S&P 500 posted third consecutive year of broad double-digit gains

S&P 500Summary Week: December 26, 2014 – January 2, 2015

BY Howard Silverblatt | FROM CRI | 2015-01-05 10:23


  It was another great year for the market. The S&P 500 posted its third consecutive year of broad double-digit gains, and it ended 2014 with an 11.39% gain (13.69% with dividends), after 2013’s 29.60% gain (32.39% with dividends; the best year since 1997) and 2012’s 13.41% gain (16.0% total return). Over the three-year span, the index has gained 63.72% (74.60% total return), with the gain since the Oct. 9, 2009 bear market low being 204.33% (244.23% total return). While 2014 wasn’t 2013, it was still a very good, and after a shaky start in January, which was off 3.56%, the market came through with only minor declines and no correction (the last correction was in 2011). For 2014, 74.3% of the issues advanced, 373 issues, significantly lower than 2013’s 91.4%, which showed 457 issues up; 125 issues declined in 2014, up from last year’s 41. The 11.39% stock return was less than half the 29.60% gain of 2013, but still much higher than the historical 6.1% stock and 10.2% total return rate (from 1926). The market posted 53 new closing highs, up from 45 last year, as it broke through the 2,000 level in August (and the Dow broke through 18,000 in December). Fundamentals continued to support the market, as both earnings and cash flow continued to set all-time highs.Buybacks went from being the new rage to being a full trend as companies reduced their shares, resulting in higher earnings-per-shares and helping to support stock prices (via additional buying).Regular cash dividend payments set another record, as they posted their fourth year of double-digit gains. Going forward, 2015 is expected to be another record-setting year for dividends, with current earnings estimates also calling for new records—but earnings forecasts also appearing optimistic (at this point) to some.The U.S. 10-year treasury closed the year at 2.17%, down from last year’s 3.03% (when most expected it to increase) and closer to 2012’s 1.76%. Interest rates are again expected to increase this year, with the Fed expected to slowly start to increase them later in the year.Oil, which was expected to tick up slightly from its 2013 close of USD 98.70, closed at USD 53.27, resulting in what Fed Chair Yellen said was a tax cut for consumers. The lower oil prices hurt S&P 500 energy issues, which were off 9.99% for the year, but they devastated small-cap services and equipment issues, which were off 36.20% for the year. Globally, it was all about the U.S., as global markets were up a minor 1.96; but worse, absent the strong double-digit U.S. gain (10.38%), global markets were off 5.64% for 2014. The high performance pushed the U.S. to be over 51% of all global equity markets for the first time in the series’ history (started in 1989), which was up from last year’s 47%.For the week, the market posted a new closing high on Monday, at 2090.57 (as well as a new intraday high of 2,093.55), and then fell for its next three session, cumulatively 1.55%, to close the week off 1.46% on low trading, in a non-event week, at 2,058.20. It was the first down week in four (when the market fell 3.52%), but all was forgiven, as double-digit gains of 2014 (11.39%) overshadowed the week. Breadth was negative, as 86 issues were up, a far reach from last week’s 387gainers (much less the 465 of the week prior to that), as 416issues declined (up from last week’s 105 issues, with the prior week being only 36 decliners). All 10 sectors posted losses for the week, as energy did the best, declining 0.69%. Information technology did the worst, off 2.52%, as Apple fell 4.1%. The VIX fear factor increased (as the three days of declined did), closing at 17.69, up from last week’s 14.77. The U.S. 10-year treasury closed at 2.12%, down from last week’s 2.25%.Oil continued to trade down, closing at USD 52.60, down from last week’s USD 55.90. Volume increased 4% from last week’s minimal levels, as it remained 25% lower than its 1-year average. Next week was expected to pick up, as the Street ‘got back to businesses’, with earnings, European stimulus expectations, and Friday’s unemployment report.


  It was another good year for the S&P 500, as the index posted its third year of strong double-digit growth.


