MarketView for January 2

Summary

It was not a good first day of trading in 2014 as investors booked profits in the wake of the S&P 500's best yearly advance since 1997, with many of last year's strongest performers ending the day with red ink. As a result, all 10 S&P 500 sectors were lower, with tech doing its part to hold back the S&P 500 after Wells Fargo downgraded Apple to "market perform" from "outperform," writing that the company's market cap had limited upside potential without material market share gains. The S&P technology index ended the day down 1.1 percent, while Apple ended the day down 1.4 percent to $553.13, making it the largest drag on both the S&P 500 and Nasdaq 100.

Adding to the weakness in the group were stocks that had enjoyed the best gains in 2013, including Netflix, which was down 1.5 percent, closing at $362.82, and Micron, which was off 0.4 percent at $21.66. Both names more than tripled last year.

Newmont Mining was one of the day’s largest gainers, up 4 percent to $23.96; the stock was the weakest S&P component of 2013.

Gold prices rose 1.5 percent following a 28 percent slump over 2013, a drop that broke a 12-year advance for the precious metal and was its worst yearly performance since 1981.

The S&P closed 2013 with a 29.6 percent gain for the year, its best annual performance since 1997. The Dow surged 26.5 percent in its best year since 1995. The Nasdaq jumped 38.3 percent, its best year since 2009.

In the latest economic data, weekly initial claims slipped for a second straight week while financial data firm Markit said its final Manufacturing Purchasing Managers Index rose in December. Separately, an index of factory activity stood at 57.0 last month, in line with forecasts but below November's reading.

On the upside, U.S. Steel rose 2.6 percent to $30.28 after KeyBanc upgraded the stock to "buy," while Urban Outfitters was up 1.8 percent to close at $37.78 on an upgrade from Jefferies.

In other markets, crude oil dropped 3 percent to $95.50 per barrel as Libya prepared to restart a major oilfield and on speculation of a sharp rise in crude stockpiles in Cushing, Oklahoma.

Meanwhile, the Pipeline and Hazardous Materials Safety Administration issued a safety warning that the type of crude oil produced in the Bakken region in the northern United States could be more flammable than traditional heavy crude oil, pressuring companies that produce oil in the region.

Among the most active names, Oasis Petroleum fell 4.1 percent to $45.05 and Continental Resources lost 4.2 percent to $107.76.

Approximately 5.21 billion shares changed hands on the major equity exchanges, according to BATS exchange data.

Growth in Manufacturing Highest Point in 11 Months

Manufacturing ended the year on a high note, growing in December at its fastest pace in 11 months, while the rate of job growth was the swiftest since March, an industry report showed on Thursday.

Financial data firm Markit said its final Manufacturing Purchasing Managers Index rose to 55.0 last month, beating November's 54.7 reading and an initial December estimate of 54.4. A reading above 50 indicates expansion.

A solid increase in output, for which the index rose to its highest mark in 21 months of 57.5 from 57.4 in November, helped to add to the growth in the sector with a resultant increase in demand for plants and machinery.

The pace of hiring increased, with the employment sub-index rising to 54.0, its best showing in nine months, from 52.3 in November

Signs of strength in the manufacturing and services sector as well as stronger job growth across the economy contributed to the Federal Reserve's decision in December to begin slowing its monthly bond purchases. That program, which the Fed began 15 months ago, was designed to keep long-term interest rates low and boost hiring and growth.

Jobless Claims Fall

The number of new claims for unemployment benefits fell for a second week last week, suggesting labor market conditions continue to steadily improve. Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 339,000, the Labor Department said on Thursday. Claims for the prior week were revised to show 3,000 more applications received than previously reported. The four-week moving average for new claims rose 8,500 to 357,250.

A Labor Department analyst said no states had been estimated. While claims data continue to be plagued by seasonal fluctuations, there has been an acceleration in job growth.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid fell by 98,000 claims to 2.83 million claims for the week ended December 21.

A total 4.46 million people were receiving benefits under all programs in the week ended Dec 14. However, with benefits for more than a million long-term unemployed Americans having expired on December 28, that figure is set to fall sharply in the coming weeks.

The loss of benefits could spur former recipients to either drop out of the labor force or accept jobs they previously would not have considered. Some economists estimate this could lower the current unemployment rate of 7.0 percent by as much as half a percentage point.

Construction Spending Up One Percent

The Commerce Department reported on Thursday that construction spending increased one percent to an annual rate of $934.4 billion, the highest level since March 2009 as a surge in private construction projects offset a drop in public outlays. It was the eighth straight month that construction spending increased.

Construction spending in October was revised to show a 0.9 percent rise instead of the previously reported 0.8 percent increase.

The report added to data ranging from employment to consumer spending that have suggested resilience in the economy even as growth is expected to step down from the third-quarter's brisk 4.1 percent annual rate.

Construction spending in November was lifted by a jump in private construction projects to their highest level since December 2008. Private construction spending rose 2.2 percent after being flat in October.

The increase reflected strong gains in spending on both residential and nonresidential projects. Private residential spending hit its highest level since June 2008 and outlays on nonresidential structures, which include factories and gas pipelines, touched an 11-month high. Public construction spending fell 1.8 percent as both outlays on federal and state and local government projects declined.