MarketView for December 27

Summary

A surprise weekend interest rate hike from China's central bank resulted in some negative numbers early in the trading day on Monday. However, the Street quickly overcame any trauma and as the day came to a close, only the Dow Jones industrial average was in the red. Furthermore, with no major economic data or corporate news, trading volume, which usually dips during the holiday season, was even lighter as a blizzard moved across the northeastern United States.

Share prices of financial stocks ended the day higher, partially because of a rally in American International Group shares that enabled the S&P 500 to move into positive territory during the afternoon portion of the trading day. Shares of AIG rose as much as nearly 12 percent during the day as a result of the company’s announcement that it had secured a  $4.3 billion credit line. The stock ended the day closing up 9.3 percent at $59.38.

Retail stocks felt the impact of the latest snowstorm to hit the East Coast that kept many shoppers away from malls just after Christmas. The week after Christmas offers retailers a final opportunity to capture holiday spending and will generally account for about 15 percent of total sales for the season, according to the National Retail Federation. Store chains offer additional discounts to lure extra purchases from shoppers when they come to return gift items or redeem gift cards.

The weekend's blizzard conditions, which shut down airports and halted traffic, ended early post-Christmas shopping and may even signal an end to shoppers' appetite in the next few months. As a result, Nordstrom ended the day down 1.6 percent at $42.09, while RadioShack closed down 0.1 percent at $18.47.

The CBOE Volatility Index jumped 7.3 percent to 17.67, only one session after closing at its lowest levels since July 2007. The VIX is beginning to take into account the distinct possibility of a more volatile trading environment in early 2011. The VIX measures projected stock market volatility off of near-term S&P 500 index option prices and often moves inversely to the benchmark S&P.

China's central bank raised interest rates on Saturday for the second time in just over two months as it stepped up its battle to rein in stubbornly high inflation. The People's Bank of China said it will raise the benchmark lending rate by 25 basis points to 5.81 percent and lift the benchmark deposit rate by 25 basis points to 2.75 percent.

About 2 billion shares traded on the New York Stock Exchange, compared to the daily average of about 4.8 billion shares this year. Trading in the options market was also thin, with 3.7 million calls and 2.6 million puts traded, or about half the daily average.