  Over the weekend, oneof AirAsia’s(AIRAISA) airliners, with 162 people abroad en route to Singapore from the Indonesian city of Surabaya, disappeared, starting a multinational search. The incident highlighted recent missing commercial airplanes, as well as overall concern for the industry.Japan authorized a USD 29 billion stimulus program, with the government estimating it would raise GDP by 0.7%.In premarket news on Monday, the Greek Parliament failed to elect a new president, as it appeared that a Presidential election would be held early next year. The situation upset European markets, as they declined along with Greek markets (also pushing U.S. futures down), as it placed uncertainty on Greek finances (and international creditors). The Russian ruble, which had appeared to be settling in the mid-50 level (55-56 to the USD),as oil settledat USD 55.50, started to decline in value, as Russia’s November GDP was reported to have decreased 0.5%. A report said Saudi Arabia planned to open its stock exchange to foreigners in April; the government had previously said it had planned to do so in the first half of 2015. Oil traded at USD 55.50, gold was at USD 1193.10 and the U.S. 10-year yielded 2.22%; the euro traded at 1.220, the pound at 1.556 and the yen at 120.46.European markets were mostly lower, as the IBX led the way down, off 2.1%, and the FTSE 100 managed to trade flat. Asian markets were mostly up, helped by the belief that China’s steps to increase lending (and stimulate the economy) would be good for profits, as the Hang Seng was up 1.8% and the Shanghai was up 0.3%, but the Nikkei was off 0.5% (there was a report of a suspected Ebola case in Japan). U.S. futures were off 0.3%, after closing Friday at an all-time high. In the U.S., there was little news, as another shortened session (markets are closed Thursday for the New Year’s holiday) was expected to produce low trading and little in corporate news events. Auto maker General Motors (GM) opened up 0.4% and closed up 2.4%, as it’s CEO won praise (Fortune named her Crisis Manager of the Year) for her handling of the recall issue. Pharmaceutical issue Gilead Sciences (GILD) rebounded from last week’s 13.5% decline, opening 2.5% higher and closing 3.7% higher, the best issue in the index for the day. Energy moved higher, as oil-related Halliburton (HAL) opened up 0.6% higher (and closed 0.7% higher)and Transocean (RIGS) opened 0.8% higher (but closed 0.7% lower), as the sector gave up ground (with oil declining) but still closed the day up 0.26%. The market opened lower, as futures had been lower on Greece concerns, but they quickly moved up. Whether it was momentum or that the market just didn’t want to go down was not known, but the opening ticks put the market off 0.1%, at 2,086, as it climbed back into the black in 10 minutes, with the 10 a.m. posting standing at 2,092, up 0.15%—another potential new closing high. Traders, however, were not getting ahead of themselves. Trading, while higher than the previous week, was slow, and markets were expected to be volatile. Prices traded in steps, moving up and down, as they stayed in a wide range. Both the 11 a.m. and noon reading were at 2,093 (marking a new intraday high at 2,903.55), up 0.2%, as prices moved lower to 2,090, up less than 0.1%, for the 1 p.m. posting. Trading was not convincing, as most appeared to be content if prices could hold their levels, although more was always wanted. Prices stayed in the wide range, as they moved back to the 2,092 level at 2:25 p.m., and were at 2,092 for the 3 p.m. and 3:45 readings. End of day trading started to come, as prices started to turn down. Heads also started to turn, as prices fell, given that they have declined at session end for the past three trading days and now appeared to be going for four. Prices did continue to fall, as they closed the session up 0.09%, at 2,090.57. The gain was enough to mark the session as the 53rd new closing high for the year; the Dow Jones Industrial Average declined 0.09% (closing at 18,038.23), its first decline after seven consecutive days of gains. The boring trading didn’t seem to annoy anyone, unless you were still on commission. The higher prices were seen as sweetening year-end statements, which were already sweet for most (but not all). Oil closed at a five-year low, USD 53.70, as the Russian ruble ticked back up to 57 (to the U.S. dollar). Utilities added 1.11%, after its Friday 1.21% gain, and it now stands up 29.32% year-to-date, up 34.20% with dividends—and those investors got to sleep at night all year.In premarket news on Tuesday, concern over Greece continued. While the situation was not seen as near to the severity of the liquidity crisis, it was seen as limiting growth and straining budgets.Bodies from the missing AirAsia were found, with the belief