MarketView for December 1

Summary 

There are many facets to Wall Street but the one that is probably the most baffling, and at times frustrating, is the Street’s continual mood shifts and the subsequent share price gains and losses. Wednesday’s trading activity was certainly no exception as both the Dow Jones industrial average and the S&P 500 indexes posted their largest gains in three months.  Efforts to resolve the EU's debt crisis helped push the S&P above 1,200, an important technical level that signals potential for the rally to continue.

On a percentage basis, it was the largest daily increase for the Dow and the S&P 500 since September 1, the day when stocks began an autumn rally that drove the S&P up nearly 17 percent. Meanwhile, Wednesday saw the Nasdaq chalk up its largest one-day percentage gain since October 5.

While the S&P 500 index is currently above its trading range as some of the panic of previous days eased, volume was average and is being viewed as a sign that the mutual fund managers are not fully onboard as of yet.

Economically sensitive cyclical stocks moved sharply higher as evidenced by Alcoa, up 3.4 percent to $13.57, while Home Depot, whose fortunes are tied to the consumer, rose 4.6 percent to $31.61.

It appears that the economic recovery is continuing on a global basis. Private-sector payrolls achieved their largest gain in three years, according to ADP data, while global manufacturing picked up speed, boosted by China and Germany.

Banco Santander, the Spanish bank in the eye of the euro storm, saw its ADR share price gain 7.9 percent to close at $10.38. The stock has been under relentless pressure in recent weeks, turning it into a proxy for euro-zone risk aversion.

However, optimism over recent steps to rein in the euro zone's debt problems has been short-lived. The EU/IMF rescue of Ireland over the weekend was overshadowed by concerns about Portugal and other countries.

Meanwhile, economic optimism helped send the Dow Jones Transportation Average, which posted its second gain of more than 2 percent in less than a week, catapulting it to its highest level since September 2008. Wednesday's advance was led by gains in FedEx, up 3.2 percent at $93.99, and CSX, up 3.5 percent at $62.94.

The S&P 500 retail sector index rose 1.8 percent to 499.08, reflecting an optimistic outlook for the holiday shopping season.

Economic Recovery Continues

Private sector payrolls chalked up their greatest gain in three years in November, lifting optimism about the job market ahead of Friday's government employment report, while manufacturing data also showed that the economy was continuing to recover. The labor market has been among the weakest parts of the economy, and gains in that area represent solid evidence that the economy is picking up steam. Manufacturing has led the recovery.

Employers added a stronger-than-forecast 93,000 jobs in November, the largest increase since November 2007, after an upwardly revised gain of 82,000 the month before. The data was released by ADP Employer Services, which developed the report in conjunction with Macroeconomic Advisers.

In a separate report, the Institute for Supply Management reported that its index of national factory activity fell to 56.6 last month from 56.9 in October, in line with expectations and well above the 50 level which indicates expansion. The report also showed employment plans were steady with the prior month.

The Labor Department's monthly employment report, due for release on Friday, is forecast to show another month of job gains in both the private and public sectors.

Nonetheless, the labor market still has a long way to go before unemployment comes down to a reasonable level. Friday's jobs report is forecast to show the unemployment rate remained at 9.6 percent in November. In addition, the number of planned layoffs in November rose to the highest level since March, according to a report by consultants Challenger, Gray & Christmas, Inc.

Employers announced 48,711 planned job cuts last month, up 28 percent from 37,986 in October, with the government and nonprofit sector leading the rise, the report showed.

A separate government report on construction spending indicated a 0.7 percent gain in October and therefore provided a more upbeat view of the economy.

Another report indicated that nonfarm productivity grew faster than previously estimated in the third quarter. According to the government data, productivity increased at an annual rate of 2.3 percent rather than the 1.9 percent pace reported last month, as employers squeezed more output from workers and kept costs down.

Suggesting improvement in consumer demand, auto sales rose 17 percent in November from a year earlier, according to manufacturers in data released on Wednesday. The annual sales rate was near 12.3 million vehicles in November, little changed from October, as consumers were lured into showrooms by month-end discounts for new car purchases that many had delayed through the recession.

Investment bank Goldman Sachs raised its forecast for GDP growth for 2011 to 2.7 percent from a previously estimated 2.0 percent.