MarketView for December 31

Summary 

The major equity indexes ended year with their best annual gains since 2003. Optimism about the economy's recovery sent the benchmark Standard & Poor's500  index up over 23 percent for the year. However, the last session of the year was a bit of a downer as share prices declined, with a late-day sell-off pushing all three major indexes down about 1 percent as profit-taking became the name of the game as investors moved to lock in some of 2009's substantial gains. However, thin volume exaggerated the market's moves.

Most of the year's advance is the result of a nine-month rally that has been underpinned by strength in technology and natural resource shares on expectations the economic recovery will spur capital spending and increase demand for energy, metals and other natural resources.

Signs of an economic rebound, including more than 70 percent of companies exceeding earnings expectations in the second quarter, have driven the S&P 500 up 65 percent since its March 9 closing low.

For the year, the Dow was up 18.8 percent, while the Nasdaq chalked up a gain of 43.9 percent from its close on December 31, 2008. The S&P ended the year with a gain of 23.5 percent. It was the market's first annual advance in two years. Yet, despite the run-up Wall Street is also set to cap its first-ever negative decade on a total-return basis, even with dividends reinvested.

Looking at the day’s economic data, Initial jobless claims fell by 22,000 to a seasonally adjusted 432,000 for the week.

Walt Disney Co was the Dow's best performer on Thursday, up 1 percent at $32.61 after Marvel Entertainment shareholders approved a merger with Disney.

Crude-oil futures ended Thursday slightly higher and marked their largest yearly gain in 10 years, helped by a weaker dollar and hopes for an economic recovery. Natural gas fell after data showed inventories fell less than expected last week. Crude futures for February delivery ended up 0.1% at $79.36 per barrel, after hitting $80.05 earlier in the session. Futures ended the year up 78%, the biggest gain since 1999

Unemployment Claims Fall Again

The number of new claims for unemployment benefits fell unexpectedly last week, a sign the job market is healing as the U.S. economy slowly recovers. New jobless claims have dropped steadily since September, raising hopes that the economy may soon begin creating jobs and the unemployment rate could decline. That, in turn, would give households more money to spend and add fuel to the broader economic rebound that began earlier this year.

The Labor Department said Thursday that new claims for unemployment insurance fell by 22,000 to a seasonally adjusted 432,000 claims, the lowest since July 2008. The four-week average, which smoothes out fluctuations, fell for the 17th straight week to 460,250, the lowest since September 2008, when the financial crisis intensified.

The Labor Department will report the unemployment rate and jobs figures Jan. 8. Unfortunately, most economists are expecting the unemployment rate to remain above 9 percent through 2010, as companies are likely to hire at a slow pace as they wait to see if the current recovery continues.

Economists closely monitor initial claims, which are considered a gauge of the pace of layoffs and an indication of companies' willingness to hire new workers. The number of jobless workers continuing to claim benefits, meanwhile, dropped by 57,000 to 4.9 million, also better than the increase that analysts expected.

About 4.8 million people were receiving extended benefits in the week ended Dec. 12, the latest data available, an increase of 200,000 from the previous week. The rise is partly a result of another extension of benefits by Congress in November.

Among the states, Michigan had the largest increase in initial claims, with 8,382, which it attributed to layoffs in the auto industry. California, Florida, Iowa and Missouri saw the next largest increases. The state data lags initial claims by one week. Tennessee saw the largest decrease, of 2,972, followed by Illinois, Pennsylvania, Georgia and North Carolina.