MarketView for December 10

Summary

The major equity indexes all managed to turn in some nice positive numbers on Thursday as signs of improving trends in the job market and a decline in the October trade deficit added another measure of reassurance to the investment community that the economy remains on a steady growth path.

The trade deficit was down 7.6 percent as a weak dollar helped to raise the export of goods and services to its highest point in nearly a year. At the same time, a report by the Labor Department, weekly jobless claims rose more than expected last week; however the four-week average, a better view of underlying trends, declined to its lowest point since September of last year.

The consumer-discretionary sector index was the top performer on the S&P, led by gains in Walt Disney, up 3.1 percent at $31.30. The index rose 1.4 percent. Nonetheless, trading was thin as many on Wall Street worked towards preserving gains generated over the last half of the year, while at the same time not taking any large positions ahead of the Fed’s interest rate meeting next week.

Looking at the performance of some specific companies, Coca-Cola closed up 1.3 percent at $58.58, making a large contributor to the gains by the Dow Jones industrial average after Coca-Cola resolved a dispute it had with Costco that led Costco to stop ordering Coke products. Time Warner ended the day up 4.2 percent to close at $30.45 after completing its spinoff of AOL, which in turn ended the day down 0.6 percent to close at $23.52 on its first full day of trading. Research in Motion closed up 2.6 percent at $65.80 and Amazon.com closed up 3 percent at $135.38.

Ciena ended the day down 11.4 percent to close at $11.72 after it posted a wider-than-expected quarterly loss, heightening concerns about rising costs ahead of its acquisition of a Nortel Networks unit.

Economic Data Continues To Make Headway

The number new claims for unemployment insurance rose more than expected last week, but a surprise narrowing in the trade gap in October indicated the economy remained firmly on a steady growth path. According to a report by the Labor Department, first time claims for state unemployment insurance rose by 17,000 claims, hitting a level of 474,000 initial claims last week, after five straight weeks of declines.

Even though jobless claims rose last week, applications for benefits have dropped from lofty levels in March. The four-week average, which provides a better view of underlying trends, dropped to 473,750 last week from 481,500 the prior week.

The cause for the weekly increase was thought to be seasonal layoffs in industries such as construction and a rebound in applications that had been held back during the Thanksgiving holiday week. The good news is that there was also the 14th straight drop in a four-week average of claims, which hit the lowest since September last year.

The number of workers still collecting benefits after an initial week of aid dropped 303,000 to 5.16 million in the week ended November 28, the lowest level since February. The decline, however, was largely due to people exhausting their benefits and moving to emergency unemployment programs.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, fell to 3.9 percent in the week ended November 28 -- the lowest since February -- from 4.1 percent the previous week.

In a sign that world trade is slowly shaking off the effects of the global financial crisis, exports of goods and services hit their highest level since November 2008. Imports also touched their highest point since last December. The Commerce Department reported that the trade deficit shrank 7.6 percent to $32.9 billion in October as a weak dollar helped boost exports. The smaller-than-expected trade gap is good news for the Obama administration, which sees export growth as an avenue for creating jobs.

The Federal Reserve reported on Thursday that the net worth of households, which is the difference between the value of assets and liabilities, increased by $2.7 trillion to $53.4 trillion in the third quarter. The second consecutive quarterly increase in household wealth could be a confidence booster for consumers shouldering the burden of high unemployment.