MarketView for December 9

Summary 

Share prices edged upward on Thursday, with the benchmark S&P 500 closing at a two-year high, a trend many on Wall Street expect to continue at least through the remaining portion of this year. The Nasdaq finished higher for the seventh straight day and closed at its highest level since December 2007, paced by a 6.8 percent rise in Teva Pharmaceutical Industries to $52.63 after the company said it expects its experimental multiple sclerosis pill will win FDA approval within two years after a clinical trial met its main goal.

There was some rather intense interest in bank stocks on Thursday. That sector is up 12.4 percent for the month. Late in the year, winning positions often attract buyers seeking to improve fund performance in a practice known as window dressing.

Expectations of reduced volatility also suggests a steady climb in share prices for the remaining portion of the year. The CBOE Volatility Index VIX fell more than 2 percent to 17.25. The VIX usually moves inversely to the benchmark S&P index.

However, Thursday's trading also saw the Dow Jones industrial average come under pressured after DuPont released its outlook for 2011. DuPont ended the day down 1.1 percent to $48.32.

A tentative agreement with congressional Republicans to extend tax breaks announced by President Barack Obama hit opposition from prominent Democrats. Wall Street wants the tax breaks to boost returns and spur growth, but news of the opposition had little effect on the day’s trading activity.

The S&P 500 closed above 1,228, a resistance level that represents the 61.8 percent Fibonacci retracement of the 2007-2009 bear market slide, which has proven difficult for the index to stay above in recent sessions.

A Labor Department report indicated that first-time claims for jobless benefits fell more than expected last week, which the Street took as a positive indicator, especially after last week's disappointing payroll numbers.

After the closing bell, Nasdaq said short interest on the exchange dipped 0.8 percent in the second half of December. Volume was a light 7.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, compared with last year's estimated daily average of 8.63 billion.

Jobs Data Supports Recovery Effort

The recovery is gaining traction as claims for jobless benefits continue to decline, while wholesalers increase inventories in anticipation of strong holiday demand. Initial claims for state unemployment benefits dropped 17,000 to a seasonally adjusted 421,000, the Labor Department reported on Thursday. The number of people still receiving benefits under regular state programs after an initial week of aid fell in the week ended November 27 to the lowest level since mid-November 2008.

Meanwhile, the number of people on emergency unemployment benefits in the week ended November 20, the latest week for which data is available, also fell sharply. A total of 8.30 million people were claiming unemployment benefits during the November 20 period under all programs, down 611,994 from the prior week.

The surprisingly small gain in employment last month had blurred the labor market picture, but the bigger-than-expected drop in weekly new claims for unemployment benefits strengthened perceptions a durable recovery was under way.

In a sign that a gradual labor market healing was firmly entrenched, the four-week average of new jobless claims, viewed as a better measure of underlying trends, fell 4,000 to 427,500, the lowest level since early August 2008.

Both initial claims and the four-week average have now held below 450,000 for five straight weeks. The 450,000 mark is generally considered by economists as dividing line between a market where jobs are growing and where they are being lost.

Additional aid to the unemployed may come as a result of legislature that Congress is currently debating. Incorporated in the discussions is a tax plan that would extend personal income, dividend and capital gains tax cuts and renew unemployment benefits for a full year. The plan is expected to boost economic growth next year by anywhere from half to a full percentage point and cut the stubbornly high unemployment rate by between a quarter to a half a percentage point.

A separate report from the Commerce Department on Thursday showed wholesale inventories rose 1.9 percent in October even as sales increased at the fastest rate in seven months, suggesting businesses were growing optimistic about a healthy holiday shopping season.

The economic outlook was also brightened by a third report from the Federal Reserve showing household wealth rebounded $1.2 trillion in the third quarter after falling $1.4 trillion in the prior period.

Finally, a Bank of America-Merrill Lynch survey of chief financial officers released on Thursday showed nearly half of the 801 executives who participated expected their companies to hire employees next year, up from 28 percent who expected to hire in 2010.

Wholesale Inventories and Sales Up Sharply

Sales at the wholesale level climbed at the sharpest rate in seven months during October and inventories kept rising strongly, according to a government report on Thursday that suggested optimism about a healthy holiday shopping season.

According to a report released by the Commerce Department, wholesale sales rose 2.2 percent to a seasonally adjusted $362.1 billion, following a 0.5 percent gain in September. Inventories were up 1.9 percent in October to $427.1 billion after an increase of 2.1 percent.

The stronger -than-expected October inventory and sales data may imply that wholesalers were preparing for a strong sales season in the critical Thanksgiving-through-Christmas period when retail business typically picks up. The inventory-to-sales ratio that measure how long it would take to deplete stocks at the current sales pace was unchanged at 1.18 months' worth in October.