Evening Update

Another Muted Move as Bulls See Little Left to Prove

Ahead of the final trading day of the year, stocks posted another day near the flatline as volume remained light and the bulls continued to be content with resting on the laurels of the solid gains in the major equity indices in 2009. The markets were boosted in morning action following the release of the Chicago Purchasing Manager's Index, which jumped to 60.0 in December from 56.1 in November — the highest level since January 2006 and well above expectations, but retreated back to the unchanged mark in afternoon action. Equity news was relatively subdued, headlined by a report that GMAC may receive a third round of government funds in the amount of $3.5 billion. In other equity news, GM reportedly extended its Saab bid deadline, Pfizer discontinued a trial of an experimental lung cancer treatment, Broadcom Corp. settled a shareholder suit, and Aetna announced that it will take a charge related to its reorganization efforts. Treasuries finished modestly higher amid the aforementioned positive manufacturing data and following a $32 billion auction of 7-year government notes.

The Dow Jones Industrial Average rose 3 points (0.03%) to close at 10,549, the S&P 500 Index was unchanged at 1,126, while the Nasdaq Composite gained 3 points (0.1%) to 2,291. In light volume, 644 million shares were traded on the NYSE and 1.3 billion shares were traded on the Nasdaq. Crude oil was $0.43 higher at $79.30 per barrel, wholesale gasoline rose $0.03 to $2.06 per gallon, and the Bloomberg gold spot price decreased $4.96 to $1,091.88 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.1% higher at 77.93.

Struggling lender GMAC will reportedly receive another infusion of government aid, according to a report from the Wall Street Journal that cited unnamed sources close to the situation. According to the story, the lender would receive $3.5 billion, which would be on top of the $12.5 billion it has already received. The report said the new capital could prevent GMAC from placing its struggling mortgage unit Residential Capital, or ResCap, into bankruptcy. "GMAC has been conducting a strategic review of its business and evaluating options to address the challenges in its mortgage operation," a GMAC spokeswoman said in a statement, while adding that the company has no new announcements to make at this time. The US Treasury only reiterated that it is in discussions with GMAC to ensure that its capital needs are met.

Meanwhile, Reuters reported that General Motors has extended the deadline to receive bids to acquire its Swedish car unit Saab from December 31st, to January 7th, citing a text message received from the CEO of Dutch luxury carmaker Spyker Cars, which recently sweetened its bid for the Saab unit. Spyker’s chief added that he believed that there are multiple bidders for Saab, according to the report. GM did not comment on the report, while a Saab spokesperson said the company will restart production of some of its models in January.

Dow member Pfizer (PFE $19), maker of the world’s best-selling cholesterol drug Lipitor, said it stopped testing its experimental lung cancer drug, which was in a Phase 3 trial, due to the study meeting predefined boundaries for early termination. The company also said an independent safety committee determined the treatment was unlikely to prove effective in treating the disease. Shares finished modestly lower following the announcement.

Elsewhere, chipmaker Broadcom Corp. (BRCM $32) said it has agreed to pay $160.5 million in cash to settle shareholder lawsuits over its stock option accounting practices, although it did not admit any wrongdoing as part of the settlement. BRCM expects to take a charge for the settlement amount in its 4Q results. Shareholders initially sued the company in 2006, claiming they lost money when the company restated earnings for a four-year period by $2.2 billion because of backdated stock options. It was the largest restatement for any US company related to backdating, a practice that sparked federal investigations of dozens of companies and led to criminal charges of securities fraud against Broadcom executives. Shares were higher.

Health insurer Aetna (AET $32) said it expects to take a charge of approximately $40 million on an after tax basis in 4Q to cover the costs associated with job cuts and real estate consolidation. The company previously announced a plan to reduce its workforce by 625. A similarly sized workforce reduction to be completed by the end of 1Q 2010 is expected to result in another charge of between $20-$25 million after tax the company said. After the job cuts are completed, Aetna will have a workforce of approximately 34,300 employees. Shares came under pressure.

Chicago purchasing manager survey comes in stronger than expected

The economic calendar was relatively light today, with only the Chicago PMI (chart) for traders to consider. That report was released this morning showing a much stronger-than-expected figure of 60.0. Economists had expected a slight pullback to 55.1 in December from the 56.1 reading logged in November. The report showed manufacturing in the Midwest region remains well above the 50.0 level that signals the breakeven point between expansion and contraction, returning to its highest level since January 2006. The employment gauge within the report also rose, hitting its highest level since November 2007 and the first time it has been in expansionary territory since then.

Treasuries finished with modest gains following the report and after an auction of $32 billion in 7-year notes. The yield on the 2-year note was flat at 1.08%, the yield on the 10-year note was 1 bp lower at 3.79%, and the yield on the 30-year bond was down 3 bps at 4.61%. Please note that although the US equity markets will trade in a full session tomorrow, the bond markets will close early at 2:00 p.m. ET.

Elsewhere, the Mortgage Bankers Association, which ordinarily releases its weekly mortgage applications report on Wednesdays, did not do so this week because of the holidays. Instead, it will release two weeks' worth of data next Wednesday.

Tomorrow, the lone report on the US economic calendar will be the release of weekly initial jobless claims, forecast to increase by 8,000 to 460,000, while continuing claims are expected to increase by 24,000 to 5,100,000.

International markets provided little data as many traders stayed away from their desks due to the holidays. There are no major international economic releases scheduled for tomorrow.