that the plane would be found at the bottom of the Java Sea floor, and that all had died. Oil traded at USD 53.50, gold was at USD 1185.40 and the U.S. 10-year yielded 2.19%; the euro traded at 1.2152, the pound at 1.554 and the yen at 119.55. European markets were uniformly lower, as IBEX was doing the worst, off 0.9%, and the DAX was down 0.7%. Asian markets were mostly down, as the Nikkei was off 1.6% and the Hang Seng was off 1.1%; the SENSEX managed to be a tick in the black (up 0.03%). U.S. futures were off 0.3% (from their closing high).In the U.S., the S&P/Case-Shiller Home Price Index for October showed a 4.6% year-over-year gain, as the rate continued to decrease (September was 4.8%). The data fed concerns of a slowdown. The Greek situation was noticed in the U.S., but its impact was limited to European markets—Greece itself did not appear to be a concern for U.S. investors. The market opened lower, following Europe, as the initial trades took the index down to 2,085, off 0.3% (from the 2,090 close), as prices tested the level until 10 a.m., when they declined. At 10 a.m., Consumer Confidence for December came in at 92.6, when a stronger level of 94.0 was expected, as November was restated to 91.0 from the originally reported 88.7. Prices fell to the 2,082 level, off 0.4% (helped by the lower confidence numbers), and then started to again seek their level, as the market traded in a range. Trading was uneventful and in the red, as the noon posting was at 2,084, off 0.3%.Prices continued in a range, only slightly moving until 1:30 p.m. when they took a step down. Prices fell to 2,079, off 0.5%, by 1:45 p.m., where they stayed until 2:30 p.m. when they stepped up to 2,082, off 0.4%, at 2:45 p.m. and again traded in a range. Prices moved slightly in steps, up and down, but they didn’t change much as uneventful trading continued throughout the rest of the session. The days closed in the red, with the index never trading in the black, off 0.49%, to close at 2,080.35. The Dow closed under 18,000, at 17,983.07. Utilities declined 2.09% after gaining 2.33% over the prior two sessions, as some profit taking was seen; the sector remains up 26.62% year-to-date, the best of any group. With one trading day left to the year, most had sized up the market and smiled. Energy was broadly down, with telecommunications a tick in the red, but the rest of the market was up, with the overall index up 12.55% and on path for its third year of double-digit gains.In pre-market news Wednesday, HSBC’s China Manufacturing PMI for December came in at 49.6, down from 50 in November; a reading under 50 is considered a contraction in manufacturing. Oil traded under USD 53, at USD 52.80 (a six-year-low), gold was at USD 1194.90 and the U.S. 10-year yielded 2.18%; the euro traded at 1.214, the pound at 1.559 and the yen at 119.59. Global markets were quiet, with some closed. European markets were mixed in their last day of trading, as the DAX was off 1.2%, with the CAC up 0.6%. Asian markets were also slow, with those open mostly up. U.S. futures were up 0.15%. In the U.S., the session was expected to be slow, as the year closed and most were content with the results. The weekly new unemployment report (usually released on Thursday) reported 298,000 new claims, up from last week’s 281,000, when a lower 290,000 was expected. New claims have stayed mostly under 300,000 over the past five months, as the 2014 rate declined 17% from 2013. The market opened higher, as energy opened lower and utilities opened higher, and slow trading put the initial market up 0.1% to the 2,083 level (with the Dow opening above 18,000). The hope was that the market would be able to hold its level, ending the year on a “non-event” day, and therefore be classified for its broad double-digit gain. The talk, however, was more optimistic (as it typically is), with hopes of closing the year on a new closing high, just 0.49% from where the market closed yesterday (0.36% from the opening). Prices moved up a tick, to 2,084 (over five minutes), and then tilted down (over the next ten minutes) to 2,081. The 10 a.m. reading was at 2,082, up less than 0.1%. At 10 a.m., the Pending Home Sales report for November came in, up 0.08% for the month and up 1.7% year-over-year; both rates were higher than expected. The market ticked up on the news, and continued to rise in small steps. The 11 a.m. posting was at 2,085, up 0.2%. Prices then slanted down, as the noon reading was up 0.1%, at 2,083. Shortly after the noon posting, stocks started to decline. There was no event or announcement, as trading remained slow (and thin). Prices fell into the red, and declined to 2,075, off 0.25%, at 12:30 p.m. Prices then started to trade in a range, quickly moving up and down in small spurts, until 1:45 p.m., when they again started to