What a better way to start the new month of December, as stocks started out the new month with a 3.7% three-day pop that already has some breathlessly hailing December as the new January, and which also wiped out November’s 0.2% decline. And while this past Friday’s employment report disappointed sharply, the bulls were definitely in charge of spin control. The report was either seen as out of sync with other data or is believed to lead to more quantitative easing and fiscal stimulus. Stocks posted notable gains each of the last three trading days, and it was impressive to see the stock market close out the week with a winning day that put the major indexes at or near their two-year highs.
On the week the Dow Jones Industrial Average tacked on 291 points, or 2.6% to finish out the week at a level of 11,382. The broader Standard & Poor’s 500 gained 35 points, or 3%, to a mark of 1,225 and is just one point from reclaiming its 2010 high. Meanwhile the Nasdaq Composite Index added on 57 points, or 2.2%, to 2,591, while the smaller-cap stocks as represented by the Russell 2000 rolled up its fourth gain five week as it closed out the week with a 3.2% gain.
For November, equities were mixed but mostly down. The Dow was down 1.0 percent; the S&P 500, down 0.2 percent; and the Nasdaq, down 0.4 percent. The Russell 2000, however, gained 3.4 percent. On a year-to-date basis, major indexes are up as follows: the Dow, up 9.1 percent; the S&P 500, up 9.8 percent; the Nasdaq, up 14.2 percent; and the Russell 2000, up 21.0 percent.
It wasn’t all good news last week, as we’ve already reported that the jobs report continued to be miserable. The United States added a total of just 39,000 jobs last month, down from an upwardly revised gain of 172,000 in October, the Labor Department reported this past Friday. With local governments shedding jobs, the additions in the private sector were too small to reduce the ranks of the unemployed or even to keep pace with people entering the work force. The unemployment rate, which is based on a separate survey of households, rose to 9.8 percent in November. It was the highest jobless rate since April and up from 9.6 percent in October.
The outlook remains bleak. More than 15 million people are out of work, among them 6.3 million who have been jobless for six months or longer. Many are about to exhaust their unemployment benefits, which have been extended repeatedly by the government because of the severity of the downturn. The latest snapshot of the labor market cast a pall over what had been a brightening picture of a steadying economy. In recent weeks, the average number of people applying for unemployment benefits has generally declined. Pending home sales topped forecasts in October, while last month retail sales posted one of the biggest increases in years. With respect to the Treasury market, yields moved higher in reaction to mostly positive economic news throughout the week, with the obvious exception of last Friday’s disappointingly weak November employment report. The 10-year note’s yield moved back above 3% for the first time since July, ending the week at a yield of 3.015%. On the longer end of the maturity curve, the 30-year bond’s yield rose to 4.322% from 4.205%. However, on the short end, the two-year note yield slipped below 0.5%, to 0.476% from 0.515%, reflecting greater confidence that the Fed will continue its aggressive monetary stimulus package. In addition, to add insult to injury, bond funds had their third straight week of outflows – the first time that’s happened since December of 2008.
There’s scant earnings and data on the docket for this week. With little else to occupy the minds of those in markets, we expect the focus may swing back to the eurozone situation, especially with a vote due on the Irish austerity budget on Tuesday. A handful of apparel and retail companies–including Talbots Inc., Men’s Wearhouse Inc. and Oxford Industries Inc. –are expected to report their latest quarterly results this week. Analysts polled by Thomson Reuters projected a mixed performance from the trio, with top- and bottom-line growth only expected from Men’s Wearhouse, which operates stores for men in the U.S. and Canada. Meanwhile, tax-service providers H&R Block Inc. and Jackson Hewitt Tax Service Inc. are scheduled to report results on Tuesday and Friday, respectively. Wall Street analysts expected H&R to report slightly better results, while Jackson Hewitt’s fiscal second-quarter loss is seen widening. Other companies expected to report their latest earnings this week include auto-parts retailer AutoZone Inc. on Tuesday and gun maker Smith & Wesson Holding Corp. on Wednesday.
About the only major economic data point is that of the preliminary University of Michigan Consumer Sentiment Index, which is expected to show an increase in December to 72.2 from the final reading of 71.6 in November, according to a Briefing.com consensus. The index grew in the prior month due to the performance of the equity market and better employment numbers. U.S. stocks capped their best two-day performance since July this week as better-than-expected retail and home sales encouraged investors.
Finally, Federal Reserve Chairman Ben Bernanke will appear on CBS’s “60 Minutes” show this Sunday, where he is expected to discuss the unemployment rate, the growing deficit and the Fed’s decision to purchase $600 billion in U.S. Treasures in an effort to boost our weak economy. Should make for an interesting show!
Sources: Barron’s, The Wall Street Journal, CNN, The New York Times, The Financial Times, Briefing.com, The Kirk Report