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After The Close - The recently begun holiday season has been anything but merry so far for those long equities. The month of December began with the major equity indexes near record highs, which left them susceptible to some profit taking if sentiment were to weaken. That has certainly been the case thus far this week, with concerns that the Federal Reserve will soon begin to taper its bond-buying activity—perhaps as early as this month when the Federal Open Market Committee (FOMC) meets—weighing on equities. Historically, the equity market has not reacted well to a tightening of monetary policies.

By the closing bell, all of the major U.S. equity indexes were notably in the red, including the small-cap Russell 2000 and the S&P Mid-Cap 400 Index. Overall, the selling was quite pronounced, with declining issues outnumbering advancers by a significant margin on both the Big Board and the NASDAQ. From a sector perspective, the biggest laggards, much like yesterday, were the basic materials and industrial stocks. Conversely, there was interest, as faint as it might have been, in the more-defensive utilities and consumer staples sectors. This group rotation is not overly surprising given the growing apprehension on Wall Street the last few days. In fact, the S&P 500 Volatility Index (or VIX), which is known as the “fear gauge” finished the session at its highest level in more than a month-and-a-half.

As noted, investors seemed to be growing a bit concerned that the Federal Reserve may soon begin to pull the rug out from under trading by dialing back on its accommodative monetary policies. (For the most part, accommodative monetary policies have been given a great deal of credit for the lengthy bull run, which has had a duration of more than four years.) Driving this sentiment change has been a series of positive economic developments in recent weeks, including yesterday’s better-than-expected data on construction spending and manufacturing activity. Such positive reports have raised the question of whether the economy is now able to stand on its own without the aggressive monetary stimulus of the lead bank. The economy will remain the focus of investors the rest of this week, with several important reports due, a few of which will shed some more light on what the Federal Reserve might do at its next FOMC meeting. Specifically, investors will be paying close attention to the Federal Reserve’s latest Beige Book summation of economic conditions (due out tomorrow afternoon) and this Friday’s report from the Labor Department on employment and unemployment for the month of November. The expectation is that the nation added more than 200,000 positions last month, a figure that would bring additional speculation that the central bank will begin to taper its bond purchases—and possibly additional selling on Wall Street.

Meantime, a quiet period for earnings releases, has investors focusing on some industry-specific trends. The most attention right now is being given to the retailing area, with the holiday-shopping season in full gear. The sentiment there has improved some after some lackluster data from Black Friday. Specifically, the initial expectations are that Cyber Monday was a success for the retailers. According to data firm comScore, U.S. online sales on Cyber Monday were the highest since the firm began tracking data for the event; sales are expected to have topped $2 billion. However, this report has not given much support to the consumer discretionary sector. Within that space the specialty retailers are notable laggards.

Likewise, homebuilding and housing-related stocks were under significant selling pressure today. Our sense is that there are growing fears that a cutback in Fed bond buying will push lending rates higher and thus cool housing sales and the need for home-improvement products. The homebuilding stocks, including shares of industry leaders Lennar (LEN), PulteGroup (PHM), and D.R. Horton (DHI), finished in the red, while the stocks of home-improvement retailing giants Home Depot (HD), Lowe’s Companies (LOW), and Lumber Liquidators (LL) also were lower in the latest session.

Looking ahead to the remainder of the week, the focus of the investment community will be on the economy and the Federal Reserve. If data come in as expected, the possibility of a further market correction exists, as the sentiment that the Federal Reserve will soon begin to step on the monetary brakes will only intensify. – William G. Ferguson

At the time of this article's writing, the author did not have positions in any of the companies mentioned.

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12:45 PM EST -  The U.S. stock market is losing ground today, extending yesterday’s late-day weakness. At just past noon in New York, the Dow Jones Industrial Average is down 107 points; the broader S&P 500 Index is off about seven points; and the technology-heavy NASDAQ, which had bucked the downtrend earlier this morning, is now shedding 10 points. Market breadth suggests a negative bias to the session, as declining issues are ahead of advancers by a narrow margin. Most of the market sectors are declining, with notable weakness in the financial sector, and particular losses in the insurance issues. The healthcare issues are also slipping today, with selling across that industry. Meanwhile, the technology stocks are up slightly, thanks to gains in the hardware names, and the defensive high-yielding utilities are showing some relative strength.

Technically, the market has been a bit weak over the past couple of days. However, given the advances we have seen lately, this is not unexpected. Traders may well need further time to digest recent gains, and get accustomed to the market’s current level. For now, the S&P 500 Index has dipped just below the 1,800 mark, and that is an area that is worth watching. The VIX is up again today to 14.77. Some weakness recently may have to do with concerns about the Fed’s course of action. In an ironic sense, yesterday’s strong November ISM figures may have some speculating that the Fed will start reducing its asset purchases sooner, rather than later—perhaps after this month.

