What a difference a trading day makes! Last Friday’s trading session closed the books on Wall Street for 2005 and it was pretty unexciting. The S&P 500 Index eked out a 3% gain for the year. The Nasdaq 100 saw a putrid 1.6% increase for all of 2005 and the Dow Jones Industrial Average actually finished the year down .6%.
Yesterday’s post-holiday trading session looked fairly ho-hum until the minutes from the most recent Federal Reserve meeting were released. From that moment on, it was off to the races for the market. The Dow, not bearing any resemblance to the lackluster behemoth we saw last week, gained 130 points. The Nasdaq roared back and added some 38 points, and the S&P gained 21 points.
The sectors leading the market forward included the Internet, semiconductors, oil and gold. The broad-based rally gives investors hope that 2006 may turn out far differently that its predecessor. We are carefully monitoring the markets at these levels and would consider an uptrend firmly in place if and when the S&P hits and holds at 1275.
My biggest areas of surprise for a continued uptrend are energy and Asia. Both of those sectors ended the year strong and opened up strong.
Concerns I have for this market going forward are as follows:
1) A weaker manufacturing number for the month of December, even in the wake of reduced costs for raw materials, poses a threat to the employment market. The strength of the manufacturing sector directly impacts the strength of the jobs outlook.
2) The decline in housing sales, the worst in 11 months, could foretell a precipitous decline in housing values. Housing values impact consumer spending. Be on the lookout for a softening in spending.
3) Energy prices are still high, even though they have come down from their hurricane high levels, and I have an ongoing inflation watch in place.
For these reasons, I would be participating in this market to capture welcome gains, but remaining ever vigilant for a pullback.