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Dow Takes a Peek at Peak, Shies Away - Money Matters for 12/14/05
A day after the FOMC raised rates for the 13th consecutive time and hinted that the long procession of interest rate increases was nearing an end, the Dow Jones Industrial Average took the hint and headed for 52-week highs in afternoon trade.
The Dow was up nearly 100 points shortly after 2:00 pm, but just as quickly as it had moved up, the index backed off and prices slid on profit taking into the close.
The rally, despite being a day late, seemed to lack conviction and follow through. Additionally, volume was unimpressive though breadth on the NYSE was solid, with advancing issues outpacing decliners at a 5-3 ratio.
On the Nasdaq, the mood was decidedly different as the tech-laden index took it on the chin, though barely, closing down less than three points. The Nasdaq A-D line was slightly negative for the second day in a row as profit-taking took its toll on techs and midcaps.
The big news may be outside the market, however, as Wall Street patiently awaits some signal from retailers that the holiday shopping season is either going to be a boomer or a bust. Set against the backdrop of a superheating political storm in Washington over the Iraq war, problems in New Orleans and the overall responsibility and accountability of the Bush administration, Wall Street and the US economy seems to have been cut loose and set adrift.
While the financial and investment wizards spin their best holiday magic, the Commerce Department and Census Bureau threw a spell of their own, releasing damaging figures on the International Trade balance, which grew to an all-time record of -$68.9 billion for October.
While the balance of trade may not be of much interest to the average American, it certainly holds water with investment and economics heavyweights. The US economy cannot sustain the degree of negative trade balances forever without the international banking community finally taking note and dumping US assets like those of any second rate net-debtor nation. The only trump card the US is holding is that the dollar is still the world's reserve currency, but that status continues to be seriously eroded by the trade imbalance and burgeoning federal deficits.
What is compelling about the Dow stocks and why they continue to range near 52-week highs, is that they are world stocks with many of their holdings and earnings derived from activities outside the US. They should retain much of their value and have, though the weakening perception of the US and its economy will eventually drag even the mightiest of the mighty down with the trash.
It may be the season of profit-taking as evidenced by the rout in gold, silver and platinum, all of which sold off sharply today. One wonders when the sell-off will find its way over to stocks, which thus far have weathered well.
Clues are beginning to emerge on the Christmas shopping season which could spell doom for stocks for the remainder of 2005. According to Pat Conroy, vice chairman and national managing principal of Deloitte Research, "short-term signs are positive; however, longer term we believe that retailers and consumers continue to face fundamental challenges."
A couple more anecdotes on the busy retail season:
The number of people expecting to buy jewelry in December dropped 12% from a year ago, according to a November survey by Retail Forward.
Analysts at Merrill Lynch wrote the following in a note to clients on Tuesday: "Sales have slowed in the last week despite continued high levels of promotions."
There are only 10 days left in the Christmas shopping season. Is it beginning to get a little dicey?
Dow Jones: +59.79; 10,883.51 close
NYSE Advancers: 2016
Nasdaq Advancers: 1482
NYSE New Highs: 156
Nasdaq New Highs: 132
Gold: -14.60; 509.50 close
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