Evening Update

Modest Move as Final Trading Week of 2009 Begins

Adding to new highs for 2009, stocks finished modestly higher in light volume to start the abbreviated final trading week of the year. Retailers dominated the headlines, as MasterCard’s SpendingPulse survey revealed strength in electronics sales and that some consumers turned to their computers instead of malls to shop for the holiday. The equity front was relatively quiet, with both Whole Foods Market and Qualcomm announcing management changes, and the Treasury Department removing caps for support for both Fannie Mae and Freddie Mac, while airline shares were lower after a failed terrorist attempt on an international Northwest Airlines flight. There were no US economic releases today, but Treasuries traded lower as today’s $44 billion 2-year note auction commenced a heavy week of government debt auctions. Overseas, Europe finished higher in lackluster action, but upbeat data out of Asia lifted sentiment.

The Dow Jones Industrial Average rose 27 points (0.3%) to close at 10,547, the S&P 500 Index added 1 point (0.1%) to 1,128, while the Nasdaq Composite gained 5 points (0.2%) to 2,291. In light volume, 705 million shares were traded on the NYSE and 1.2 billion shares were traded on the Nasdaq. Crude oil was $0.67 higher at $78.72 per barrel, wholesale gasoline rose $0.03 to $2.04 per gallon, and the Bloomberg gold spot price increased $1.60 to $1,107.05 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.2% lower at 77.62.

MasterCard (MA $257) unit SpendingPulse released its holiday sales survey, which showed that late holiday shopping and an extra shopping day boosted sales, posting a 3.6% increase for the season, although excluding the extra shopping day, sales would have risen 1.0%. The results did not include automobile and gas sales and industry forecasts range from a drop of 1.0% to an increase of 2.6% and include the last week of the month.

The increase in the SpendingPulse survey was led by a mid double-digit increase in e-commerce sales—possibly amplified by snowstorms that hit the nation the week before Christmas—as well as gains in electronics of 5.9% and jewelry of 5.6%, while apparel sales and luxury goods were flat, and department-store sales fell 2.3%. The data is based on sales in the MasterCard payments network and estimates for all other payment forms, including cash and checks. SpendingPulse’s director of economic research said, “Last year the economy and consumer spending were in free fall. This year we’re talking about an environment that has stabilized, that has seen a leveling off.” Shares of MasterCard and retailers were slightly higher.

With the year wrapping up, changes in the executive suite made news today, with Whole Foods Market Inc. (WFMI $29) CEO John Mackey giving up the title of chairman to director Dr. John Elstrott, while the COO of Qualcomm Inc (QCOM $46), Len Lauer, resigned and accepted a job as CEO at an unnamed company. QCOM does not plan on naming a new operating chief now, instead realigning its business groups. Shares of WFMI and Qualcomm finished higher.

Shares of Northwest Airlines parent Delta Air Lines (DAL $11) traded lower, as were shares of other airliners, after a failed terrorist attack on a Northwest flight on Christmas Day and another incident on the same international flight on Sunday set travelers on edge and airports stepped up security measures, causing delays on international flights. A regional branch of terrorist group Al Qaeda claimed responsibility for the failed attack on Christmas Day, saying it was to avenge US attacks on the group in Yemen.

Fannie Mae (FNM $1) and Freddie Mac (FRE $2 ¹) received a boost as the US Treasury Department said it would provide capital as needed to both agencies over the next three years, and moved to allow the companies to shrink their portfolios of mortgage securities more slowly, while saying it was still “committed to the principle” of portfolio reduction. The move was announced late Christmas Eve, a week before the expiration of the Treasury’s authority to change the terms of its agreements without Congressional approval. The new terms announced allow the cap on the Treasury’s support to increase by the amount of the total net loss experienced over the next three years, beginning January 1, and the cap in place at the end of 2012 would apply thereafter.

Economic releases light in abbreviated final week of the year

There were no scheduled economic releases today, and Treasuries traded lower on the short-to-mid end of the curve following a $44 billion 2-year note auction, which kicked off this week’s $118 billion auction of government debt. The yield on the 2-year note rose 8 bps to 1.04%, the yield on the 10-year note was 4 bps higher at 3.84%, and the yield on the 30-year bond was unchanged at 4.69%.

Tomorrow, the economic calendar will yield some reports on the housing market and consumer sentiment, as the S&P/CaseShiller Home Price Index for October will be released, forecasted to show a decline of 7.2% year-over-year, along with the release of the Consumer Confidence Index, expected to improve from 49.5 in November to 53.0 in December.

Japanese output and growth revisions in China lift sentiment overseas

Shares in Asia rose on positive indications about recovery after Japan’s government said their economy will expand for the first time in three years and industrial production rose at the fastest pace in six months in November, while China upwardly revised prior growth figures. Japanese industrial production rose 2.6% in November versus the 2.5% estimate, despite a bigger drop in large retailer sales than expected at -9.6%. Additionally, the Japanese government said on Dec. 25 that its 7.2 trillion yen ($78.8 billion) stimulus package unveiled earlier this month would probably boost GDP by 0.7% in 2010 and create about 200,000 jobs.

In China, the estimate of 2008 GDP was upwardly adjusted to 9.6% from 9.0% and the government said this year’s previously reported quarterly figures will also increase. Chinese Premier Wen Jiabao reiterated the desire to cool property prices, saying that “property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize them,” while maintaining a “moderately loose” monetary policy and a “proactive” fiscal stance, saying it would be a mistake to withdraw stimulus too quickly. Wen added that China will “absolutely not yield” to calls to allow the yuan to appreciate, saying that “Keeping the yuan’s value basically steady is our contribution to the international community at a time when the world’s major currencies have been devalued.” Wen also addressed bank lending, saying “it would be good if our bank lending was more balanced, better structured and not on such a large scale,” but that the situation “has been improving in the second half of this year.” Despite the property comments, shares of Chinese property stocks rose, and the Shanghai Composite increased 1.5%.

In other overseas action, markets in Europe were higher, led by basic materials, energy and industrial shares on better-than-expected economic news out of Asia, while data was relatively quiet in the eurozone and the UK stock market was closed today.