Meantime, there were few economic reports released today. But, independently, a handful of major automakers released favorable monthly sales figures, which suggests that the consumer is strengthening. Tomorrow, brings the nation’s October trade balance report, as well as new home sales for both September and October. The ISM Non- Manufacturing Index for November is also due out. Further, the Fed is slated to release its December Beige Book summation. Meanwhile, traders, already getting a bit cautious, may be hesitant to jump into the market with the November employment report coming out on Friday, as well.

In the corporate sector, there were a few items worth noting. Krispy Kreme (KKD) stock is off sharply, after the donut maker issued weaker-than-expected guidance. After the close, we will hear from Bob Evans Farms (BOBE) and technology company OmniVision (OVTI). Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Stocks to Watch from The SurveyOne of the biggest movers in the premarket is Krispy Kreme Doughnuts (KKD). Indeed, the stock is indicating a sharply lower opening this morning, after the restaurant operator reported solid October-period results, but offered forward-looking guidance that fell short of investors’ expectations. Similarly, shares of Yum! Brands (YUM) are down slightly in pre-market trading, after the parent of Taco Bell, Pizza Hut, and KFC said that November sales in China were flat, disappointing Wall Street. Elsewhere, shares of Tesla Motors (TSLA) are moving nicely higher ahead of the bell, after regulators in Germany investigating several recent fires in the electric vehicle manufacturer’s Model S sedan cleared the company and deemed that no further actions were necessary. Investigators in the United States are still reviewing the incidents. – Matthew E. Spencer 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

Before The Bell -  It wasn't exactly the kind of start to a new month that the bulls had drawn up as a hoped-for blueprint. After all, following a November that had been a rousing success from start to finish, with practically a wire-to-wire advance recorded during the month, there had been hopes for an encore in December. And there might yet be one. However, this month has begun differently, with the leading averages pointing lower almost from the outset.

Still, the forlorn bears could not mount any early offensive of note. In fact, when the Institute for Supply Management reported a better-than-expected increase in manufacturing activity for the past month, which was released some 30 minutes into the trading day, the bulls seemed to get a lift.

However, this was a mere tease, and while the early modest losses in the key indexes were erased and even some green arrows soon appeared, the strength was never notable, and soon evaporated as the afternoon progressed. Indeed, a second, and more serious, round of selling commenced later in the session, and this took the leading indexes down to session lows near the close, before some tepid last-minute buying helped to ease the worst of the day's declines, but just nominally.

All told, the Dow Jones Industrial Average lost 78 points, not too far from its intra-session nadir, which had shown a loss of about a hundred points. Also in the loss column were the Standard and Poor's 500 Index (off five points), the NASDAQ (down 15 points), and the small-cap Russell 2000 Composite, which lost 14 points, or better than one percentage point. Decliners easily led advancers on both the Big Board and the NASDAQ, to the tune of about three-to-one, in what shaped up as a very weak session for equities as well as bonds. In fact, this latter class sold off notably into the close on fears, perhaps, that the better manufacturing data could encourage the Federal Reserve, which holds its next FOMC meeting in two weeks, to pull back on its monetary accommodation. In all, the 10-year Treasury note saw its yield climb to 2.80%, while the return on the companion 30-year Treasury bond jumped to 3.86%. Yields, however, are a bit lower so far this morning.     

As to the stock market, in addition to the weak overall tone, we saw some further slippage in the metals and basic materials names, with Newmont Mining (NEM) shares pushing to a new 52-week low on worries, apparently, about some further weakness in gold. Seemingly, the good manufacturing news is doing little for the industrial group, which also saw weakness in the steel stocks, after a mini-bullish run there in recent weeks.

On the whole, it was a rude introduction to a month that is often kind to equity holders. But September through November can be difficult for investors, at least at times, and this year was anything but, so there could be some payback, at least to start the month. Of course, the level of the equity market--the Dow held above 16,000 yesterday, with the help of the slight buying blip at the close, while the Standard and Poor's 500 Index remained at 1,800--can make equities very vulnerable, as they are now.

Of course, as we have noted in the past, markets can stay overvalued and undervalued for long periods of time, so it is not a certainty that stocks will retrace even a small portion of these historic gains anytime soon. In fact, we've also noted a tendency for Tuesdays to reverse stock market behavior on Monday. For now, though, that does not seem to be the way things are shaping out, as our equity futures are now pointing lower, with the S&P 500 and NASDAQ futures both off about five points with less than an hour to go before the start of the new trading day. This likely early setback follows some strength in Asia overnight, but a third successive day of weakness in Europe.

Clearly, Wall Street is on edge, given the pending FOMC meeting and the possibility of some monetary tapering. Such a scenario is, of course, not a given, nor is a setback of note in the stock market. It is just that nerves are a bit frayed at the moment, which is not unusual given the extended nature of the aging bull. - Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.