Market Talk

The Dow Jones Industrial Average closed slightly lower as another round of interest-rate hikes in China weighed on blue-chip index.

DJIA drops 18 (0.2%) to 11555, with Procter & Gamble and Kraft leading declines. The Dow traded in another narrow range, falling as much as 55 points while rising less than a point before reaching the closing bell. The narrow range marked 16th straight day that the index had a swing range of less than 100 points. The last time such a streak occurred was in 1996.

Meanwhile, S&P 500 rises 0.1% to 1258 behind strength in financial sector. Nasdaq Comp gains 0.1% to 2667.

Holidays combine with big winter storm to cause trading volume to slow to a crawl. Monday contained the lightest volume of any fully day of trading on the New York Stock Exchange in 2010.

H&R Block drops 7% to $11.80 after disclosing HSBC Holdings is ending its long-term contract for controversial refund anticipation loans. AIG gains 9.3% to $59.38 after securing three credit facilities totaling $4.3B.

A winter storm slams the east coast and leaves retailers scrambling to recover sales. But in a surprising development, natural gas prices drop as traders focus on warmer weather expected later this week. Meanwhile, the Treasury market prepares for its final auctions of the year. Brian Baskin, Deborah Lynn Blumberg and I discuss it all more on today’s edition of The Markets Hub.

Unless you’re selling snow shovels or blowers, the winter storm that blanketed the northeast hasn’t been too friendly to retailers.

Blizzard conditions have dropped more than a foot of snow in some areas on the east coast, which have wrecked havoc on air traffic, train service and left driving conditions extremely dicey. All those conditions don’t bode well for retailers who count on heavy foot traffic for significant sales on the day after Christmas. Dow Jones’ Corrie Driebusch reports:

Snowstorms hitting midwest and east coast dampen retailers’ Christmas spirits, says NPD Group. With Christmas on Saturday and Sunday lost to blizzards, retailers scrambling to recover sales. This year the day after Christmas — generally one of the biggest days of the year for shopping — “was poised to be one of the top six days of retail,” firm says. Now it warns this is likely no longer the case. Retailers may be able to recover, but it’ll take two to three weeks longer. New Years next weekend set to distract customers from shopping, too, which will deal yet another blow to retailers.

But it’s not all bad for retailers. The winter storm has given a pop to sales at home-improvement chains. Dow Jones’ Max Murphy reports Home Depot (HD) says it “saw strong demand for snow shovels, snow blowers and ice melt along the East Coast — from North Carolina to Maine.”

Home Depot shares were recently up 0.3% at $35.18.

Apologies for the light posting this morning. Snowmageddon has left the newsroom nearly empty this morning.

US stocks are trading lower Monday morning, following weak overseas markets, as China’s rate increases are stoking fears that it may try to slow its booming economy.

The Dow Jones Industrial Average was recently down 35 points, or 0.3%, to 11539. Trading volume appears to be lower than usual, with less than a billion shares having changed hands in NYSE Composite trading within the first hour and a half of the session. The 2010 average for a full-day session is around 4.8 billion shares.

The holiday-shortened week combined with heavy snow blanketing the east cost are contributing to today’s light volume.

Main driver for Monday’s action was China’s decision over the weekend to hike both its key lending and deposit rates by 0.25 percentage points as it attempts to keep inflation under control. This was the second rate hike in slightly more than two months and economists are anticipating additional increases in 2011.

Consumer discretionary stocks led the S&P 500 down 2 points to 1255. H&R Block fell after disclosing late last week that HSBC Holdings was terminating its long-term contract for refund anticipation loans.

It doesn’t look like the summer of 2008 will repeat itself in the oil market. Nonetheless, it’s tough to ignore oil’s big run over the last few months and how it’s now trading above $90 a barrel.

Surging crude comes as many other commodities have also soared to multi-year highs. But with oil above $90, market technicians are turning even more bullish on its next move. My Technically Speaking column today highlights what chart watchers believe is next for oil:

Market technicians stress this is a significant level because it represents a 50% retracement from oil’s 2008 peak to trough, when it hit an all-time high that summer before bottoming out later that year.

Crude trading above $90 also marks a psychological victory. Investors tend to get giddy when an asset price hits a large round number. Breaking above $90 and holding that level is seen as an important development for bullish oil investors.

“For better or worse, people tend to focus on these psychological numbers,” said Richard Ross, global technical strategist at Auerbach Grayson. “Taking out an important retracement level that coincides with big psychological resistance is quite bullish and has generated a buy signal for crude.”…

Oil demand has been rising slowly during the global economic recovery. Inventories of oil and fuel stockpiles in the U.S., the world’s largest oil consumer, have steadily declined from 27-year highs in September. Demand in Latin America and Asia continues to grow as well.

Rising demand combined with a slower increase in oil prices, as compared with the 2007-08 run-up, have made analysts optimistic that oil prices can keep increasing.

“Momentum is very strong in commodities in general and we don’t see that trend ending anytime soon,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “Crude breaking out for the time being is a definite positive for the overall stock market. There will come a point when higher crude chokes off the economy. But we’re definitely not there yet.”

