning. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The bulls came back to Wall Street yesterday, following what we can only assume was a joyous Christmas for these stock market optimists. What's more, they continued with their holiday cheer, as they helped stocks to additional broad gains over the course of the latest trading session. If there was any doubt about the viability of the Santa Claus rally, it was again dispelled by the most recent market activity.
That was especially so for the blue chips, as the Dow Jones Industrial Average, no stranger to record closes, climbed to its 50th such all-time peak this year, gaining an outsized 122 points. The other averages also gained on the day, but not as impressively, with the Standard and Poor's 500 Index up by a more modest nine points (its 44th record this year), and the tech-laden NASDAQ winding up 12 points to the good. The small- and mid-cap indexes did not participate to any degree in the festivities, however, after these averages had led the charge for much of the year.
Helping Wall Street to extend its gains was, in part, continuing momentum. Extended rallies, just as long-lived bear markets, are often difficult to bring to a conclusion, and that is the case right now. The bulls also benefited yesterday, and have for the past few weeks, from a succession of better-than-expected economic releases. To wit, the day before Christmas saw a strong gain in orders for durable goods and decent data on sales of new homes. And yesterday, the Labor Department reported a sharper-than-forecast drop in initial jobless claims for the latest week. Finally, the calendar lent some help, as returns are often positive during the period from just before Christmas until New Year's Eve. This year is certainly living up to its reputation, at least so far.
Meanwhile, it wasn't just the equity market that saw buying. Gold, a notable laggard in 2013, continued to make slow progress after the precious metal had fallen below $1,200 an ounce on Tuesday. Gold's latest gain, while not dramatic, at least stopped the metal's free fall. Some of the beaten down gold stocks gained a bit on this nominal comeback. Also, oil moved higher, rising toward $100 a barrel. That gain helped the energy stocks perform well. On the other hand, the good economic news is not doing much for bonds, as the yield on the benchmark 10-year Treasury note briefly hit 3.00% yesterday, closing out the session at 2.99%. The yield on the companion 30-year Treasury bond also tracked higher, climbing to 3.92%. That return is just marginally below the peak of 3.98% recorded earlier this year.
Pushing yields higher and bond prices lower is the combination of the recently implemented monetary tapering by the Federal Reserve and the succession of better economic metrics being issued in recent weeks. Rates, which have been historically low for years, and are restraining the incomes of those dependent on such vehicles, are not yet serious competition for stocks, but we believe that they are not that far from becoming a bit more tempting for income-seeking investors.
As to individual stock groups, as noted, the blue chips outperformed, with increases being tallied across some of the Dow stocks nearing 52-week highs, as well as those that have underperformed for the year to date. Thus, on a day that saw Boeing (BA - Free Boeing Stock Report), the Dow's biggest winner to date, gain nicely, we also saw a good advance in IBM (IBM - Free IBM Stock Report), the blue chip composite's weakest 2013 component.
Now, the $64 question is just where do we go from here? Our sense is that the next test will come in 2014 when the end-of-year euphoria has run its course and portfolio managers are going to want to position themselves for the next 12 months. In the bulls' favor, we believe, is powerful momentum, a still-cooperative Federal Reserve, and a strengthening economy. In the bears' favor, are extended valuations and a decidedly frothier market. We shall soon see who will have the upper hand in the new year.
Now, a new day dawns, and the markets are also celebrating overseas, with gains in a majority of indexes, although the Nikkei 225 retreated somewhat on the report of higher-than-expected consumer price inflation. And on our shores, in a light news day, the futures are pointing to another, but just modestly, higher opening in about an hour from now. We'll see where we go from there. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.