After The Close - The stock market, fresh off celebrating the welcome news of continued monetary accommodation by the Federal Reserve, received another jolt of bullish tidings earlier today with the release of the final revision of third-quarter gross domestic product growth. In this issuance, the Commerce Department reported that the nation's economy had pressed forward more vigorously than had been presumed in prior issuances for this three-month span, gaining a formidable 4.1%. That report helped send stocks on their merry bullish way once again, keeping alive hopes for a continued Santa Claus rally intact into the new year. 

The GDP gain, which topped the prior revision of 3.6%, and a like estimate for this final look at the period, was underpinned by better business spending and higher consumer outlays. Encouragingly, inventory accumulation, an important part of the healthy September-period GDP increase, was not revised upward. And that is significant and positive, as such stocks must be worked down, and that will temper future growth matchups, most likely in the current period and perhaps again in the opening quarter of 2014.

So, armed with this good economic news, Wall Street celebrated anew, with across-the-board early gains that continued for much of the afternoon. In all, the Dow Jones Industrial Average reached another all-time milestone in the session, climbing toward 16,300 at one point before easing back into the close. The Standard and Poor's 500 Index, not to be outdone by its more narrowly configured counterpart, rose further past the record 1,800, a round number that this composite has been staying around for the last fortnight, while the tech-laden NASDAQ also reached a 52-week high. Unlike the Dow and the S&P 500, however, this composite is still about a thousand points from a record. The small- and mid-cap indexes also pressed nicely higher, in a broad-based rally, which has put equities further into overbought territory. 

The rationale for the upbeat showing is that this stellar 4.1% rate of economic growth, the best in almost two years, comes as the Federal Reserve is opting to taper its popular bond-buying effort slowly, while at the same time pledging to keep short-term interest rates at their historically low levels for some time yet. So, with competition from fixed-income securities likely to remain nominal for some time, and with few other outlets for investment beyond equities all that attractive--and that includes precious metals, which remain under pressure--the alternatives to the stock market remain limited. Hence, stocks continue to rise and valuations, already rich, get even richer.   

As to the market today, some generally stronger sectors flourished once again, while there also was selective buying in out-of-favor groups, such as certain metals providers, the fertilizer stocks, and many tech issues. A few Dow laggards also turned higher, while some heretofore strong blue chips added to the year's gains. On the other hand, the steels sold off anew, while some big oil and gas producers weakened slightly. As to the indexes themselves, although all strengthened, the NASDAQ did disproportionately well, gaining 47 points, or more than 1%. That easily exceeded the percentage gains on the Dow, which, as noted, weakened during the final few minutes, and the S&P 500. In another bullish barometer, Treasury yields softened, with the yield on the 10-year notes easing to 2.89%. The yield had climbed to 2.97% early in the day on the string GDP data.  

But not all the markets are prospering. Gold, for example, gained during the session, but the precious metal remains in an extended bear market, having lost almost 30% on the year. The other metals are also trending lower. The recent modest contraction in the Fed's quantitative easing program, and its implications for lower inflation down the road from that tapering effort, also have not helped the metal's performance, and some gold stocks have lately been regulars on the list of new 52-week lows. 

Overall, though, the good news on Wall Street easily exceeds any dour tidings. In all, as we approach the final 10 days of the year, the stock market is finishing up a stellar 12 months on an especially high note.   - Harvey S. Katz

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


12:00 PM EST - The final day of the trading week is looking like a constructive one for those long equities. After doing a good job of holding a significant portion of Wednesday’s outsized gains yesterday, particularly those for the Dow Jones Industrial Average, which jumped nearly 300 points, the bulls are out once again today. More significant, today’s move forward is on high trading volume, which is a good sign for the bulls and could be an indication that the recent move higher may have some sustaining power, despite valuations being ever-frothier. Overall, advancing issues are leading decliners by a notable margin on both the Big Board and the NASDAQ.

Thus, as we move toward the midday hour on the East Coast, the aforementioned Dow Jones Industrials, the tech-heavy NASDAQ, the broader S&P 500 Index, and the small-cap Russell 2000 are all nicely higher and largely at the day's best levels. The performance of the small-cap market is particularly noteworthy, as it is an indication that investors—emboldened by some more positive economic news (see below) and relieved that the Federal Reserve decided to only slightly reduce its monthly bond-buying program—are not against adding some more risk to their portfolios. Likewise, the S&P 500 Volatility Index (or VIX), also known as the “fear gauge,” is also trading lower so far today, shedding another 7%, to just over 13.

There are a few factors pushing equities higher today, including data this morning showing a third-quarter GDP advance of 4.1%, the best advance in almost two years. The final third-quarter revision also topped the consensus expectation of 3.6%. The GDP data are yet another indication that the U.S. economy is on firmer footing and showing signs of strengthening further. This GDP data, along with Wednesday’s Fed announcement, is given a boost to the major market averages and offsetting what could be termed, at best, a mixed day on the corporate earnings front. To wit, the shares of Dow-30 component NIKE (NKE - Free NIKE Stock Report), CarMax (KMX) and Navistar International (NAV) are all lower on earnings news. Conversely, the stock of Walgreen (WAG) is modestly higher after the pharmacy giant reported its latest results.

