MarketView for December 10

Summary 

Share prices were higher on Friday, with the S&P 500 at its highest level since the week Lehman Brothers collapsed in 2008, and breaching technical levels that suggest the year-end rally will persist. The key equity Indexes closed near session highs with the Nasdaq Composite up for its eighth consecutive daily gain; in that time, the tech-heavy index is up 5.5 percent. The Nasdaq finished at its highest level since December 31, 2007. A substantial help to the Nasdaq was the 2.3 percent gain in shares of Oracle, which hit their highest point since December 2007. Oracle ended the day at $29.95.

Large cap issues led the pack on the Big Board, with General Electric up more than 3 percent after it raised its dividend for a second time this year. GE rose 3.4 percent to $17.72 after the company announced it was raising its quarterly dividend payments to shareholders by 2 cents per share to a total 14 cents per share. For the week, the Dow was up 0.2 percent, the S&P 500 gained 1.3 percent and the Nasdaq was up 1.8 percent. However, volume was below average as is typical for this time of the year.

In the latest signs of economic improvement, consumer sentiment rose more than expected in early December, according to the Thomson Reuters/University of Michigan survey, while import prices in November climbed at their fastest pace in a year. Another positive signal came from the Commerce Department, which said the country’s trade deficit narrowed much more than expected in October.

Overseas news helped boost equities, after the latest economic data from China indicated that China's imports and exports increased during November, bank lending topped forecasts and property investment powered ahead. As a result, China increased reserve requirements for banks but kept interest rates on hold.

Tenet Healthcare closed up 55 percent to $6.65, easily surpassing the $6-per-share bid from Community Health Systems and likely forcing the potential buyer to raise its offer for the rival hospital company. Community Health shares ended the day up 13.4 percent at $35.89.

Shares of Netflix gained some ground after Standard & Poor's said the company, along with F5 Networks, Newfield Exploration and Cablevision Systems, will be added to the S&P 500 index after trading closes next Friday.

Netflix chalked up a gain of 1.9 percent to close at $194.63, Cablevision was up 4.1 percent at $34.72, Newfield gained 3.3 percent to close at $72.37 and F5 Networks saw its shares gain 3 percent to close at $143.09.

About 7.4 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, below the year's average of 8.62 billion shares.

Emerging Markets Could Come Under Pressure

Smaller developing countries should prepare measures to be able to cope with inflows of cash as investors look for bigger returns outside sluggish developed economies, Nobel Prize winning economist Joseph Stiglitz said on Friday. Stiglitz said that he expected the Europe and the United States recovery to be "very slow," and that Washington should roll out a second round of stimulus.

He said there is a chance the euro could fail and that its sustainability would depend on a fiscal framework that helps struggling European nations like debt-stricken Ireland. Given the relative vigor of some emerging market economies, their governments may have to resort to steps to curb an overdose of inward investment, he said.

Chile, which has refrained from capital controls, should be ready to intervene in the local peso that is trading at around 30-month highs. The currency is boosted by rising dollar inflows and soaring prices for No.1 export copper.

"They (Chile) should also be ready to intervene in the exchange rate," said Stiglitz, who won a Nobel Prize in economics in 2001. "It depends on what is going elsewhere in the world, the magnitude of the (inflows) pressure."

Chile's central bank last intervened to counter peso strength in 2008, when it hit around 430 per dollar. The peso was trading at around 475.50 pesos a dollar in late Friday trade.

Stronger Economic Recovery appears to be at Hand

The smaller-than-expected trade deficit could raise estimates for fourth-quarter economic growth because it implies a larger share of U.S. demand is being met by domestic production.

On an annual basis, the trade deficit has widened sharply this year and could surpass $500 billion when final figures for 2010 are available. Last year, in the midst of the global financial crisis which put a squeeze on world trade, the trade gap narrowed about 46 percent to $374.9 billion.

However, the government posted a larger-than-expected budget deficit in November, the Treasury Department said, as President Barack Obama tries to sell a compromise made earlier in the week with Republicans on Capitol Hill over a two-year extension of tax cuts enacted by President George W. Bush.

The $150 billion shortfall in November was the 26th straight monthly deficit, the longest streak on record and the largest budget gap for any November.

Last week, a bold plan to slash the U.S. budget deficit fell short of winning the support needed to trigger legislative action in Congress, shifting the fiscal responsibility issue to the White House and lawmakers. The grim budget outlook will be a major challenge for House Republicans, who have promised budget cuts when they officially take control of the lower House next month.