Stock Market Commentary

The popular averages finished lower Monday but the broad market was 2/1 positive on issues. The Dow closed down 81.80 points, but two stocks, JP Morgan (29.25,JPM) and Verizon Communications (32.48,VZ) combined to account for half the index's loss. The declines in the broader large and small cap averages were very modest. Volume picked up, but still trailed the levels seen before the reduced holiday pace of the prior two weeks. The DJIA was down as much as 121 points in the first 30 minutes of trading, but by mid afternoon, the major averages reached new recovery highs for the rally that started from the Nov. 21 lows, but then normal profit taking came in after the big seven day rally.

The morning economic news was positive as November construction spending declined less than half of expectations (reported -0.6% vs. estimated -1.4%) and October's figure was revised up 0.8%. Oil rose for the third day in a row, reaching an intraday peak of up 2.94, before settling up $2.47 at $48.61. The price of oil has now risen more than $14 from its intraday low of $35.13 reached on Dec. 24th due to some bottom fishing, short covering and the heating up in the Middle East. The U.S. dollar extended its rally to four days straight. The Santa Claus rally ended yesterday with the S&P 500 up 7.5%, its best performance since 1932. Profit taking was very orderly and normal considering the sharp rally during the past week. Seasonal positives are still in place and we believe the market has enough in-place momentum to carry higher into or close to the Jan. 20th inauguration. Today - our technical indicators still point to a higher market near term.

The Dow and Nasdaq are holding on to moderate gains at midsession after a sharp early rally stalled. The Dow was up by as many as 131 points in the first 30 minutes. The Nasdaq was up as many as 28 points. AT 12:30 PM Eastern, the Dow was up 0.4%, the S&P 500 was up 0.5%, and the Nasdaq was up 1.2%.

The market continues to look forward to benefits of a government stimulus package. Meanwhile, disappointing readings on pending home sales and factory orders suggest the recession has longer to run. A measure of the service economy in December was not as poor as expected, but still showed the sector is contracting.

Technology stocks are among today's best performers. IBM and Hewlett Packard together added over 20 points to the Dow. IBM was up 1.72 at 88.54. Hewlett Packard rose 1.49 to 37.82. Cisco Systems rose 61 cents to 17.71 to lead the Nasdaq. Dow Chemical gained 76 cents to 15.81 after saying it will pursue legal actions against Kuwait for pulling the plug on a joint venture agreement.

The NYSE was 3-1 positive on issues and on volume. The Nasdaq was 5-2 positive on issues, nearly 5-1 positive on volume. The 10-year Treasury note was down 18/32 to yield 2.54%.

The Dow and Nasdaq returned to the plus column, erasing much of Monday's losses. Investors ignored bad news and looked ahead to benefits of a federal stimulus plan. Hewlett-Packard rose 2.98 to 39.31 and led tech stocks higher on hopes consumer spending will be revived.

Economic reports suggested present conditions are dismal. November factory orders and home re-sales both showed declines and were weaker than expected. Minutes of the Federal Reserve's December meeting revealed that officials saw substantial downside risks to economic activity.

On the plus side, the Fed minutes also hinted that interest rates will remain low for the foreseeable future. Exxon Mobil lost 1.33 to 80.30 to lead energy shares lower. Crude oil fell for the first time in four days after rallying above $50 a barrel.

The Dow closed up 62.21 points at 9015.10. NYSE volume totaled over 1.33 billion shares. The S&P 500 gained 7.25, the Nasdaq was up 24.3 points. Advancing issues beat decliners by 4-1 on the NYSE and by 5-2 on the Nasdaq. The 10-year Treasury note was up 1/32 to yield 2.48%.