Tis the Season to be Jolly

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It’s definitely that time of the year to be ‘jolly’ given the holiday season and all, and the equity markets have certainly cooperated thus far in 2010.  With just five trading days left in the year, stocks are on track to have their best December since 1987.  And who would have ever guessed at the beginning of the year that we would be experiencing all the broad market indexes with double-digit gains?  Throwing in the extension of the Bush administration’s tax cuts only adds to the holiday cheer as of late.

As the markets were closed this past Friday for Christmas Eve, the Dow Jones Industrial Average still managed to end the holiday-shortened week higher by 82 points, or 0.71%.  The Dow now stands at a level of 11,53 – its highest finish since August of 2008, and had its fourth straight weekly advance.  The Standard & Poor’s 500 also rose by 1%, or 13 points and now rests at the 1,257 mark.  Meanwhile, the Nasdaq Composite Index increased by 23 points or 0.9%, adding to its advances for the month.  The stocks in the Russell 2000 were also not to be denied, as this index of smaller-cap stocks rose by 1.2%, to 789.

With just a week left in December, the Dow is now up 5.2% for the month, while the S&P 500 is up 6.5% and the Nasdaq is higher by 6.7%.  Before this past Thursday, the S&P 500 had rallied in 14 out of the 16 trading session so far this month.  This would logically seem to claim that stock prices are due for a retraction or some consolidation at best, but it’s hard to expect any major pullback as long as long-term interest rates stay steady.  In addition, last week was the first time in a long while that investors pulled more money from bond funds than from stock funds.  This could potentially drive stock prices even higher if consumer and business confidence continues to mend as well. And let’s not forget Barron’s latest ‘Outlook Poll’ which has all ten of the strategists surveyed, predicting the S&P 500 will go higher in a range of +7% to +17% in the new year.  This is predicated on the fact that consumers will soon begin to relax their stranglehold on squirreled-away cash.  Throw in improving corporate profits, higher consumer sentiment, and it could be the beginning of a sustainable economy recovery.  And that fact might just lead to us to back-to-back equity market tallies.

As far as Treasuries go, 2010 will obviously be remembered as the year of low yields.  Not surprisingly, most pundits had foretasted that rates would rise throughout the year.  Ironically, the 10-year yield was at 3.381% this past Thursday and had fallen as low as 2.332% earlier in the year.  Thanks to the Federal Reserve launching a second large-scale bond-buying program, yields plunged much more than most market participants had anticipated.  However, it’s our contention here at Money Management Services, Inc., that we’ll soon begin to see Treasury prices start to fall, and hence their subsequent yields to rise.

This week is almost guaranteed to be a ‘quiet’ week as far as trading and economic information is concerned.  About the only economic news of significance will be Tuesday’s release of December consumer confidence and the December Chicago Purchasing Manager’s Index on Thursday.  As we head into the New Year, we should see consumer confidence inch up a tad, while Barclays sees the purchasing managers index edging lower to 60.0 from 62.5 the previous month.

That being said, all of us here at Money Management Services, Inc., wish each and every one of you a wonderful holiday season.  Best wishes for a happy, healthy, and prosperous New Year!  We look forward to working with you again in 2011!

 

Sources:  Barron’s, Wall Street Journal, Reuters, Associated Press, SmartMoney & Bloomberg

 

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