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Dow finishes year lower; Nasdaq, NYSE Up - Money Matters for 12/30/05
With the last session of 2005 in the books, investors sold off blue chips to send the Dow lower than where it ended 2004. It was the first year in the past three that the Dow finished the year on the downside. The NYSE and Nasdaq both finished 2005 slightly higher.
As investors look forward to 2006, the trends that have dogged stocks for most of the past six months persist. Among them, high energy prices seems to be the most pernicious and least desirable. Crude oil at over $60 per barrel puts a serious dent in prospects for profit and sustained economic growth, squeezing everything from corporate earnings to consumer spending. The high price of energy affects everything.
Interest rates will likely continue to be a strong factor in the perceived health of the US economy. As the Fed proceeds with their tightening - having now raised interest rates for 13 consecutive meetings - economists worry that they have gone too far and threaten to disengage from sound policy by damaging the recovery.
Interest rates seem to be having some affect on the housing market, which continues to show signs of slowing. Of course, more worrying to the banking system is the threat of a prolonged inverted yield curve, in which shorter-term bonds yield more than longer maturities. If that trend continues, it threatens to push the economy into a recession within 6-12 months.
Consumer spending, which now accounts for more than 70% of GDP, continues to bear watching. If the average consumer is tapped out this winter by the combination of inflation, interest rates and the dual hit from home heating fuel and gas from the pump, the spring and summer could be real downers for the market.
The first week of trading on Wall Street will prove interesting. It's widely assumed that the first week of the new year provides a meaningful prediction for the rest of the year.
This coming week will be heavy with data. On Wednesday, weekly retail sales are reported. On Thursday, same-store sales for December are released, which will further clarify the overall holiday shopping season.
US auto and truck sales are also reported on Wednesday, but the most widely anticipated number will be on Friday, when the Labor Department reports on the December labor market. Analysts are expecting the report to show that the economy created 200,000 new jobs in the month.
With 2005 at an end, 2006 poses its fair share of challenges and opportunities.
Dow Jones: -67.32; 10,717.50 close
NYSE Advancers: 1351
Nasdaq Advancers: 1325
NYSE New Highs: 66
Nasdaq New Highs: 75
Gold: +1.40; 518.90 close
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