The Santa Claus Rally is Alive & Well

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The equity markets continued to be in the holiday spirit this past week, as stocks celebrated the Christmas holidays along with some much needed good economic news.  Although the gains were somewhat muted and on light volume, stocks managed to keep its winning streak alive and finished at its highest close since September 19, 2008.  It marked the third-straight weekly win for the stock market, and it reinforced the fact that the Santa Claus Rally is still intact. And, it was definitely the way the bulls wanted to head into final two weeks of trading for 2010.

There actually was some positive economic news out there last week, as the posting of the Leading Index of Economic Indicators came in with a 1.1% rise this past Friday.  This is a forward-looking index and suggests that maybe, just maybe, things really are looking up for a change as to the overall economy.  In addition, there was the two year extension for the Bush-era tax cuts approved by Congress, which certainly is a plus for the current market psyche.  As the stock market always looks ahead, this extension should bode well for stocks, capital gains and dividends for another two years.  Either way, it’s apparent that the bulls are still in command of this market and with two more holiday-shortened, light-volume weeks, we could see more upside drifts.  The major investment institutions still have to sow that they have been along for the ride, so the bias should still be for higher highs as the clock runs out on 2010.

For the week, the Standard & Poor’s 500 Index added 3.51 points, or 0.28%, which was its highest close since the Lehman Brothers collapse.  The blue-chip Dow Jones Industrial Average bumped up by 81.59 points or 0.72%, its third straight week of gains.  The tech-heavy Nasdaq Composite also got into the act as it climbed by 0.21% on the week and notched its fourth week of gains.  In addition, the smaller-cap stocks, as represented by the Russell 2000 continued its tear as of late, as it finished out the week higher by 0.35%, the benchmark’s fifth consecutive weekly ‘bump.’

On a year-to-date basis, here is where the major indexes now stand with less than two weeks to go in the trading year:  Dow Jones Industrial Average, +10.20%;  S&P 500, +11.55%;  Nasdaq Composite, +16.47%;  Russell 2000, +24.64%.

When it came to interest rates, Treasury yields backed up early last week, and the dollar continued to strengthen.  The 10-year Treasury’s yield climbed to 3.568% last Thursday, the highest it’s been since May.  Fortunately, last Friday saw that yield drop to 3.328%.  Further in on the yield curve, the relative increases were even more dramatic; yields on the two- and five-year notes moved to 0.605% for the two-year and 1.948% for the five-year note. To the agnostic fixed-income investor, yields have moved toward their foretasted levels, which should mean that they have a lot less room to rise.  In addition, sentiment is now as negative as it was positive when yields were at their lows at the beginning of this year. Right now there is considerable debate on whether rates will continue to rise and how much strength the dollar actually has.  Both these issues are sure to be central to the stock market’s performance in 2011.

This will be a relatively light week in regards to economic news, although on Wednesday, we’ll get third quarter Gross Domestic Product readings, which should show an increase in the annual rate to 2.8%.  In addition, Wednesday also brings us November existing home sales which will in all probability show a seasonally adjusted annual pace of 4.75 million.  We close out the week on Thursday with tallies on November durable goods, November personal income, November consumption and November new home sales. All should show some type of market improvement.  On Friday, the U.S. markets are closed on Christmas Eve, in observance of Christmas.

With just eight full days of trading left in the year, all of us at Money Management Services, Inc. would like to take this opportunity to wish you and your family the best of holiday greetings, along with a big-spirited ‘Merry Christmas!’  To all a joyous and blessed holiday season!!




Sources:  Barron’s, The Wall Street Journal, CNN, The New York Times, The Financial Times,, The Kirk Report

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