From a sector perspective, it should come as no surprise after the latest GDP release that those groups most closely tied to the economy, including the industrial, energy, and basic materials stocks, are leading the charge higher today. There also is some leadership coming from the utilities issues. Conversely, there is some mild selling in the telecommunications sector, with shares of the integrated services providers the main culprits.

Looking ahead to the remainder of the trading day, it is our sense that it will take a lot to drive the bulls from the driver’s seat, given the aforementioned strong economic data and a sense of relief among investors that the central bank did not pull the rug out from under the equity market by reducing its monetary support by a bigger-than-expected amount. If anything, the Fed reiterated its pledge to help support the overall economy and the labor market by keeping short-term interest rates at historically low levels. Such a backdrop may help bring a continued Santa Claus rally on Wall Street as the old year comes to a close. Stay tuned. - William G. Ferguson

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


Stocks to Watch from The SurveyEarnings reports continue to trickle in. Notably, shares of NIKE (NKEFree NIKE Stock Report) are moving slightly lower ahead of the bell, after the athletic footwear and apparel company reported decent fiscal second-quarter (ended November 30th) results. Earnings of $0.59 a share were in line with our forecast, although sales were a bit shy of our estimate. Other stocks indicating weaker openings this morning on earnings news include used car dealer CarMax (KMX), commercial vehicle manufacturer Navistar International (NAV), and drug store operator Walgreen (WAG). On the other hand, shares of software developer Red Hat (RHT) and specialty retailer Finish Line Inc. (FINL) are up sharply in pre-market trading, as investors cheered their quarterly results. BlackBerry (BBRY) stock is also up ahead of the bell, albeit slightly, despite reporting a massive loss in the November quarter. Instead, Wall Street appeared to focus on the struggling smartphone maker’s new partnership with electronics manufacturer Foxconn to develop phones for high-growth markets, such as Indonesia. – 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 would have been too much to hope for. That is for traders and investors to have put on an encore yesterday following the prior session's heroics, which had been highlighted by a gain of almost 300 points in the Dow Jones Industrial Average. Still, given where stocks are at this time, and considering their frothy valuations and the strong gains of the day before, Wall Street's ability to largely retain that advance was impressive, to say the least.

On point, the stock market had surged on Wednesday after the release of a statement by the Federal Reserve in which it indicated that it would, beginning in January, move to slightly taper its bond-buying program, going from the purchase of $85 billion a month in Treasuries and mortgage-backed securities to $75 billion a month. Equally important, the central bank affirmed that it would retain its historically low short-term interest rates (notably the federal funds rate target at near zero) even after the jobless rate, now 7.0%, falls below 6.5%. It had been this target that formerly had been the benchmark for the Fed to start raising rates. Now, that level is out the window, it would seem.  

Armed with the promise of continued low short-term rates and underpinned, as well, with generally encouraging economic metrics, notably continued strength in housing demand, home prices, industrial production, and retail sales, the stock market pushed ahead aggressively on Wednesday and, as noted, largely held those gains yesterday. In the process, the Dow managed to hit an all-time high on an intra-day basis in the latest session, climbing to within a handful of points of 16,200. However, even at their peak levels of the day, the other averages, particularly the tech-laden NASDAQ, the Russell 2000, and the S&P Mid-Cap 400 Composite were all in the red, if incrementally so.

All told, by the close of the day, the Dow was up 11 points; but the Standard and Poor's 500 Index was off a point; the NASDAQ, with some select pressure in the tech area, was lower by a dozen points; and the S&P Mid-Cap 400 was in the red by 10 points, or 0.8%. The advance-decline ratio, moreover, was negative on the Big Board, while the VIX volatility index rose a bit suggesting for one day, at least, a lesser appetite for risk.   

Meanwhile, the Fed now has answered immediate questions about whether or not it will start to slow down the popular process of bond-buying, or quantitative easing. It also has looked ahead on the interest-rate front. The unknown now is just how will stocks react to all this in the weeks to come, after the Fed developments have had time to sink in, and how will investors proceed in 2014, at least during the first weeks of the year. Certainly, for the bulls, the first reaction was decidedly positive. But with the economy taking on some positive momentum, and with stocks already richly capitalized, there might be some concern that a stepped-up pace of business activity could accelerate the tapering or move up the date by which the Fed will start to raise interest rates.

For now, though, yesterday's stock market action must be viewed as constructive and there is no suggestion, as yet, that stocks will soon falter. As we have noted before, markets can stay richly capitalized and extended for some time. That may be the case now.

As for today's market, stocks were mixed overnight in Asia, with equities in China hitting a 17-week low, while they are in the plus column in Europe so far this morning over here, the futures are up modestly. Finally, the Commerce Department has just issued its final revision of third-quarter GDP growth, and the nation's growth rate, estimated at 3.6% in the earlier revision, has been adjusted upward to show a formidable gain of 4.1% in this revamped survey out just minutes ago. This data showed that the U.S. economy had grown at its fastest pace in almost two years, buoyed by stronger increases than formerly estimated in business spending and consumer outlays. Also, inventories were boosted sharply in the period, albeit less than earlier estimated. Still, the likely drawdown in such stocks figures to pressure growth in the now-ending period, which we estimate may not materially exceed 2%.   – Harvey S. Katz

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