Markets Digest Economic News
Heading into the Thanksgiving holiday Wednesday's session began with investors selling the positive economic news before traders bought the dip midday and drove stocks into the green by the close. The early morning weakness was probably a matter of digesting the news of which there was plenty to go around. The buffet of reports was mostly positive and reaffirmed that the world's largest economy is indeed on the rebound. Since many believe the autumn market's gains were in anticipation of the news the actual announcements left little incentive to push stocks higher. As Art Cashin likes to say, the numbers were already baked in.
World markets were mixed with Asian exchanges trading higher. The Japanese NIKKEI jumped 184 points to 10,144, reclaiming the 10K mark. European stocks were generally lower but losses were mild. The U.S. dollar ended the day weaker against the yen and the euro. This in turn helped push gold up to $402 an ounce intraday but gold futures closed the session at $398, up $5.60. The DJIA stretched its winning streak to three day in a row by adding more than 15 points to close at 9779. The NASDAQ Composite added 10 points closing at 1953. The S&P 500 index marked its fourth gain in a row edging up less than five points to 1058.
The market's strength today was relatively broad based. Homebuilders, retail, airlines, drugs and transports were the weakest, all closing in the red but losses were mild. The best performers were gold stocks (XAU +2.9%) followed by software, networking, broker-dealers and oil service stocks. Market internals were positive for such a low volume day. Advancing stocks climbed past decliners 18 to 9 on the NYSE and 17 to 13 on the NASDAQ. Up volume was two to three times down volume on both exchanges.
Chart of the DJIA
Chart of the NASDAQ
One of the most influential economic reports out today was the Chicago Purchasing Managers Index (PMI). The November figures hit a 9-year high at 64.1 percent. Estimates had been for a slight improvement to 56.3 percent from October's 55.0 percent. Numbers over 50 represent improvement in business conditions. One of the most compelling ingredients in the PMI was the new orders component, which jumped to 73.3 in November from 59.2 in October. The factory sector in this country has been lagging for years and we're finally seeing some month over month improvements. Unfortunately, we're not seeing factories up their hiring practices just yet as the employment component slipped from 53.1 to 48.5 percent.
Investors were also treated to some strong consumer sentiment numbers per the University of Michigan report. The consumer sentiment index hit 93.7 in November up from 89.6 in October. This was the highest level since May 2002. Those surveyed felt optimistic as the current conditions component edged up to 102.5 in November up from 99 in October. The expectations component also made gains with November hitting 88.1 compared to 83.0 in October.
The Durable Goods report was very bullish as well. The consumer has been carrying our economy but we're finally beginning to see signs that business will open their wallets soon. The Commerce Department said orders for durable goods, those made to last more than three years, rose 3.3 percent in October. This is great news but it gets sweeter when you also figure that September's numbers were revised higher to a 2.1 percent gain. October was the fastest pace in more than a year with the past six months soaring almost 10 percent. Wall Street focused on the core capital goods orders, which many view as a business spending forecast. The core capital goods orders rose 1.7 percent on top of September's 5.8 percent. It's about time corporations started spending some money because consumer spending was flat in October. Personal spending numbers were down 0.6 percent in September and remained unchanged in October despite a 0.4 percent increase in personal income. If you're a glass is half full type of person then the personal spending figures might show consumers taking a breather after a strong summer and now they're rested and ready for this holiday shopping season.
Speaking of holiday spending the Federal Reserve released their Beige Book report and the authors seemed rather optimistic for this year's holiday retail sales. The Beige Book said the economy has continued to expand in October and early November (no surprise there) and that manufacturing was improving. While the authors were disappointed that factory hiring had not picked up they did feel that labor conditions were generally stable or improving nationwide. We see the same improving labor conditions in this morning's initial jobless claims. The Labor Department said jobless claims dropped another 11,000 to 351,000. This was the lowest level in jobless claims sine George W. Bush took office.
The improving labor conditions will also be a boon for the already hot housing market. The October new home sales report was out this morning and sales slipped 3.5 percent to an annual rate of 1.105 million homes. Analysts were not concerned as October's sales still ranked as the fifth highest on record. Plus the Mortgage Bankers Association said mortgage applications grew for the second week in a row.
Hardly a day goes by that we don't hear some new development in the ongoing mutual fund scandal. Today's news was a surprise as Bank One (ONE) reported late in the trading day that it expects the SEC to take enforcement action against the bank's mutual fund advisor. ONE is the country's sixth largest bank and hopes to reach a settlement with the SEC without litigation.
All U.S. markets will be closed tomorrow for the Thanksgiving holiday. Friday will be a shortened trading day with both the bond market and the stock markets closing early. The commodities market will reopen on Monday. It could be a rather quiet session with no economic reports and probably very little volume as most major market players will be absent. Fortunately, the markets have a very strong historical trend of gaining on the Friday after Thanksgiving. I would not be surprised to see the VXO (old VIX) volatility index hit yet another new low as the afternoon bounce from today continues over into Friday.
Personally, I want to say thank you to all of our readers. I encourage all of you to take time on Thursday to truly appreciate our freedoms we have in this country. If you are blessed enough to have family close by then give them a hug and let them know what you're thankful for. If not, then there is always the phone. I'm sure they'd be happy to hear from you. My heart also goes out to all of our brave men and women serving overseas no matter where you are. For those of you who have come home wounded, you have my utmost respect.