Sure stocks were looking a tad rich heading into the new year. A 6.5% jump for the S&P 500 during December certainly underscores that fact, but all those experts and pundits that were calling for a January swoon are going to have wait another day for it start because most stocks had no intention of doing anything today but moving higher. By the end of the day, the Dow had retreated a fair bit from its session highs, but a gain of 0.8% is still a fine way to start the new year. The S&P 500 added 1.1% and the Nasdaq surged almost 1.5%. Once again, the Russell 2000 was the juggernaut of the U.S. indexes, adding almost 2% on the day.
It seems like only a few months ago that equities were held hostage to every economic data point, but it appears that trend is reversing and today would be a fine example as stocks got a boost from some positive manufacturing data. The Institute for Supply Management's manufacturing index popped to 57 in December from 56.6 in November. While that missed the estimate of 57.2, a reading above 50 is still bullish and the number matched the median forecast of 63 economists surveyed by Bloomberg News.
''The manufacturing sector continued its growth trend as indicated by this monthâ€™s report. We saw significant recovery for much of the U.S. manufacturing sector in 2010. The recovery centered on strength in autos, metals, food, machinery, computers and electronics, while those industries tied primarily to housing continue to struggle,'' ISM's Norbert Ore said.
Cullen Roche over at Pragmatic Capitalism notes that a deeper examination of today's report shows the data was actually quite strong and notes that current ISM levels are consistent with real GDP growth of just under 4%.
While the ISM report was cautious to say the least on housing, a report from the Commerce Department today showed construction spending rose in November for a third straight month. The 0.4% increase exceeded the median forecast of economists surveyed by Bloomberg News and followed a 0.7% gain the previous month, Bloomberg reported.
In stock-specific news, I will start out with bad news so I can today's wrap on a positive note. Indeed, there was some bad news for select names, but the broader market was able to work past these glum headlines. Offender Number One is Clorox (CLX). The consumer products giant that makes its namesake bleach, Pine Sol and Hidden Valley Ranch salad dressing did not get off to bang in 2011.
Rather, it was a whimper after the California-based company cut the top end of its sales forecast and said sales will grow by 1% at best or perhaps show no change at all for the fiscal year ending June 30. Sales probably fell 3%-4% last quarter as the top line was pressured by more spending on promotions and Venezuela's currency devaluation. For that quarter, Clorox probably earned 57 cents to 63 cents a share, excluding a charge, but analysts polled by Bloomberg were expecting 73 cents a share.
On a day when the Consumer Staples Select Sector SPDR (XLP) notched a small gain, Clorox tumbled $1.71, or 2.7%, to $61.57 on volume that was six times the daily average.
Over on the Nasdaq, online travel reservations firm Expedia (EXPE) lost 30 cents, or 1.2%, to close at $24.79, which is not that bad of a day all things considered. Over the weekend, Expedia announced that it is removing American Airlines (AMR) fares and schedules from its site, calling the carrier's pricing proposals ''anti-consumer.''
To say the rift between airlines and companies like Expedia is growing is an understatement. Last month, American pulled its fares from Expedia rival Orbitz (OWW) and perhaps in a sign of solidarity, Expedia proceeded to move American's fares lower in its search. Sales of American tickets account for just 2% of Expedia's revenue, but not offering access to one of the largest airlines in the world could be bad news for Expedia going forward.
Making matters worse, Soleil Securities downgraded Expedia to ''hold'' and cut its price target on the stock to $28 from $35, citing competition concerns posed to Expedia's TripAdvisor from Google's (GOOG) Place. The icing on the cake is American telling customers to head to other travel sites, namely Priceline (PCLN), over Expedia.
If it is price target changes that you are after, here is a whopper and it pertains to one of the market's highest fliers: Molycorp (MCP). One of the few U.S.-based companies that is actually trying to mine for rare earths in this country surged 15.2% today after Dahlman Rose reiterated its ''buy'' rating on the stock and raised its price target to $85 from $49, citing China's reduced rare earths export quotas and Molycorp's ability to create value through joint ventures.
Molycorp is no joke, at least the stock is not. The shares have surged 16% in the past week and more than doubled in the past month, so it may seem that the run is tired. On the other hand, if the Dahlman Rose price target proves accurate, today's close of $57.50 will end up looking like a steal.
