MarketView for December

Summary 

Share prices edged slightly higher in very light trading on Wednesday as a stronger-than-expected report on business activity in the Midwest was offset by profit-taking in some of the year's better performers. The Institute for Supply Management-Chicago business barometer posted a four-year high, exceeding forecasts, on a recovery in employment and an acceleration in new orders.

As a result, the Dow Jones industrial average and the Nasdaq chalked up new highs for the year, while the S&P 500 index continues to post a gain of 25 percent for 2009, putting it on track for its best year since 2003.

Most of the advance is the result of the nine-month rally resulting from the ever rising confidence that the economy is solidly on the road to recovery from the Great Recession. The S&P 500 is up 66.5 percent since its low of March 9.

DuPont, a Dow component, gained 0.5 percent to close at $34.05, while Microsoft, down 1.4 percent at $30.96, was among the biggest drags on both the Dow and the Nasdaq. Oracle closed down 0.3 percent at $24.93.

It is interesting to note that in run for the gold this year, the markets have been underpinned by strength in the technology and materials sectors on expectations that the economic recovery will cause increased capital spending and an increase in demand for natural resources. Wednesday's tiny gains followed a modest decline in Tuesday's session, when stocks snapped a six-day streak of gains. While many investors looked to the data for signs a recovery is taking hold, some t have moved to safer assets like the dollar to lock in profits after a strong 2009.

The dollar hit a three-month high against the yen on year-end flows in thin trade and the belief that the economy is on the road to recovery.

On the Big Board only 644.39 million shares changed hands, well below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 1.33 billion shares traded, also sharply below last year's daily average of 2.28 billion.

Treasury Adds to Ownership in GMAC

The government plans to provide GMAC Financial Services with an additional $3.8 billion of government aid and said it was raising taxpayer stake in the company to 56 percent from 35 percent.

"These actions offer the best chance for GMAC to complete its overall restructuring plan and return to the private capital markets for its debt financing and capital needs in 2010," the Treasury Department said in a statement.

GMAC, which was formerly owned by General Motors, has already received $12.5 billion in government aid since December 2008. The latest cash infusion will bring total taxpayer assistance to $16.3 billion.

GMAC said the government's investment put it in a position to explore strategic alternatives for its mortgage business. GMAC's auto finance operations were profitable in the third quarter, earning about $164 million after taxes, while the mortgage business lost nearly $600 million.

GMAC has been talking with the Treasury about its capital needs for months, after a government "stress test" found that the former financing unit of General Motors needed about $11.5 billion. The company has been unable to raise private capital.

On news reports of the planned capital infusion, the cost to insure GMAC's debt against default in the credit derivatives market fell to around 4.4 percentage points, or $440,000 a year for five years, from 4.66 percentage points at Tuesday's close.

Crude Prices Rise for the Sixth Consecutive Day

The price of crude oil futures rose again as a mix of cold weather and declining inventories lifted prices to near $80 per barrel, all but ensuring this year's gain will be the best in a decade for crude.

After falling to a five-year low under $33 a barrel at the start of the year, oil prices staged a steady comeback, on track for their best gains since 1999 on a combination of OPEC supply cuts, a quick rebound in emerging market demand and the resurrection of a popular dollar/oil spread trade.

Domestic sweet crude futures for February delivery settled up 41 cents per barrel, or 0.52 percent, at $79.28, after briefly touching a five-week high of $79.80 but failing to top the psychological $80 level. Prices have risen for nine of the last 11 sessions, gaining 14 percent in just over two weeks. London Brent crude settled up 39 cents per barrel at $78.03.

Data from the U.S. Energy Information Administration showed crude oil stockpiles fell by 1.5 million barrels in the week to December 25. Although most of that drawdown came in the isolated West Coast market, with Gulf Coast and East Coast inventories showing builds, prices were also helped by a 2 million-barrel decline in distillate stocks as cold weather hit the Northeast.

Oil's gains came in spite of a stronger dollar as the inversely correlated trade that had gained favor as an inflation hedge this year broke down in the face of oil-related geopolitical concerns and improving demand prospects.

Concerns about a potential supply impact due to political developments in OPEC member country Iran have also supported prices this week.