Stocks opened modestly higher on this last day of the year. The Dow and SPX are currently 35 pts & .12%, respectively. Once again, the Russell 2000 (small caps) is leading, up .5%. Traders will be watching to see if the Dow closes the year above 18,000. Biotechs, retail and airline stocks are leading the charge in early trading; the energy sector is lagging. WTI crude oil is back down under $53/barrel and this is causing traders to fret. Oil and interest rates are really in focus as we enter the new year. Bonds are higher again today as interest rates edge down. The 5- and 10-year Treasury yields are trading at 1.67% and 2.18%, respectively. Of all the surprises we got in 2014, the massive dip in interest rates has to be the most significant. Despite the end of the Federal Reserve’s quantitative easing program and clear improvement in the economy, there just isn’t any inflation to speak of. And it looks like huge foreign demand for Treasuries is keeping yields artificially low. Remember, the 10-year Treasury yield started the year at 3%.
With 2014 pretty much in the books, here’s a final look at performance for the major stock indexes:
SPX +15%
Dow +11.2%
Nasdaq +16.3%
Russell 2000 +6.1%
US pending home sales (i.e. signed contracts) rose 1.7% year-over-year in November following a 2.1% gain in the prior month. Economists, on average, expected sales growth to accelerate to around 3.6%. But while the report was a mild disappointment, we have to remember that pending sales spent most of 2014 in negative territory. The housing market is going through a transition period from high price growth to lower more sustainable appreciation; from investor-dominated buying activity to first-time buyer activity. Economists are thinking that 2015 sets up nicely for the housing market because economic growth and improvement in the job market have been more consistent lately. And it looks like mortgage rates will remain fairly low next year.
The Chicago Purchasing Managers Index dipped to 58.3 this month from 60.8 in the prior month. The index, which measures business activity in the Chicago region, showed production levels and new orders moderated a bit. And this is what we’ve seen from other manufacturing indexes this month. But keep it in perspective; any reading above 50 indicates expanding business activity, and anything close to 60 is very strong. The US manufacturing sector is enjoying a period of solid expansion.
Art Cashin, CNBC contributor and head of floor operations for UBS, celebrated his 50th anniversary as a member of the New York Stock Exchange yesterday. In an interview he said, “This business is a fascinating business. It’s like waking up every morning with a brand new Rubik’s Cube.”
MikesMarketUpdate 