MarketView for December 24

MarketView for Tuesday, December 24
 

 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Tuesday, December 24, 2013

 

 

Dow Jones Industrial Average

16,357.55

p

+62.94

+0.39%

Dow Jones Transportation Average

7,339.37

p

+27.33

+0.37%

Dow Jones Utilities Average

488.96

p

+1.95

+0.40%

NASDAQ Composite

4,155.42

p

+6.51

+0.16%

S&P 500

1,833.32

p

+5.33

+0.29%

 

 

Summary  

Wall Street chalked up modest gains in a short session ahead of the Christmas holiday, with the Dow and S&P 500 once again ending at record highs. Markets closed early on Tuesday and will remain shut until Thursday for the holiday. Trading was extremely light during the day's abbreviated session, which ended at 1 p.m. Many market participants were out of the office on the day before Christmas. Volume is expected to remain muted throughout the week and the light trading could allow for greater volatility.

 

Both the Dow and S&P 500 continued to ascend to all-time highs, with the Dow reaching a record high for the fifth consecutive session, while the S&P 500's record streak stood at three days in a row. Further upside may be limited at these levels, especially in the absence of major trading catalysts.

 

In the latest positive sign for the economy, data indicated that durable goods order rose 3.5 percent during November and a gauge of planned business spending on capital goods marked its largest increase in nearly a year.

 

A separate report revealed new home sales fell in November, but sales in October were revised to show the highest pace in more than five years and house prices rebounded.

 

The S&P 500 is up 28.5 percent this year and is on track for its best year since 1997. The Dow is up 24.8 percent in 2013 while the Nasdaq is up 37.6 percent for the year.

 

Private equity firm Carlyle Group is nearing an agreement to acquire Johnson & Johnson's ortho clinical diagnostics unit in a deal expected to be worth around $4 billion. Carlyle Group shares gained 2.1 percent to $36.11. Johnson & Johnson gained 3 cents, to end the day at $92.06.

 

Volume was light because of the abbreviated session, with only about 2.17 billion shares changing hands on the major equity. exchanges - well below the 6.43 billion average so far this month, according to data from BATS Global Markets.

 

Durable Goods Up Sharply

 

The Commerce Department reported Tuesday morning that durable goods orders were up 3.5 percent as demand increased for a range of goods from aircraft to machinery and computers and electronic products during November. At the same time a gauge of planned business spending on capital goods recorded its largest increase in nearly a year, pointing to sustained strength in the economy.

 

Last month's increase in durable goods orders, which exceeded expectations for a 2 percent increase, reversed October's 0.7 percent decline. Excluding transportation, orders rose 1.2 percent, the largest increase since May.

 

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, surged 4.5 percent, breaking two straight months of declines. It was the largest increase since January.

 

The report suggested rising strength in manufacturing and was further evidence of a continued economic growth outlook. From consumer spending to employment and trade, the foundations appear to be in place for sustained and strong economic growth in 2014. The data support the Fed's decision last week to start trimming back its monthly bond purchases from January, a process which is likely to continue for much of next year.

 

The expectation had been for orders for so-called core capital goods to increase 0.7 percent in November after a 0.7 percent fall in October. The data indicated that shipments of core capital goods, which are used to calculate equipment spending in the government's measure of gross domestic product, increased 2.8 percent last month. It was the largest increase since March 2012.

 

Shipments had declined during September and October, and last month's increase could see an increase in fourth-quarter GDP estimates. Last month, durable goods orders rose almost across the board, with notable gains in transportation.

 

Transportation equipment orders increased 8.4 percent after falling 3.5 percent. Civilian aircraft orders jumped 21.8 percent and orders for motor vehicles recorded their largest increase since February.

 

Boeing received orders for 110 aircraft in November, up from 79 aircraft the prior month, according to information posted on the aircraft company's website. Outside of transportation there were gains in orders for computers and electronic products, machinery and fabricated metal products, among others.

 

Retailers Appear To Be Hurting

 

Fewer Americans hit the malls the last week before Christmas even as store visits plummeted 21 percent and retail sales dropped 3.1 percent in the week through Saturday, signaling a lackluster finish for stores' most important selling season, Chicago-based researcher ShopperTrak said yesterday.

 

Falling store traffic in recent weeks and uneven demand especially for apparel spurred chains to risk earnings by piling on the discounts. Retailers including Neiman Marcus were offering as much as 75 percent off, and some, including Macy's and Kohl's were keeping stores open around the clock starting Friday. At the same time, consumers are increasingly shopping online.

 

Holiday purchases increased 2 percent from Nov. 1 to Dec.22, ShopperTrak said. Sales will rise 2.4 percent for the whole season, the smallest gain since 2009. ShopperTrak compiles sales and traffic data. Holiday sales grew 3 percent last year, 3.4 percent in 2011 and 4 percent in 2010, according to the firm's measure.

 

The National Retail Federation reiterated on Dec. 12 its prediction that total sales will rise 3.9 percent in November and December, more than the 3.5 percent gain a year ago. Although the economy grew at a surprising 4.1 percent annualized rate in the third quarter, the gain was driven by increased spending on services such as health care and recreation as well as companies boosting software investments.

 

Therefore the expansion has largely by passed retailers such as Wal-Mart, which last month trimmed its profit forecast as unemployment and higher taxes kept many customers from increasing spending.

 

Even Michael Kors's hot namesake leather goods brand could not avoid discounts. A larger portion of the company's inventory was marked down than last year, indicating a slower-than-expected holiday season. Gap's Old Navy chain on Dec. 22 started offering as much as 75 percent off throughout the store.

 

Meanwhile, Target had its own challenges. After reporting that data for about 40 million debit and credit cards may have been compromised at the height of the holiday shopping season, the chain tried to lure shoppers with a 10 percent discount this past weekend. Yet the number of transactions at Target slipped 3 to 4 percent compared with the final weekend before Christmas last year, according to Customer Growth Partners.

 

Sales in November and December account for 20 percent to 40 percent of retailers' annual revenue and 20 percent of profit, according to the NRF, a Washington-based trade group. Consumer spending represents about 70 percent of the economy.

 

Not all retail sectors are faring equally. Home-improvement and furnishing chains will generate 7 percent growth in fourth-quarter same-store sales while auto retailers will see 6 percent growth and discounters 1 percent, according to Retail Metrics, while sales at department-store chains will fall 1 percent and they will sink 7 percent at teen-apparel chains, the firm said.

 

Estimates show luxury chains will post a 5 percent gain, smaller than last year's 5.4 percent increase. The group monitored by Retail Metrics is made up of Coach, Tiffany, Kors, Williams-Sonoma, Blue Nile and Zale.