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Market Wrap

Ho Ho Ho...Hello December

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     12-01-2003            High     Low     Volume Advance/Decline
DJIA     9899.05 +116.59  9902.23  9785.35 1.65 bln   2168/ 694
NASDAQ   1989.82 + 29.56  1989.82  1968.54 1.80 bln   2041/1086
S&P 100   526.60 +  5.86   526.97   520.74   Totals   4209/1780
S&P 500  1070.12 + 11.92  1070.47  1058.20
RUS 2000  554.59 +  8.08   554.64   546.51
DJ TRANS 2961.58 + 40.35  2961.93  2922.40
VIX        16.77 +  0.45    17.03    16.77
VXO        15.97 -  0.74    16.66    15.71
VXN        26.29 +  0.66    26.63    25.97
Total Volume 3,835M
Total UpVol  2,878M
Total DnVol    849M
52wk Highs    1250
52wk Lows       17
TRIN          0.62
PUT/CALL      0.71

Ho Ho Ho...Hello December
By James Brown

Bulls showed up on Wall Street rested and ready after the long Thanksgiving weekend. Early reports for a strong opening to the holiday shopping season had investors in a buying mood. News that the ISM numbers hit 20-year highs merely fanned the flames. The NASDAQ hit a new 22-month high while the DJIA and the S&P 500 hit new 18-month highs.

U.S. stocks weren't the only ones in the green. The Japanese NIKKEI average jumped 3 percent or 302 points to close at 10,403. The Hong Kong Hang Seng followed with a 139-point rise to 12,456. European stocks fared almost as well with a 1.55% rise in the British FTSE 100 and a 2.01% jump in the German DAX. A Reuters manufacturing survey in Europe also reported improvement suggesting the recovery could be spreading from the U.S. to other nations.

The 116-point gain for the Dow Jones Industrial Average (DJIA) placed the index just under the 9900 level. A strong showing in technology stocks pushed the NASDAQ to an arm's length away from the 2000 level at 1989. The S&P 500 actually hit new intraday highs and broke out over the 1060-1063 region to close at 1070. Monday's rally was very broad-based with not one sector index closing in the red. Out performing to the upside was the BTK biotech sector, which rose 4.25%. The move was fueled by news that Protein Design Labs (PDLI) had settled a patent dispute with Genenetech (DNA). This sent shares of PDLI soaring 22.79% to $17.02. The DJUSHB home construction index was the next best performer, up 2.51%. Homebuilders enjoyed a strong day after the strong construction numbers came out this morning. The third best sector index today was the XAU gold & silver index, up 2.32%. Gold stocks rose strongly as inflation concerns and the dollar's decline pushed gold futures to a 7-year high up $5.80 to $403.80 an ounce.

Market internals were very bullish with the NYSE reporting 21 stocks gaining for every 7 losers. The NASDAQ's advance/decline ratio was also a bullish 2:1. New highs soared to 889 between the two exchanges compared to just 16 new lows. Up volume was more than 4 times down volume on the NYSE and 2.6 times down volume on the NASDAQ. Total volume was a decent 3.4 billion for both the NYSE and NASDAQ.

Chart of the DJIA:

Chart of the NASDAQ

Chart of the S&P 500

According to ShopperTrak the holiday shopping season is off to a good start. Store parking lots were full and consumers were in a spending mood. Retail sales for "Black Friday", the day after Thanksgiving, were up 4.8 percent to $7.2 billion. ShopperTrak, who combines Commerce Department data with its network of 30,000 store traffic monitors, was upbeat for the 2003-shopping season. Friday's 4.8% gain is pretty strong considering that it is being compared to last year's Black Friday, which was up 6.8% from 2001.

Retail titan Wal-Mart issued its own Black Friday numbers and they were staggering. The retailer sold $1.52 billion in merchandise on Friday alone. That means $1 out of every $5 spent on Friday ended up at WMT. The $1.52 billion number is a new one-day sales record for WMT but the stock ended the day down 2% as the biggest decliner in the DJIA and the heaviest drag on the S&P 500. A couple of analysts were concerned that WMT's results weren't stronger. The year over year 6% gain looks good but WMT had increased its square footage by 7 to 8 percent so expectations had been set pretty high.

