MarketView for January 6

Summary

The major equity indexes took a breather on Thursday as soft retail sales, slightly higher initial week unemployment claims and a somewhat stronger dollar had the Street a bit nervous and less than desirous  of making any major commitments a day before December's employment report. About 8.39 billion shares traded on the major exchanges, below last year's daily average of 8.47 billion.

Given a rise of about 8 percent in the S&P 500 since the start of December, it will not take much to set off a round of profit-taking if the jobs report falls short of forecasts that were raised after Wednesday's strong private-sector payroll report. The word on the Street is that the expectation is for a gain of 175,000 in overall non-farm payrolls and an unemployment rate of 9.7 percent, down from the current 9.8 percent rate.

Several of the country’s largest retailers turned in lower than expected sales in December, news that weighed on consumer shares. Target closed down 6.8 percent to $54.91, while Gap fell 6.9 percent to close at $20.70.

The U.S. dollar rose 0.7 percent, helping send crude prices down 2.2 percent. Halliburton fell 3 percent to $38.22 while U.S. Steel declined 2.5 percent to close at $59.06. The Nasdaq on the other hand received a bit of momentum from Nvidia, whose shares ended the day up14 percent to close at $19.33 on optimism over a new mobile chip.

Also among Nasdaq gainers was Microsoft, whose shares ended the day up 2.9 percent to $28.82 after it took a step away from its alliance with Intel to team up with Britain's ARM Holdings in the tablet and smart phone arena. Intel closed down 0.8 percent at $20.77. In addition, telecommunications shares were among top drags on the Dow Jones industrial average with AT&T down 1.4 percent at $29.15 and Verizon Communications down 2.6 percent to close at $36.23.

New jobless claims rose more than expected in the last week, though the four-week average dropped to its lowest in more than 2 years.

December Retail Numbers Not Up To Expectations

A number of the country’s largest retailers reported disappointing December sales. While some store chains cited a blizzard that hit the East Coast after Christmas, Wall Street was taking the position that it could be likely that the numbers indicated that consumers have still not returned to spending habits seen before the financial crisis and that they will continue to be frugal.

In particular, middle-of-the-road clothing retailers like Gap and American Eagle Outfitters, and mass-appeal department store retailers like Kohl's and Macy's were a disappointment to Wall Street's expectations and their shares were taken to the woodshed as a result.

Of the top 5 losers on the S&P 500 index, three were retailers, Gap, discounter Target Corp and video game retailer GameStop Corp.

December sales at stores open at least a year for the 28 major retailers tracked by Thomson Reuters rose 3.1 percent, below Wall Street's forecast of a 3.4 percent increase. Retail chains that exceeded expectations included J.C. Penney, Dillard's, and TJX Cos.

TJX unexpectedly reported a same-store sales gain and raised its outlook, sending its shares up 6 percent. But Penney noted that shoppers had spent less per transaction, citing a general need to discount that continued into the holiday shopping season. Its shares fell 1.26 percent.

The International Council of Shopping Centers forecast same-store sales will rise 2.5 percent to 3 percent in January and 3 percent to 3.5 percent in 2011. Illustrating how the gap between the well off-and middle-and-lower income Americans has grown, some of the largest gains in December accrued to upscale chains such as Saks, Nordstrom and Neiman Marcus. On the other end, Target should have been a benefactor of shopper frugality, but suffered from the same low prices for consumer electronics that hurt Best Buy in November.

Some retailers blamed the weather for sales missing expectations that were ratcheted up after shoppers hit stores en masse at the start of the holiday shopping season.

December 26, which was the third-biggest shopping day of 2009, would struggle to make the top 10 this year, according to research firm ShopperTrak. The week after Christmas accounts for 15 percent of seasonal sales. ShopperTrak said on Wednesday that retailers did not make up all of the $1 billion in retail sales it said shoppers put off because of the storm.

Macy's same-store sales rose 3.9 percent, below Wall Street estimates of 4.5 percent, though in line with its own earlier guidance. Still, the company did not raise its profit forecast. Gap shares fell 7 percent. The clothing chain reported an unexpected same-store sales drop as shopper traffic plummeted.

American Eagle Outfitters reported an 11 percent drop and lowered its profit forecast, as teen chains had cut prices aggressively to win shoppers away from rivals. Abercrombie & Fitch's same-store sales soared 15 percent.

Jobless Claims Slightly Higher

New claims for jobless benefits moved higher last week, but a decline in the four-week average to a nearly 2-1/2-year low suggested the labor market continues to improve. Initial claims for state unemployment benefits increased 18,000 to a seasonally adjusted 409,000, the Labor Department said on Thursday, above economists' expectations for 400,000. The data falls outside the survey period for the government's closely watched employment report for December.

The spike in claims does little to change perceptions the economy is now on a sustainable growth path, as flagged by sturdy data on consumer spending, trade and manufacturing. Signs that the labor market was improving were underscored by the four-week moving average of unemployment claims -- a better measure of underlying trends -- which fell 3,500 last week to 410,750, the lowest level since late July 2008.

The claims data had a limited impact on the financial markets, as the Street waited for the employment report. Treasury debt prices eked out modest gains. The dollar was up against a basket of currencies.

The labor market has lagged the recovery, but with the economic outlook strengthening, employers are laying off fewer workers and taking on new employees. Reports on Wednesday showed the number of planned layoffs at local firms dropped to a 10-1/2 year low in December, while private sector hiring was unexpectedly robust. Seasonal factors, however, could have skewed the data.

The unemployment rate is expected to have edged down to 9.7 percent in December from 9.8 percent in November. Getting the four-week moving average for new jobless claims below 400,000 is critical to reducing the lofty unemployment rate.

The claims report also showed the number of people still receiving benefits under regular state programs after an initial week of aid fell 47,000 to 4.10 million in the week ended December 25.

The number of people on emergency unemployment benefits fell 133,625 to 3.58 million in the week ended December 18, the latest week for which data is available. A total of 8.77 million people were claiming unemployment benefits during that period under all programs.