The combination of robust retail sales and surprisingly strong existing home sales data helped U.S. stocks extended Wednesday's rally as the Dow Jones Industrial Average notched its biggest two-day jump since July. The Dow booked another triple-digit pop, but was the only of the three major U.S. indexes to gain less than 1% on the day. The Nasdaq gained almost 1.2% and the S&P 500 added nearly 1.3%, respectively, while the Russell 2000 continued to flex its muscle, rising almost 1.1%.
The and home and retail sales data were able to overshadow to the weekly jobless claims data that came in at 436,000, well above the expected 422,000. Jobless claims jumped by 26,000 from last week and were also revised upward by 3000, so the weekly jump was basically 29,000. On the bright side, initial claims have been trending down since mid-August and the four-week moving average fell by 5750 to 431,000.
Relative to a year ago, the four-week moving average is down by 61,000 or 12.4%, according to Zack's Investment Research. Regular continuing claims for unemployment insurance also did little much excitement, rising 53,000 to 4.27 million.
Alright, so the jobless claims data was nothing to write home about and we will get a clearer picture regarding any progress on higher employment on Friday when the Labor Department delivers the November jobs update, but on Thursday investors were heartened by some impressive retail sales data. I mentioned on Monday that the U.S. consumer, roughly two-thirds of our country's GDP, was showing some strength and the data points were there to support that assertion.
Well, another one of those data points arrived on Thursday when it was reported that November retail sales surged 6%, signaling the best start to the holiday shopping season in three years. Analysts were expecting the number to come in at an increase of just 3.6%. Maybe it was holiday sales starting earlier than in years past, higher demand or just old fashioned improving consumer sentiment, but it is hard to argue with the positive nature of the November number.
Not to be Debbie Downer (trust me, I'm rooting for the economy to fully recover just as much as the next person, but it is worth remembering that strong retail sales in November do not always translate to good news in December and one does not have to go too far back to see this scenario at work. In 2008, November's retail sales were strong only for retailers to endure one of the worst holiday shopping seasons on record.
As I mentioned earlier, some positive news from the real estate arena played a part in Thursday's bullish action. The National Association of Realtors releases its pending home sales data for October and the number was another pleasant upside surprise. The seasonally adjusted national index got a bump of 10.4% from September. That is the good news. The October number fell a startling 20.5% from October 2009.
Still NAR Chief Economist Lawrence Yun said the double-digit increase is a sign that the the housing market is recovering. â€œThe housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011,â€ Yun said.
Pending Home Sales
If one is inclined to call or most of the aforementioned economic data ''positive,'' then that might be at least one catalyst behind oil's surge. NYMEX-traded crude for January delivery, closed at $88 per barrel, its best closing price since October 2008. Remember that $88 in October 2008 was on the way down. Heating oil and gasoline futures also found their way to two-year highs.
Brent crude trade, Europe's benchmark contract, settled above $90 after European Central Bank President Jean-Claude Trichet took a page from the Bernanke book of bank salvation and said the ECB will give European banks as much cash as they need through the first quarter.
As far as things go with the Brent contract, January is trading at a 3-cent premium to the February future, according to Bloomberg News. That is called backwardation and could indicate oil is more in demand now than it will be in the near future. Then again, oil is probably moving more on macro issues than legitimate supply and demand these days.
Speaking of oil, today was a great day to be involved with Russian equities. Consider this the ''To Russia With Love'' section of today's wrap and allow me to say this was a bang-up day for Russia period. The least economically diverse (not debatable) and perhaps most corrupt (arguable) member of BRIC, some experts have gone so far as to wonder why Russia is even lumped in with high-fliers like Brazil, China and India. Some have said remove Russia, add Indonesia and make it ''BIIC.''
To that, Russia has said ''Nyet.'' Here is a perfect storm for investors that are bullish on Russia: Oil prices surge. Palladium does, too. Russia is the biggest palladium producer in the world. FIFA decides Russia will be hosting the 2018 World Cup. All that happened today.
And with all that Russian love, it might be easy to gloss over some mergers and acquisitions activity involving one of the few Russian companies listed on major U.S. exchange. Wimm-Bill-Dann (WBD), one of Russia's largest food and beverage firms, is selling a two-thirds stake in itself to PepsiCo (PEP) and the world's second-largest soft drink company wants to acquire all of the Russian firm for $5.4 billion.
That is a 32% premium to Wimm-Bill-Dann's pre-bid market value, according to the New York Times. Doing business in Russia is tricky to say the least, but Pepsi has maintained a presence there for four decades and while the acquisition looks expensive in the near-term consider this: Maybe more than any other emerging market, Russia's changing food and beverage tastes are decidedly western, meaning Pepsi may not have to spend millions of dollars developing scores of new products to suit Russian tastes.
Another group of big winners on the day were financials services stocks, which caught a bid thanks to some bullish comments by Goldman Sachs (GS). Goldman is constructive on the group for the first time since 2008 and investor reaction to the news was palpable on Thursday. In a note to clients, Goldman analysts said stronger economic growth, rising stock prices and a favorable interest rate environment would help financials outperform the broader market in 2011 and 2012.
Name a somewhat well-known financial, bank, brokerage, insurance provider, even a REIT and it was probably up today on the back of the Goldman comments. Even some beat-up regional bank stocks found favor among investors. Marshall & Isley (MI) and Regions Financial (RF), two banks whose best prospects may be to find a buyer, surged 12% and 7%, respectively. These two stocks trade for less than $10, but hey, a good day is a good day.
Goldman kept its conviction ratings on private equity firm Blackstone Group (BX), REIT Simon Property (SPG) and banks Citigroup (C) and JPMorgan Chase (JPM).
Looking at the charts, the S&P 500 moved through resistance at 1200 yesterday and cleared another at 1220 today. This should be bullish as the index has now cleared its April peak. Targeting 1250-1300 by year end seems reasonable at this point, assuming Europe stays quiet.
S&P 500 Chart
The Dow has also traversed its April high. Actually, the blue-chip index is more than 100 points removed that high, but resistance is not that far off at 11,500. From there, the Dow has some room to running to the 11,860 area, which was last seen in mid-2008.
The Nasdaq was weak on Monday and Tuesday, but it kept finding relief at 2500, a critical support area. In the last two days, the index has tacked on 80 points and easily busted through resistance at 2535. Remember, the fourth quarter usually is not kind to tech issues and the statistics aren't as favorable when it comes to positive Decembers on the Nasdaq as they are when it comes to the S&P 500. At this point, it looks like a safe bet that the Nasdaq will take out 2600 and the last time that happened was three years ago.
The Russell 2000 took at its April peak today and a close above 750 is bullish. The small-cap index has been flashing plenty of bullish signs lately and the real party could start if 775 is taken out.
Russell 2000 Chart
The last two days have been plenty of fun, but the mess that is Europe did not just evaporate overnight. Nor did the inflation concerns in the emerging markets, namely China. That is my cautious side. My cheery side tells me if Friday's jobs report is encouraging, oil continues to move higher and financials really join the party, Santa may be coming early this year for investors.