Overall the initial sales data was encouraging not only for its gains but because consumers appeared to be moving beyond discount items. Higher-end stores showed improvement and that's a great vote of confidence by the consumer. Unfortunately, it may be a facade. Visa USA reported that sales using Visa credit and debit cards for the Friday and Saturday after Thanksgiving soared 12% from last year to more than $6.5 billion.

The biggest event today was the November factory activity index numbers by the Institute for Supply Management. Economists had been looking for an increase from 57 percent in October to 57.9 percent in November. What we got was a jump to 62.8 percent in November, making it the best month since December of 1983. Readings over 50 are signs of improvement and expansion while readings under 50 are read as declines and a contracting economy. The new orders component also hit a 20-year high rising to 73.7 percent in November from 64.3 percent in October. The ISM backlog of orders component rose to 59 percent up from 53.5 percent in October. The ISM production component rose to 68.3 percent from 62.6. One of the most encouraging increases was the 3.3 percent jump in the ISM employment index. This component jumped from a negative 47.7 percent in October to a 51 percent reading in November. It was the first time factories had hired new workers since September of 2000 and it bodes well for this Friday's employment report. The Institute said November was the fifth consecutive month of growth for the manufacturing sector and the 25th consecutive month of growth for the overall economy. You can read their report here:

Overshadowed by the ISM report was a positive construction spending number from the Commerce Department. Economists had been looking for a rise of 0.7 percent growth and the report surprised with a 0.9 percent increase. This set total construction spending to a record high annual pace of $922 billion. The news was not lost on homebuilders, which sent the DJUSHB index to a new all time high.

I was a little surprised that the SOX semiconductor index didn't perform better today. The Semiconductor Industry Association (SIA) reported the strongest monthly gain in 13 years with October chip sales surging 23 percent to $15.4 billion. SIA President George Scalise commented on October's performance by saying the recovery is broad-based and from "all geographic markets" and "all product sectors". The SOX index did hit a new intraday and closing one-year high but the gain was a muted 0.6 percent.

One of the biggest stories today was that of Boeing's CEO Phil Condit stepping down after 38 years at Boeing. Last week Boeing (BA) was hit with scandal when it fired its CFO Mike Sears for violating company policies. Allegedly Sears improperly communicated with an Air Force officer Darleen Druyun about future employment with Boeing while she was still acting as a government agent in the now controversial tanker-leasing contract. Condit claims he was not involved in anything unethical but agreed to resign after pressure from the board of directors. To replace him Boeing is waving the mandatory retirement age of 65 and calling on former BA employee Harry Stonecipher, currently 67 years old. Stonecipher had been the CEO of McDonnell Douglas before the company merged with BA.

Aside from the Boeing resignation it was a scarce day for bad news and investors may have been relieved to make it through the whole session without hearing more from Wall Street's mutual fund scandal. We may not be so lucky tomorrow. Looking ahead to Tuesday it will be interesting to see if buyers are willing to keep the momentum going in the NASDAQ and finally tag the 2000 mark. Meanwhile the DJIA has yet to conquer its battle with the 9900 level.

Traders will want to keep an eye on the bond market. It was suggested that today's bond weakness was a combination of inflation concerns and money rotation out of bonds and into stocks. The strong ISM data today combined with the dollar at new lows and spiking commodity prices has many speculating that the Federal Reserve may be forced to raise rates sooner than expected. While no one expects a rate hike at next Tuesday's FOMC meeting the financial world will certainly be focused on their comments.

As you may have heard December has a very strong history in favor of the bulls. The Stock Trader's Almanac documents that over the past 50 plus years December is the best month for the S&P 500 and the second best month for the DJIA. Now 2003 hasn't been the best year for trading seasonal trends but it's nice to know that the markets will be cruising toward 2004 with a tailwind.


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