Sun, Dec 12, 2010 - Page 10 News List

Wall Street closes week stronger and encouraged

GROWING TAILWINDS:Sentiment was boosted by an unexpected narrowing of the US trade deficit and a deal between Obama and the Republicans to extend tax cuts


Wall Street stocks ended the week higher as trade was boosted by a brighter outlook for next year, and with next week expected to see more gains as traders take positions ahead of the year’s end.

News on Tuesday that US President Barack Obama and his Republican foes struck a deal to extend controversial tax cuts was greeted with relief on Wall Street, even though the plan still faces massive hurdles in Congress.

Economists forecast the cuts would boost the US economy, as Americans will have more money to invest in the market, with many analysts estimating GDP to grow next year by 0.5 to 1 percentage point to around 3 percent.

Sentiment was further boosted on Friday after the US Commerce Department reported the US trade deficit surprisingly narrowed sharply in October to the smallest gap since January, thanks to a surge in exports underpinned by a weaker US dollar.

“These were two data points that merely add to the tailwinds that the market has been experiencing for the last several months,” analyst Michael James of Wedbush Morgan Securities said.

“People are coming to the realization that the economy is likely to be stronger next year, and that is why you’ve seen a continued optimism about equities,” he said.

“It has been very hard for any data point over the last several weeks to sell the market off, whether it be domestic data points or sovereign debt fears from a couple of weeks ago regarding Ireland,” James said.

In the week to Friday, the Dow Jones Industrial Average rose 0.25 percent to 11,410.32.

The broader S&P 500 index added 1.28 percent to 1,240.40 points, its highest level in more than two years, while the technology-rich NASDAQ composite index rose 1.78 percent to 2,637.54 points, a fresh three-year high.

Next week was expected to see more gains, though volume was likely to remain relatively low, as investors try to make some extra gains ahead of the end of the year.

“We continue to be in an uptrend at least till the end of the month,” James said. “There are still many fund managers underperforming the benchmark averages and as a result you are only going to see money continuing to go to work, not taken out of the markets.”

In terms of economic data, traders will get retail sales numbers for last month on Tuesday that will include the unofficial Thanksgiving weekend start of the Christmas shopping spree.

The monthly meeting of the Federal Open Market Committee (FOMC) will also draw attention as traders will seek insight on the health of the US economy following the central bank’s decision last month to renew massive asset purchases in an effort to prop up the economic recovery.

The committee was expected to maintain interest rates at their current historic lows between zero and 0.25 percent.

“I don’t expect any big surprise from the FOMC. We should focus on the consumer, most notably the retail sales,” Natixis analyst Evariste Lefeuvre said.

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