Detrick’s quote is very telling. There will come a point when rising oil prices will really crimp the consumer and become a deterrent for the economic recovery. That’s what we saw in 2008 when oil surged above $145 a barrel.

The tricky thing is figuring out what level rising oil switches from a positive development to a detriment on the economy.

For now, bullish sentiment prevails regarding rising oil.

Kathleen Madigan, Donna Kardos Yesalavich and I discuss the final 3Q GDP revision as well as how surging commodity prices look good but may hurt company balance sheets come 2011. Check it all and more on today’s markets hub:

On another lazy day for the market, financial stocks are once again among the top-performing sectors.

Financials are the biggest gaining sector today and have gained 2.4% for the week, nearly double the next-best sector, telecommunications. The weekly rise presents a stark contrast to the financial sector’s recent performance as these stocks have underperformed the overall market over the last few months.

This week’s gains have prompted market observers to wonder if this is the beginning of a long-term rally for the beaten-down sector. But Bespoke Investment Group cautions that we’ve seen this script before.

“This isn’t the first time the sector has popped on a relative basis in the last few months,” firm says, as financials have had two separate rallies since September in which they’ve outperformed the broader market over a few days. But the gains were short lived as they reverted back to underperforming the overall market.

Financials and tech are generally seen as two sectors that need to do well in order to drive the market higher. But the enormous September and October rally occurred without financials. As benchmark indexes sit near their 2010 highs, it’ll be interesting to see if the market can keep rallying without financials or if they’ll need to join the party in order to push stocks to fresh new highs.

Investors initially didn’t care much for what the ECB had to say and the jobless claims report. But retail and home sales really overshadowed everything else today and stocks soared for a second-straight day.

The recent string of better-than-expected economic reports is finally boosting investor sentiment, especially as Europe has really dominated market action over the last few weeks. But this shifting tide toward U.S. data is a welcome development as the government’s report on November nonfarm payrolls is due Friday morning. We discuss it all and more on The News Hub:

Remember all that chatter in late August about how September is typically the worst-performing month for stocks? Well, the expected September swoon never came to fruition as stocks registered their best September performance since 1939.

Now the chatter has shifted to December and how it’s traditionally the best-performing month for stocks. But just because September proved to be a contrarian indicator doesn’t mean the same should hold true in December. From “Technically Speaking“:

December typically has generated the best returns for U.S. stock investors, and is known as the “Santa Claus rally.” Since 1945, the Standard & Poor’s 500-stock index has risen 1.7% on average in December, compared with a 0.7% return for the average of all 12 months. The index also has posted positive returns in December 77% of the time since World War II, compared with 59% for all 12 months, according to S&P.

The historical data look good on paper. But the market’s recent performance proves investors should be careful forecasting future activity based on historical data…

“History offers a dose of virtual Valium for the feint-of-heart investor,” Mr. Stovall said in a recent note. “It is most effectively leveraged as a warning to the wary who may be inclined to bail out of their equity positions should the market encounter unexpected turbulence.”…

Another bright side to the seasonal story is that the December following midterm elections has been a particularly good month for investors. Since 1945, the S&P 500 has risen 1.5% in the Decembers following midterm elections. It also has averaged a 3.9% gain in the seven Decembers of a midterm election year in which the index also rose in September and October.

“The market’s performance in December has traditionally been quite favorable, as it has risen the highest, and stumbled least frequently, of all months,” S&P’s Mr. Stovall said. “What’s more, market tops and bottoms have rarely occurred in this month. So even though history offers no guarantees, it delivers reassurances.”

The holiday season is off to a fairly good start as preliminary mall traffic and retail sales figures are up from a year ago. From WSJ:

Retailers extended the shopping blitz from a day to an entire week, offering “door buster” promotions in the days leading up to the Thanksgiving weekend. And deals for “Cyber Monday,” typically the first Monday after Thanksgiving, began showing up online earlier as well.

The string of promotions appeared to have succeeded in getting consumers to open their wallets. Roughly 212 million shoppers visited a store or website over the weekend, an increase of 8.7% from last year, according to the National Retail Federation.

The average shopper spent $365.34, up 6.4%, according to the federation, which surveyed 4,306 people on Thursday through Saturday and made projections for Sunday.

The vast promotions retailers are extending to consumers didn’t start last week. They’ve been going on throughout much of November and consumers have gobbled them up. According to comScore, Americans have spent $11.6 billion shopping online since November 2, which represents a 13% rise from last year’s total.

So far so good. But FusionIQ CEO Barry Ritholtz says be careful not to draw vast conclusions from preliminary Black Friday sales. Not only do November and December account for about 20% of retailers’ annual profits, but the Dec. 15 to 25 period makes up about 40% of total holiday sales.

“Will consumers have the strength and the money to continue the momentum?” Ritholtz ponders. “One last note: Most retail forecasts tend to be way too optimistic. We will find out if this year is the forecasters hit their marks.”

That may be one of the reasons retail stocks are lagging today. EBay, Best Buy and Wal-Mart are all down, while Amazon is one of the few retailers doing well. Its stock was recently up 1.6% at $180.05 and earlier hit another fresh all-time high of $181.84.