By Mark Cotton, MarketWatch
Jan 3, 2006
U.S. stocks closed near their highs Tuesday, with the Nasdaq Composite
registering its largest rise since last July, after the minutes of the
Federal Open Market Committee's latest meeting showed a majority of members
believe the central bank need implement only a few more rate hikes.
On the first session of 2006, the Dow Jones Industrial Average gained
129.91 points, or 1.2%, to close at 10,847.41, racking up its largest gain
since Dec. 1. The average was as low as 10,684 earlier in the session.
The Nasdaq rose 38.42 points, or 1.7%, to 2,243.74, its biggest gain in
points since July 8.
The S&P 500 Index rose 20.51 points to 1,268.80.
Most members of the FOMC, the Fed interest-rate setting body, said the
outlook for policy was that "the number of additional firming steps required
would not be large," according to a summary of the discussion at their
December 13 meeting.
"If you were to look at the minutes of the Fed, there is more reason to
believe than not that the Fed is very close to end of this current tightening
cycle, which is good for equities," said Art Hogan, chief market strategist at
Jefferies & Co.
On the broader market for equities, advancers had a 25 to eight advantage
over decliners on the New York Stock Exchange, and led by a 19 to 11 margin on
the Nasdaq.
Volume was more than 1.90 billion on the Big Board, and over 2.03 billion
on the Nasdaq.
On a historical basis, S&P performance in early January can be a good
gauge on what to expect for the remainder of the year.
Gains in the broad gauge in the first five days of the month have preceded
full-year gains 85.7% of the time, according to the Stock Trader's
Almanac.
However, 2006 is a midterm year, and the indicator has had a spotty record
in such periods.
"In the last 14 midterm years only six full years followed the direction
of the first five days, and none did in the last seven," the Almanac said.
Factory, construction data disappoint
Weaker-than-expected data hurt stock prices in morning trade.
Factory activity in the United States decelerated in December, the
Institute for Supply Management reported Tuesday. The ISM index fell to
54.2% in December from 58.1% in November. The decline was larger than
expected. The consensus forecast of estimates collected by MarketWatch was for
the index to slip to 57.6%.
Outlays on U.S. construction projects meanwhile increased 0.2% in
November, the smallest gain since June, the Commerce Department estimated.
Dollar, gold, bonds, oil
The data filtered through the rest of the financial markets.
The dollar, which was already weak, fell further after the FOMC minutes
appeared to signal the end of dollar-boosting rate hikes. Interest-rate
increases boost the attractiveness of dollar-denominated assets.
Late in the day, the euro was up 1.1% at $1.1970. Against the Japanese
yen, the dollar was off 1.1% at 117.49.
Gold futures stretched their winning streak to seven sessions, tapping
their highest intraday level in three weeks, and marking their loftiest close
since 1981.
The benchmark February contract rose $13.60 to $532.50 an ounce, the
highest futures closing level since April 1981.
In the bond market, long-term Treasurys turned higher mid-morning after
the ISM report showed moderation in U.S. manufacturing growth, with the
inflation component of the report also coming in tame.
The benchmark 10-year note closed up 4/32 at 101, with its yield at 4.37%.
Crude oil futures closed at $63.14 a barrel, gaining 3.4% on the session
and marking its first close above the $63 level for the first time since
Oct. 26.
Russia had cut off most of the natural gas it sends to the Ukraine after
its neighbor refused to pay a four-fold price increase, but by late Monday
turned the spigots on again amid pressure from European governments. "If this
Russia/Ukraine problem reduces natural gas to Europe there will be some fuel
switching there," said James Williams, an economist at WTRG Economics. "Higher
demand in could Europe drive up crude prices worldwide."
Dow stocks in focus
Shares in Wal-Mart Stores Inc. slipped 1.2% to $46.23 after the world's
largest retailer warned December same-store sales would come in at the lower
end of its forecast range.
General Motors Corp. dropped 2.7% to $18.90, after Banc of America cuts
its price target on the beleaguered car maker to $13 from $16.
Johnson & Johnson rose 2.5% to $61.63, buoyed by a J.P Morgan upgrade to
overweight from neutral. The broker expects its 2006 outlook to be a positive
catalyst for the stock, with a strong drug pipeline likely to lend further
support.
Shares in Pilgrim's Pride Corp. tumbled 23.5% to $25.36 after the poultry
producer cut its first-quarter outlook, citing a "significantly worse" than
expected performance in its Mexico operations.
Exxon Mobil Corp. was the biggest percentage gainer on the Dow, rising
more than 4% to $58.47, buoyed by the surge in crude-oil prices.
CBS starts trading on the NYSE
CBS Corp. shares began trading Tuesday, following the weekend completion
of the New Year spin-off of the company from former parent Viacom Inc.
The CBS Class B stock, which is trading under the ticker "CBS" closed up
almost 2.8% at $26.20.
Google Inc. shares rose 4.9% to $435.20 after Piper Jaffray raised its
price target on the Internet giant to $600 from $445. The broker believes that
2006 will be a "banner year" for the company.
"Given the company's performance, market share gain and the pipeline of
new products, we believe outperformance is still very likely," said analyst
Safa Rashtchy said. "We expect new initiatives, in particular Google's ad
network and Google Base, to generate meaningful revenues by the end of 2006."
This MarketWatch news update is provided to you courtesy of Thomson
Financial.
This is Thomson Financial's Market Commentary, which is issued three
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p.m.). The information herein is believed to be true and accurate. We take
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SOURCE Thomson Financial Corporate Group
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