Stocks Rebound to Best Week Since March 2009

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Last week U.S. stocks rose, sending the Standard & Poor’s 500 Index to its biggest weekly rally since March 2009, after central banks took action to ease Europe’s debt crisis and American Thanksgiving retail sales set a record. For the week, the Dow, S&P 500, NASDAQ, and Russell 2000 all rose +7.0%, +7.4%, +7.6%, and +10.3%, respectively.

 

Equity Performance Table
Last Week
Year to Date
Last 52 Weeks
Dow Jones Industrial
+7.0%
+3.8%
+5.6%
S&P 500 (Large Caps)
+7.4%
-1.1%
+1.6%
NASDAQ (Technology)
+7.6%
-1.0%
+1.4%
Russell 2000 (Small Caps)
+10.3%
-6.2%
-2.8%
International Stocks (EAFE)
+9.1%
-13.1%
-10.9%
Dow Jones Total Stock Market (Broad Market)
+7.6%
-2.1%
+0.6%

 

 

Interest Rates
Prime Lending Rate
3.25%
Interest Rate Bias
Short-Term = Neutral; Intermediate Term = Neutral; Long-Term = Neutral
90 T-bill Rate
0.00%
90 Day LIBOR
0.53%
TED Spread
0.53%
30-Year Mortgage Rate
4.00%
15-Year Mortgage Rate
3.35%
5-Year Adjustable Mortgage Rate
2.94%
30-Year Treasury Yield
3.03%
10-Year Treasury Yield
2.03%
5-Year Treasury Yield
0.91%
2-Year Treasury Yield
0.25%

 

 

Notable Dividend Increases – 2011
Lockheed Martin (“LMT”)
33.3%
NextEra Energy (“NEE”)
10.0%
United Technologies (“UTX”)
12.9%
Proctor & Gamble (“PG”)
9.0%
Abbott Labs (“ABT”)
9.1%
Home Depot (“HD”)
16.0%
Clorox (“CLX”)
9.0%
Colgate Palmolive (“CL”)
9.4%
Chevron Corp (“CVX”)
8.3%
Emerson Electric (“EMR”)
15.9%
General Mills (“GIS”)
8.9%
International Business Machines (“IBM”)
15.4%
Union Pacific Corp (“UNP”)
25.0%
Intel Corp (“INTC”)
33.0%
McDonalds Corp (“MCD”)
14.8%
Kimberly Clark (“KMB”)
6.1%

 

 
Now, all the details……………………
Last week, the S&P 500 climbed +7.4% to 1,244.28 snapping a two-week decline to trim its 2011 loss to -1.1%.  The Dow added 787.64 points, or +7.0%, to 12,019.42 and is up +3.8% for the year. “This week’s move was sparked by the global coordinated efforts by central banks and the greater clarity provided by European policy makers on plans to stabilize the debt situation,” Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $116 billion in client assets, said in a Bloomberg telephone interview. “U.S. retail sales reports provided greater confirmation of stability within the U.S. economy.”
The S&P 500 surged after the Federal Reserve and five other central banks lowered the cost of dollar funding and China cut the proportion that banks need to hold as reserve capital. Germany and France are leading a push for tougher enforcement of euro-area budget rules to counter the debt crisis now in its third year.
The S&P 500 stock index has rebounded more than +13% from its 2011 low on October 3rd.  Improving U.S. economic data has helped alleviate concern that the world’s largest economy will relapse into a recession as Europe’s debt crisis threatens to derail the recovery. U.S. retail sales during the Thanksgiving weekend increased +16% to $52.4 billion, the National Retail Federation said, citing a survey conducted by BIGresearch.  The average shopper spent $398.62, up from $365.34 a year earlier.  Another report last week showed that consumer confidence snapped back more than forecast in November as Americans turned less pessimistic on the outlook for jobs.
Jobs data released by the Labor Department last week showed that payrolls climbed 120,000, with more than half the hiring coming from retailers and temporary help agencies, after a revised 100,000 rise in October that was more than initially estimated.  The median estimate in a Bloomberg News survey called for a gain of 125,000.  The jobless rate declined to 8.6%, the lowest since March 2009, from 9%.
“Except for Europe, the rest of the world economy is doing pretty well,” the hedge-fund manager said December 2nd during an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Ken Prewitt.  “There’s too much bearishness, and equities — particularly U.S. equities and emerging-market equities – are very cheap relative to fixed income, Treasury bonds, high yield, and other financial assets.”
All 10 groups in the S&P 500 rose last week, led by a +10% rally in energy producers as crude oil had its first gain in three weeks.  The Morgan Stanley Cyclical Index surged +9.6% amid easing concern about global economic growth. Financial shares rose +9.5%, the second-most among the 10 industries in the S&P 500.  A gauge of European banking shares climbed +14%, the second-best performance among 19 groups in the benchmark Stoxx Europe 600 Index.
The MSCI EAFE Index (broad developed international index) increased +9.1% last week. The Americas rose +7.8% with Brazil up +5.5%, Mexico up +6.3%, and Canada up +5.4%. Europe rose +8.7% with Germany up +10.7%. Asia-Pacific rose +7.5% with Australia up +7.6%, China down -0.8%, Hong Kong up +7.6%, India up +7.3%, Taiwan up +5.3%, and Japan up +5.9%.
Treasuries dropped in price with the 10 year yield rising to 2.03% from 1.97% in the week earlier.
The Baltic Dry Index, which tracks transport costs on international trade routes and may be a good leading indicator of economic activity, ended the week at 1,866, up from the prior week’s level of 1,807. The index reached a high of 11,793 on May 20, 2008 and a low of 663 on December 5, 2008. The index last peaked at 4,661 set on November 11, 2009.
The TED spread measuring the difference between LIBOR and Treasury bill rates, which rose as high as 464 basis points during the liquidity crisis of 2008, is currently in more of a normal range of 53 basis points, but has increased as of late due to Euro bank concerns. The TED spread is a gauge of the willingness of banks to lend to one another. The lower the TED spread the more willing banks are to lend with each other. The TED spread fluctuates over time but generally has remained within the range of 10 and 50 bps (0.1% and 0.5%) except in times of financial crisis. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.
Last week, oil was up +4.3% and closed at $100.96 per barrel. Year-to-date oil is up +10.5%. The average price of unleaded gasoline dropped -0.6% last week to end at $3.276 per gallon per December 4th data provided by AAA. Year-to-date, unleaded gasoline is up +6.6%. Natural gas was up +1.2% last week and closed at $3.584/MMBtu. Year-to-date, natural gas is down -18.6%.
Last week, gold rose +3.7% closing at $1,747.00 per troy ounce. Year-to-date, gold is up +22.9%. The dollar was down -1.2% last week as measured by the U.S. Dollar Index with that index closing at 78.625. Year-to-date, the U.S. Dollar is down -0.5% as measured by the Dollar Index. The Euro was up +1.9% against the U.S. dollar closing at $1.3487/Euro. Year-to-date, the Euro is up +0.9% against the U.S. Dollar.
In the coming week, look for corporate earnings from companies such as Dollar General (“DG”), AutoZone (“AZO”), Toll Brothers (“TOL”), and Costco Wholesale (“COST”). Look for economic reports this week on non-manufacturing (services) activity, factory orders, trade balance, and weekly jobless claims data.
Sources: Bloomberg, The Wall Street Journal, Barron’s, The New York Times, ValueLine.
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