MarketView for December 7

Summary 

Treasury prices fell sharply on Tuesday sending yields higher amid worries over the fiscal outlook, while equities ended the day up only slightly. The small gain in equities on Tuesday attributed to the tax cut extension compromise was short-circuited by the increase in bond yields, along with reports that regulators are deep into an insider-trading probe.

The S&P 500 hit a two-year intraday high after President Barack Obama forged the deal with Republicans to renew Bush-era tax cuts. Optimism over the tax agreement sent the S&P 500 above a key technical measure, but the index retreated, confirming the 1,228 level remains a strong resistance point. However, the rally quickly lost steam as the yield on the 10-year note hit its highest level since June and debt prices fell sharply.

The rise in yields added to anxiety from news that the SEC has issued more than a dozen subpoenas in its investigation of insider trading on Wall Street, potentially undermining public confidence in the markets. In fact, the heights recently attained by stock indexes may have also given investors reason to pause due to skittishness.

Trading volume was more than 11 billion shares on the New York Stock Exchange, NYSE Amex and Nasdaq. That compared with the year-to-date estimated daily average of 8.63 billion. Meanwhile, the CBOE volatility index .VIX closed at 17.99 -- its lowest level since April and below a key technical resistance at 18.

Citigroup rose 3.8 percent to $4.62 on massive volume after the government sold its remaining stake in the company. The move could lead to an increased weighting for the bank in the S&P 500 as the company moves to a 100 percent float, according to Credit Suisse.

Credit Suisse estimated that portfolios following the S&P may need to buy up to 375 million Citigroup shares, although the timing of the purchases was uncertain. Citigroup volume totaled nearly 3.1 billion shares, roughly 30 percent of the total volume of 10.9 billion.

3M fell 3.1 percent to $84.19. The Dow component forecast 2011 profit that could top expectations but issued an outlook for sales growth that was lower than Street expectations.

In other corporate news, natural gas distributor Nicor climbed 4.3 percent to $48.79 after it agreed to be acquired by rival AGL Resources for $2.4 billion.

Consumer Credit Higher in October

Consumer credit in total came in at $3.4 billion for the month of October on rising student loans, which offset a decline in revolving credit, including credit cards, Federal Reserve data indicated on Tuesday. October consumer credit outstanding rose at a 1.7 percent annual rate to $2.399 trillion from a revised $2.395 trillion in September. September's increase was previously reported as a $2.2 billion increase.

The two straight monthly increases follow 19 months of declining credit as consumers worried about the lackluster economy chose to reduce credit card debts. Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and holidays, rose $9 billion, equivalent to an annual rate of increase of 6.8 percent.

3M Sees Difficult Times Ahead

3M said on Tuesday that the economic environment, especially in the developed world, would prevent sales from hitting internal targets in 2011, a forecast that made its stock the biggest decliner on the Dow Jones industrial average. The diversified manufacturer said it expects organic sales to grow 5.5 percent to 7.5 percent, below its long-run internal target of 8 percent to 9 percent.

3M said the challenges it faces were largely macroeconomic and concentrated in the United States and Western Europe. The company warned that persistently high unemployment in the United States, coupled with a growing savings rate among consumers, would hold down results in its home market, while "deep austerity measures in a growing number of Western European economies and rolling debt crises" would retard growth there.

It also said sales of its optical film, which is used to brighten television and computers screens, would not be as strong as it hoped in the near term because manufacturers were discounting and more interested in price than technology.

It expects its "attachment rate" -- an internal market share measure -- in the space to be just 40 percent in 2011, down from the previous expectation of 55 percent.

3M, which has been on an M&A spree this year, also said it expects to continue next year and plans to spend up to $3 billion on acquisitions. So far in 2010, it has announced nearly a dozen acquisitions, spending nearly $2.5 billion in the four deals whose terms it disclosed.

Acquisitions have taken 3M, which already has a broad lineup of consumer, industrial and medical products, into new businesses such as biometrics and electronic people-monitoring, and bolstered its presence in others, such as healthcare.