move lower. And again there was no news, although some profit taking was seen (especially in utilities), as trading remained slow. Prices fell to 2,067, off 0.65% for the 3 p.m. posting, as the 3:30 p.m. reading was at 2,070, off 0.5%. Some trading started to come in, as prices started to move down again. Prices sold off quickly, as there was little buying late in the session. Prices moved down, to close the session off 1.03%, at 2,058.90. The sell-off was seen as result to late selling, with no matching orders, and little was read into it. However, even a 1% decline couldn’t take the smiles off. For the year, the market posted a broad 11.39% gain, 13.69% with dividends, as 373 issues gained and 125 declined. Eight of the ten sectors increased, as utilities did the best, up 24.29%, and energy did the worst, off 9.99%. It was the third year of double-digit gains, with the key question (again with smiles) being: can it continue? Most markets were closed on Thursday, and there was little, if any, economic or market news. In pre-market news Friday, the Chinese Purchasing Manufacturing Index for December declined to 50.1, from 50.3 in November. The lower data increased expectations that China’s official 7.5% 2014 growth rate would fall short for 2014, and come in at 7.3% (potentially, a 24 year low).Market’s Eurozone December Manufactures Index increased to 50.6 from November’s 50.1, which was lower than the 50.8 expected. ECB President Draghi said he does not exclude the risk of deflation in the euro area, as market talk was of an expected ECB stimulus program early in this year. Oil traded at USD 52.50, gold was at USD 1176.20 and the U.S. 10-year yielded 2.20%; the euro traded at 1.203, the pound at 1.542 and the yen at 120.54. European markets were mixed, as the DAX was off 0.5%, with the IBEX up 0.9%. Asian markets were up, as the SENSEX was 1.4% higher, with the Hang Sang up 1.1% (the Nikkei was closed until Monday). U.S. futures were up 0.4%, as the S&P 500 started the year 1.54% below its all-time closing high. In the U.S., trading was expected to be slow, as the holiday week was coming to a close, even as the New Year opened. While the opening day is significant, historically, the market moves in the same direction as the opening day half the time – so it is a coin toss. The ‘as January goes, so goes the year’ Street saying works 72% of the time (since 1928), but did not work in 2014, when January 2014 was off 3.56% and the year was up 11.39% (opening day in 2014 day down 0.89%).The market opened up 0.4% (at 2,067) and rose to be up 0.6% (2,072) at 9:40 a.m., and then started to decline – all on low trading (but more than this week’s other opening volume levels). At 9:45 a.m., the PMI (Purchase’s Manufactures Index) report for December came in at 53.9, when a 54.0 was expected; November was 54.8.At 10 a.m., the ISM (Institute for Supply Management) Manufacturing report for December missed estimates, as it came in at 55.5, when a 57.5 was expected; November was 58.7.Construction Spending for November posted a 0.3% decline, when a 0.5% gain was expected, as the October gain was restated to be up 1.2%, from the originally reported 1.1%. Trading was in small steps, up and down, as the 10:15a.m. reading, after the economic reports, was up 0.3%, at 2,065. Prices continued to decline, as they broke into the red at 10:40 a.m., falling to 2,052, off 0.3%, and then moving up to 2,056, off 0.15%, for the 11 a.m. posting. Prices stayed in a tight range, as the noon posting was a tick higher at 2,053, and prices then ticked down to 2,052 for the 1 p.m. reading, off 0.3%. Prices then tilted down to the 2,046 level, off 0.6%, but tilted back, as the 2 p.m. reading was at 2,050, and the 3 p.m. posting at 2,054, off 0.25%. At 3:15 p.m., trading started to pick up, as prices started to tilt up. The 3:30 p.m. reading was at 2,055, off 0.2%, as the upward motion increased, along with volume, as the index moved back into the black, at the break-even line, at 3:45 p.m. Trading moved up to the 2,061 level, up 0.1%, at 3:55 p.m., as volume started to get heavy.In the last few minutes the market turned down, breaking back into the red. The session ended the day off 0.03%, at 2,058.20, as it posted its third consecutive day of losses – cumulatively a 1.55% fall. For the week, the market fell 1.46%, after two weeks of gains. The losses were accepted, given the light trading, lack of news, and lack of direction. Next week was expected to start ‘more serious trading’. Earnings will start to be talked about, as five issues declare, with European stimulus being speculated about. Friday’s unemployment report will dominate the events (the Fed, which will have new members and be more Dovish, will meet at the end of the month, January 27-28, with the 28th having a 2 p.m. conference).