Speaking of materials names, one that is considerably less sexy than Molycorp enjoyed a fine day as well and that is Dow component Alcoa (AA). The aluminum giant gained 41 cents, or almost 2.7%, on volume that was roughly 75% better than the daily average to close at $15.80. Alcoa's jump was good for the third-best performance among the 30 Dow constituents.
Deutsche Bank upgraded the stock to ''buy'' from ''hold'' and boosted its price target on Alcoa to $22 from $14, implying substantial upside from where the stock closed today. ''Alcoa's laggard status has piqued investor interest in the name as a possible come-back play for 2011 and given signs of operational stability, we don't disagree,'' Deutsche said in a client note.
Remember that there has been significant scuttlebutt that an ETF or two backed physical aluminum could be introduced this year and that would likely prop up aluminum prices, making Alcoa an indirect beneficiary of the new aluminum ETF.
Looking at the charts, the run of 20 straight days with the Dow not trading in a 100-point range was snapped today as the index's range was about 135 points from bottom to top. Even with all that commotion, the high of the day was 11,711, so a legitimate run to resistance at 11,750 was not made today. The good news for the Dow on Monday was strength in the financials. Bank of America (BAC) led the charge with a ''who cares about WikiLeaks'' gain of 6.4% and JPMorgan Chase chipped in with a gain of 2.7%. Dow bulls should be pleased to see two of 2010's worst performers, AA and BAC, start 2011 off in a big way. More on another Dow 2010 laggard, Microsoft, in a minute.
The S&P 500's solid day was enough to carry the index past resistance at 1260 and the close just below 1272 means 1280 could be dealt with in the coming days. Support is still 1225-1230. The year-end higher forecasts have already started to trickle in as Citigroup raised its 2011 target for the S&P 500 to 1400 from 1300 today.
S&P 500 Chart
To end 2010, the Nasdaq was showing some signs of a looming breakdown, but that will have to wait for another day as the index did what it could to move above 2700 today, falling just short at the close. That said, 2700 is more round number resistance than anything else and real resistance in the 2825-2850 area is still a long way off while support still looks firm at 2600.
The Russell 2000 continued its torrid pace today and now rests just below 800 and that is after a 25% gain in 2010, almost double what the S&P 500 delivered. Profits are surging at smaller companies compared to their large-cap counterparts. The average company in the Russell 2000 posted a 165% gain in income last year, the most since 2003, as S&P 500 profits rose 29%, according to data compiled by Bloomberg and analysts are forecasting an 80% rise in the profits of Russell 2000 constituents this year. If that proves accurate, 850 on the Russell 2000 may not last for long.
Russel 2000 Chart
I am not bold enough to say that all of 2011 will be a picnic for the bulls and I am not convinced that the market will not retreat a bit somewhat during the first quarter, but overall, it is hard to not be constructive on stocks for the year. Using history as a guide going back to 1928, the third year of a presidential term sees the S&P 500 add just over 14% on average and that number climbs over 17% when a Democrat is in the White House. Go back seven decades and the average gain for the Dow is 24% in a president's third year.
An unrelated fun fact is Goldman Sachs and a Russian investor have poured a combined $500 million into Facebook on top of previous investments, valuing the social networking site at $50 billion. That would be a larger market cap than three Dow stocks: Alcoa, DuPont (DD) and Travelers (TRV). That also makes Dow component Microsoft look pretty darn smart for investing in Facebook way back in 2007.
It is that time of year again. It is time for the End of Year Renewal Special. How much is Option Investor worth to you? At the $499 End of Year Special price ($1.36 per day) only one profitable trade pays for the entire year's subscription. Just one critical point in a market commentary can make you hundreds or even thousands of dollars. Just one warning comment about an impending event could save you thousands.
If just one comment or profitable play can cover the entire cost of the subscription then the other 364 days of the year are free. Renew your subscription today and then keep track of the money you make or save in 2011. I think you will be surprised!
For one low price you will get the following:
Couch Potato Trader
Top Ten List of ETFs for 2011
Top Ten List of Stocks Under $10 for 2011
Two Option Expiration Calendar Mouse Pads
You get everything listed above for the low price of $1.36 per day!