MarketView for December 19

Summary  

The major equity indexes finished mostly flat on Thursday as investors appeared to want to take a bit of a break after the intense rally the previous day. Nonetheless, the Dow Jones Industrial Average still managed to chalk up its second consecutive record close. Meanwhile, the Nasdaq declined slightly on weakness in tech shares, though its loss was limited by a rally in Oracle a day after the company issued its latest results.

Wednesday's rally came after the Federal Reserve announced a plan to trim its monthly bond purchases by $10 billion to $75 billion, beginning in January. The statement was accompanied by a dovish indication of rock-bottom interest rates for the foreseeable future, a combination that gave both the Dow and the S&P 500 indexes their largest daily gains in two months.

Oracle's stock ended the day up 5.8 percent to $36.60 a day after the company reported earnings that exceeded expectations and gave a bullish revenue outlook. The stock was the S&P 500's biggest percentage gainer.

Red Hat rose 8.2 percent to $53 in extended-hours trading following the company's third-quarter results, which were released after the bell. The stock had ended the regular session at $49, up 0.2 percent.

The Dow reached an all-time intraday high of 16,194.72 during the session, while the S&P 500 moved within 3 points of setting a new high. Both indexes are up more than 20 percent this year, with the rally largely fueled by the Fed's accommodative monetary policies.

Facebook fell 0.9 percent to $55.05 after the social network company announced the offering of 70 million shares, including more than 41 million shares from Chief Executive Officer Mark Zuckerberg, worth about $2.3 billion. Zuckerberg's sale, partly to pay a tax bill, will reduce his voting power to 56.1 percent from 58.8 percent.

Adobe Systems fell 1.5 percent to $58.13. Texas Instruments was down 1.5 percent to end the day at $42.46, weighing on the Nasdaq.

Target said hackers might have stolen data from some 40 million credit and debit cards of shoppers who visited its stores during the first three weeks of the holiday season in the second-largest such breach reported by a domestic retailer. The shares ended the day down 2.2 percent, closing at $62.15.

Dish is considering a bid for T-Mobile next year in what would be the satellite TV provider's second attempt at acquiring a major wireless operator. Dish ended the day up 1 percent to close at $55.83, while T-Mobile gained 8.7 percent to end the day at $29.61.

Darden Restaurants said it would sell or spin off its Red Lobster business, buckling under pressure from activist investor Barington Capital Group after reporting another quarter of sliding profits. Darden fell 3.6 percent to close at $51.02.

In economic news, the number of Americans filing new claims for unemployment benefits rose last week to the highest in nearly nine months, while home re-sales fell to their lowest level in nearly a year. On the upside, the Philadelphia Federal Reserve Bank's index of factory activity rose slightly in December.

A gauge of future economic activity marched higher in November, suggesting the recovery continues to gain steam. The Conference Board said on Thursday that its Leading Economic Index rose 0.8 percent to 98.3 last month after rising a revised 0.1 percent in October. Economists polled by Reuters had expected a 0.7 percent November gain.

"The LEI continues on a broad-based upward trend, suggesting gradually strengthening economic conditions through early 2014," said Ataman Ozyildirim, economist at The Conference Board.

Trading volume for the day was below average with about 5.53 billion shares changing hands on the major equity indexes, according to BATS exchange data.

Jobless Claims Numbers Approach Nine Month High

The Labor Department reported Thursday morning that the number of new claims for unemployment benefits rose last week to their highest level in nearly nine months. Specifically, the number of initial claims for state unemployment benefits was increased by 10,000. That brought the total number of initial seasonally adjusted claims to 379,000, the highest level since March.

 It was also the second consecutive week that claims have risen. The four-week moving average for new claims, which irons out week-to-week volatility, increased 13,250 to 343,500.

The claims data is difficult to adjust for seasonal fluctuations around the Thanksgiving and Christmas holidays, lessening its reliability as an indicator of the labor market's health. Other labor market indicators have pointed to a strengthening in job growth.

Last week's claims data covered the period for the December nonfarm payrolls survey. Claims increased 53,000 between the November and December survey periods, but seasonal volatility reduces their usefulness in trying to predict payroll growth.

Payrolls increased solidly in October and November. The unemployment rate dropped to a five-year low of 7.0 percent in November. At the same time, a Labor Department analyst said no states had been estimated, but noted that claims were still in a period of volatility related to the holidays.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid rose 94,000 to 2.88 million in the week ended December 7.

Existing Homes Sales Down Sharply

Sales of existing home fell sharply in November to their lowest level in nearly a year, hurt by a rise in interest rates since the spring and ongoing price increases that have shut some home buyers out of the market.

The National Association of Realtors (NAR) indicated on Thursday that sales of previously owned homes fell 4.3 percent last month, the third monthly fall in a row, to an annual rate of 4.90 million units. That was the lowest annual rate since December 2012.

"It is a clear loss in momentum for home sales," NAR economist Lawrence Yun told reporters.

Mortgage interest rates have risen sharply since May on expectations the Federal Reserve would start winding down a bond-buying economic stimulus program. The Fed announced on Wednesday it would start tapering its monthly bond purchases next month.

Yun said the rise in mortgage rates, coupled with fast-rising prices, had made home buying less affordable for many Americans.

The data carried a hint, however, that home price gains may be cooling off. The median price nationwide rose 9.4 percent in November from the same month in 2012 to $196,300. It was the first time in a year that prices didn't rise at a double-digit pace.

Yun said the NAR was "very concerned" about plans by the Federal Housing Finance Agency to reduce the maximum size of mortgages which can be bought by taxpayer-owned finance giants Fannie Mae and Freddie Mac. He said this could further impede the housing market's recovery.