  Full trading will start next week, as Friday’s employment report will be released before the opening and five issues start the earnings season on Friday. Monday will start with domestic auto sales for December, expected to come in at an annual rate of 6 million, slightly down from 6.1 million in November. Light truck sales are expected to be flat at 7.8 million. At 10 a.m. on Tuesday, the November Factory Orders report is expected to show a 0.6% decline, as Factory Inventories are expected to show a 0.1% increase. The December ISM nonmanufacturing index is expected to decline to 58.0 from last month’s 59.3, as the Price component is expected to decline to 53.5 from last month’s 54.4. Wednesday will bring the weekly mortgage application report. The ADP will release its December employment report, which is expected to increase to 220,000 from November’s 208,000. The trade report for November is expected to show a USD 41.3 billion deficit, down from October’s USD 43.4 billion deficit, as exports are expected to tick up to USD 197.7 billion (from the prior month’s USD 197.5B), as imports decrease to USD 239.5 billion (from USD 241.0 billion). Thursday will bring the weekly new unemployment claims report. Friday, at 8:30 a.m., will bring the December employment report, which is expected to show that net new jobs decreased to 240,000, from last month’s 321,000, with non-farm jobs accounting for 230,000 of the 240,000. Hourly wages are expected to increase 0.2%, from last month’s 0.4% increase. The average work week is expected to be unchanged at 34.6 hours, as the unemployment rate is also expected to be unchanged at 5.8%. At 10 a.m., the December Wholesale Inventories are expected to be unchanged from November, as Wholesale Sales are expected to decrease 0.1%, compared with last month’s 0.2% increase. Earnings will start next week with five issues, and increase quickly after that. By the end of the month, over 70% will have been reported.

  January Future Shocks:

  2: First day 2015 trading

  7: ADP monthly employment report

  9: Monthly employment report

  13: JOLTS report (one of Fed Chair Yellen’s favorite)

  14: December retail sales

  19: U.S. holiday, markets and banks closed

  27-28: FOMC meeting, with new membership

  28: Planned Fed press conference at 2 p.m.

  30: GDP advance Q4 2014 report


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