By Tomi Kilgore, MarketWatch
Dec 28, 2005
U.S. stocks rallied early Wednesday, as stabilization in the Treasury
yield curve and strength in overseas markets helped alleviate concerns over a
potential economic slowdown and a prolonged sell-off.
Data showing a larger-than-anticipated improvement in consumer confidence
in December further buoyed investor sentiment.
The Dow Jones Industrials Average rose 42 points to 10,820, with 26 of 30
components contributing to gains.
Within the Dow industrials, DuPont 1.1% and Wal-Mart was up 0.9% to pace
the gainers, while Verizon's 0.8% skid led the losers.
The Dow had suffered its biggest one-day point drop in 2 months on Tuesday
to close at a two-week low, as the yield curve inverted -- the yield on ten-
year Treasury notes fell below the yield on two-year notes -- for the first
time in five years. These occurrences had usually been followed by economic
recessions.
The Nasdaq Composite advanced 5 points to 2,232 and the S&P 500 Index
gained 4 points to 1,260.
A surge in the Tokyo market's benchmark Nikkei 225 Index overnight to a
five-year closing high and stronger-than-anticipated consumer confidence data
in Germany helped ease concerns that a global recession was imminent.
"With liquidity still strong, some valuation headroom remaining in our
composite valuation indicator, and growth almost everywhere around the world
stable to strong, it is hard to see why equity markets would not rise in the
first part of 2006," said Morgan Stanley equity strategist Teun Draaisma. "We
expect the positive equity market environment to run through into the first
half of next year."
Volumes were expected to be relatively light throughout the session as
many traders remained on holiday, and corporate news flow slowed to a trickle.
The yield curve had inverted again early Wednesday, with the 2-year
Treasury note yielding 4.377% and the 10-year note yielding 4.368%. It
flattened slightly after the open, with the 2-year last yielding 4.364% and
the 10-year yielding 4.366%.
Analysts were quick to defend the outlook for the U.S. economy, saying the
yield curve was no longer a reliable indicator of future activity.
Asset manager and research firm Bridgewater Associates said "the long end
of the yield curve is being distorted by non-economic flows," such as buying
by foreign central banks, so it is given a distorted picture of how tight
money really is.
"Consumer demand is not really slowing yet, and we don't expect that it
will unless rates rise more than they are currently discounted to rise,"
Bridgewater added. "Both rising [real estate] asset prices and improving labor
markets should continue to support demand, and real interest rates are still
low.
Outside of equities, the strong German data sparked a rally in the euro,
which rose 0.7% vs. the U.S. dollar to $1.1907. Against the yen, the dollar
dipped 0.1% to 117.25.
Within commodities, natural gas futures extended Tuesday's tumble, with
the front-month contract shedding another 12.5 cents, or 1.1%, at $10.897 per
million British thermal units. The January contract had tumbled 10% on Tuesday
amid forecasts for mild temperatures across the U.S.
February crude futures tacked on 20 cents to $58.36 a barrel.
The dollar's weakness helped propel gold higher, with the February futures
contract running up $7.90 to a two-week high of $518 an ounce.
Companies in focus
Celgene shares surged 6.1% and after the company said late Tuesday that
the U.S. Food and Drug Administration approved its anemia treatment Revlimid.
The company also announced a 2 for 1 stock split.
Linens 'n' Things shot up 9.6% after the company said in a regulatory
filing late Tuesday that it expects to satisfy certain conditions necessary to
complete its acquisition by private-equity firm Apollo Capital Management. The
home furnishings retailer will hold a special shareholders meeting on Jan. 30
to vote on the proposed $28 a share cash acquisition.
Discount retailing giant Target said it sees December same-store sales
rising 4% to 5%, which was in line with prior forecasts. That follows rival
Wal-Mart's assertion on Saturday that December same-store sales would rise in
line with previous forecasts of 3% to 4%.
The stock edged up 0.2%.
This MarketWatch news update is provided to you courtesy of Thomson
Financial.
This is Thomson Financial's Market Commentary, which is issued three times
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The information herein is believed to be true and accurate. We take no
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SOURCE Thomson Financial Corporate Group
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