MARKET SNAP: At 5:55 a.m. ET, S&P 500 futures up 0.4%. Treasury yields edge higher. Nymex down 40 cents at $98.92. Gold $8.50 lower at $1194.70. In Europe, FTSE 100 up 0.3%, DAX up 0.4% and CAC 40 flat. In Asia, Nikkei 225 closed and Hang Seng up 0.5%.
WATCH FOR: November Personal Income (8:30): seen +0.4%; previously -0.1%. November Consumer Spending (8:30): seen +0.5%; previously +0.3%. November Core PCE Prices (830): seen +0.1%; previously +0.1%. December Reuters/University of Michigan Consumer Sentiment (9:55, final read): seen 82.9; previously 82.5. No major quarterly reports on tap.
THE BREAKFAST BRIEFINGThe U.S. stock market’s latest run to new highs has been accompanied by a potentially worrisome trend.
As the Dow and S&P 500 finished at fresh record levels on Friday, the breadth of the market’s rally was weaker than previous breakouts to new highs this year. To some, that suggests the power of the rally may be waning, and could spell trouble for the market’s future performance.
Some 70% of stocks in the S&P 500 are sitting above their 50-day moving averages, according to market-research firm Bespoke Investment Group. These lines are used by chart watchers to track a stock’s short-term trend. The last time the market broke out to new highs back in October, about 80% of stocks were sitting above their 50-day moving averages. This figure was above 90% in the first half of the year.
The current 70% reading is among the weakest when compared to this year’s previous all-time highs, Bespoke’s data show.
“Throughout the year, we’ve seen breadth decline with each successive breakout, so it has definitely become more of a ‘stock-picker’s market’ late in the year,” Bespoke said. “Underperforming investors trying to play catch-up with this market into year-end are likely finding it difficult.”
The S&P 500 closed Friday at 1818, up 27% for the year. The stock benchmark snapped a two-week losing streak after the Federal Reserve announced it will start dialing back its $85 billion-a-month bond-buying program, along with a pledge to keep long-term interest rates lower for longer.
The Fed’s latest move, steady corporate profits and an improving economy are why some market watchers are brushing aside some of the potentially worrisome technical developments currently taking place in the market. Stocks also have a seasonal tailwind at their back that could keep fueling the rally into the end of the year.
The market historically has performed well in the final few weeks of December. The phenomenon — known as the Santa Claus rally — is mainly driven by people who rethink their portfolios at year's end, revising them for the coming year. In addition, many professional money managers engage in a widespread practice called window dressing. They get rid of losers or short-term investments they made to boost performance, items that might look bad if they appeared on year-end accounts. They buy stocks that make their holdings look good, which could pad the broader market’s performance.
“We would not be eager to bet on lower prices if stocks hit new highs again, giving respect to positive seasonality and 2013′s well-deserved reputation for running over any and all concerns,” Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report, wrote last week. ”Risk is still heightened, but as mentioned we wouldn’t actually bet against the market as long as it’s ticking at new highs, as this kind of pattern can last into the new year.”
Morning MoneyBeat Daily Factoid: On this day in 2003, government officials announced that they found the first case of suspected mad-cow disease in the U.S.
-By Steven Russolillo; follow him on Twitter @srussolillo.
STOCKS TO WATCHFacebook(FB) shares on Monday will begin trading as part of the S&P 500 index for the first time. Shares added more than 3% last week and more than doubled since the start of the year.
BlackBerry shares rallied 13% on Friday in heavy volume, after the company announced a five-year manufacturing deal with Foxconn. The smartphone maker also reported a quarterly loss that was wider than expected. Friday's rally may have been due to short coverings, as the short interest on the stock is at 31.2%. The stock has lost nearly 40% of its market value since the beginning of the year, as the company struggled to stay profitable in the past year.
Shares in Apple(AAPL) may see some action after a volatile week. The most heavily weighted stock on the Nasdaq Composite rose 0.8% on Friday, giving the index a nice lift. But losses earlier in the week weighed on both the Nasdaq Composite and the S&P 500 technology sector, limiting their weekly gains. The company holds the title as the most valuable on the S&P, having surpassed Exxon(XOM) in that measure on Aug. 1, 2013.
MUST READS (LINKS)Stresses Resurface in China’s Money Market: “Borrowing costs in China’s money market soared again after a brief fall earlier Monday, as the central bank’s recent fund injection failed to appease jittery investors amid a seasonal surge in demand for cash by banks.”
South Sudan Crisis Builds as Refugee Numbers Rise: “The U.S. military on Sunday rushed to evacuate American citizens from a rebel-held town in South Sudan, the latest sign that a country the U.S. helped create might be spiraling toward civil war.”
Top 10 Biotech Companies To Own For 2015
Rule Change on Health Insurance Rattles Industry: “Monday is the final day for consumers to get new health coverage that takes effect when the new year arrives, leaving thousands of people racing to sign up in time—and health insurers trying to figure out whether the federal health law will work in the way they had hoped.”
Even Skeptics Stick With Stocks: “Money managers and analysts say they are beginning to think the Federal Reserve is succeeding in restoring economic growth.”
Banks Mostly Avoid Providing Bitcoin Services: “Lenders are leery of dealing with virtual-currency companies because of concerns that the businesses could run afoul of anti-money-laundering laws or be involved in illegal activities.”
Goldman Real-Estate Play Skirts Volcker Ban: “Tough restrictions excluded many real-estate loans, allowing Wall Street firms to continue making concentrated bets with their own capital.”
Rampant Returns Plague E-Retailers: “Free shipping and lenient return policies have given online retailing a huge boost. Now, chains are mining their order data to get shoppers to keep more purchases.”
Ahead of the Tape: Consumers Come Late to the Growth Party: “Middle-class Americans went from feeling like princes to paupers not once but twice in the span of a decade.”
Tiffany Ordered to Pay Swatch $449.5 Million in Damages: “Tiffany was ordered to pay Swatch $449.5 million in damages related to the companies’ failed partnership.”
Heard on the Street: How Crisis Strengthen’s Europe Bonds: “In Europe, the corporate bond market has been undergoing a quiet revolution ever since the global financial crisis hit. The big switch in Europe is a shift away from the dominance of bond issuance by financial companies such as banks and a sharp increase in sales of bonds by utilities and other nonfinancial companies.”
Pussy Riot Member Is Freed From Prison: “A member of the Russian punk group Pussy Riot was released from prison Monday and a second jailed member was expected to be set free later in the day as part of an amnesty bill signed into law last week, a lawyer for the two women said.”
Agenda: Germany Right to Hold Out on Banking Union: “Berlin is sticking to its mantra that any shift toward further pooling of debt must be accompanied by further pooling of sovereignty, writes Simon Nixon.”
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