Wall Street rises modestly as GMAC qualifies for gov't help but holiday spending drops
Wall Street put together a moderate advance in light post-Christmas trading Friday after the government threw a lifeline to General Motors' financing arm, but gains were limited by dreary holiday shopping readings that dimmed the chance of a big year-end rally.
The major indexes finished the week with losses, but the market nonetheless showed further signs of stability.
The news from the retailing sector was far from surprising: Americans spent much less on gifts this season than they did last year, according to SpendingPulse, a division of MasterCard Advisors. Retail sales dropped between 5.5 percent and 8 percent compared with last year, the data showed, or between 2 percent and 4 percent after stripping out auto and gas sales.
Ever since the Thanksgiving weekend, it has been widely expected that this holiday season would be dismal, and analysts believe that a great deal of the poor economic news of late, including weak holiday spending, has been factored into stock prices.
Still, personal consumption is a huge part of U.S. economic activity -- comprising more than two-thirds of gross domestic product -- so Wall Street remains concerned that a more frugal consumer could keep the economy weak in 2009. The market will be paying close attention to the Conference Board's December survey on consumer confidence, to be released on Tuesday. The survey will include data on consumers' expectations for the future.
Investors did get a some good news on Christmas Eve, when the Federal Reserve allowed GMAC Financial Services -- the finance arm of struggling Detroit automaker General Motors Corp. -- to become a bank holding company and thus qualify for the government's $700 billion rescue fund. Analysts had said that without financial help, GMAC might have had to file for bankruptcy protection or shut down.
There was little conviction behind Friday's advance, which the market managed after stocks meandered for much of the session. With just three full trading days left in the year, no news has been upbeat enough to spark a big year-end rally, a consequence of the great uncertainty still in the market. December is usually a strong month for stocks, and a flurry of trading known as a "Santa Claus rally" is often seen in the final week.
"I think we could have a year-end rally, but it's got a formidable headwind in the form of tax-selling, in my view," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. Tax-loss selling is when investors sell their poorly-performing stocks to realize a loss for the year, which can reduce their taxes in upcoming years.
The Dow Jones industrial average rose 47.07, or 0.56 percent, to 8,515.55 after Thursday's market holiday.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 4.65, or 0.54 percent, to 872.80, and the Nasdaq composite index rose 5.34, or 0.35 percent, to 1,530.24. The Russell 2000 index of smaller companies rose 6.28, or 1.33 percent, to 476.77.
Advancing issues were ahead of decliners on the New York Stock Exchange by more than 3 to 1. Consolidated volume came to an extremely light 1.71 billion shares, compared to 1.4 billion in an abbreviated session on Wednesday, and 3.63 billion in a full session on Tuesday.
For the week, the Dow ended down 0.74 percent, the S&P 500 fell 1.7 percent and the Nasdaq lost 2.17 percent.
Although there was selling early in the week on bad economic news, Wall Street still extended a streak of relatively tranquil trading after the extreme volatility of September, October and November. Many analysts believe the market has found a bottom after the lows it reached Nov. 20, although no one is ready to say Wall Street won't see more heavy losses.
As the year winds down, investors are flummoxed over what 2009 might bring.
"It's hard to imagine another year that is going to be as dismal or dark or bad as 2008," Johnson said. "It's even hard to imagine that we have another down year in 2009 -- the odds are the stock market will be higher at the end of 2009. Common sense tells you that."
The Dow is down 35.8 percent for the year, while the S&P 500 is down 40.56 percent and the Nasdaq is off 42.3 percent. Since peaking in October 2007, the Dow has lost 39.88 percent, the S&P 500 is down 44.24 percent and the Nasdaq has skidded 46.48 percent.
But, Johnson added, it's impossible to forecast the end of a bear market, and "confidence can turn on a dime."
Besides the consumer confidence report on Tuesday, the market will be waiting for the Institute for Supply Management's report on the manufacturing sector for December. That will be released Friday.
Trading is likely to remain light next week as many investors remain on vacation for the holidays.
On Friday, the dollar was down against other major currencies, while gold prices rose.
Demand for government bonds increased. The three-month Treasury bill's yield fell to 0.01 percent from 0.02 percent late Wednesday, and the 10-year Treasury note's yield fell to 2.14 percent from 2.19 percent.
Light, sweet crude rose $2.36 to $37.71 a barrel on the New York Mercantile Exchange. Crude prices had tumbled Wednesday for the ninth straight day -- dipping as low as $35.13 -- after gloomy economic reports and growing stockpiles of unused gasoline suggesting eroded demand.
GMAC notes shot higher on the news of the company's transformation into a bank. GMAC's 7.25 percent note due to mature in 2033 rose 88.5 percent to $9.67 from $5.13 on Wednesday. But analysts were wary of the big price move, noting that volume was thin, and saying there is still much to be resolved about the company's finances.
Japan on Friday reminded U.S. investors that the recession is not isolated to the United States. Japanese automakers and other manufacturers cut output last month by 8.1 percent -- the biggest decrease since records began in 1953 -- in the face of slowing demand overseas.
Despite the plunge, Japan's Nikkei stock index rose 1.63 percent.
In other overseas trading, Hong Kong markets were closed, as were those in Britain, Germany and France.
The Dow Jones industrial average ended the week down 63.56, or 0.74 percent, at 8,515.55. The Standard & Poor's 500 index fell 15.08, or 1.7 percent, at 872.80. The Nasdaq composite index ended the week down 34.08, or 2.17 percent, at 1,530.24.
The Russell 2000 index finished the week down 9.49, or 1.96 percent, at 476.77.
The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 8,769.35, down 154.62 points, or 1.73 percent, for the week. A year ago, the index was at 14,911.63.
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