Sun, Dec 28, 2014 page15

• US equities hit records as ‘Santa Claus’ rally persists

  SPEED BUMPS AHEAD: With the Dow hitting 38 record highs this year and the S&P 500 posting 52 new peaks, market watchers are more cautious ahead of next year

  • AFP, NEW YORK
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  The “Santa Claus rally” kept rolling on Wall Street this week, picking up momentum from an outstanding US economic report that lifted the market to new records.

  The Dow and S&P 500 closed the week out at fresh new peaks, with the blue-chip index registering its seventh straight gain in a surge that one analyst called a “humdinger.”

  For the week, the Dow Jones Industrial Average gained 248.91 points (1.4 percent) to 18,053.71.

  The S&P 500 jumped 18.12 (0.88 percent) to 2,088.77, while the tech-rich NASDAQ Composite Index rose 41.48 (0.87 percent) to 4,806.86.

  Hugh Johnson, head of Hugh Johnson Advisors, said he was heartened by gains in sectors linked to economic growth, like consumer discretionary spending and industrials.

  He noted that the small-cap Russell-2000 also reached a 52-week high on Friday.

  “You have all of the economically sensitive sectors sort of leading the parade recently,” he said. “That tells us investors are becoming more optimistic about the economy and that’s really good news.

  “It’s not only a humdinger of a rally, but it’s also really positive if you look carefully at the market,” he said.

  The highlight of the holiday-shortened week was Tuesday’s report on third-quarter US GDP growth, which came in at 5 percent, the best rate since 2003 and much better than the 3.9 percent previously estimated.

  Spending for consumption rose 3.2 percent, the biggest jump since the end of last year. Analysts also cited strong growth in defense spending and exports.

  The US growth figures showed “an economy firing on all cylinders for the first time in many quarters,” FTN Financial chief economist Chris Low said.

  US stocks surged on the GDP report, with the Dow crossing 18,000 for the first time on Tuesday and plowing to new peaks on Wednesday and Friday. The Dow has notched 38 record highs this year, while the S&P 500 has registered 52 new peaks.

  The GDP report came on the heels of other strong US data in recent weeks on new jobs and retail sales, and corroborated the sense that the US economy remains a bright spot at a time when Europe, Japan and key emerging economies are struggling.

  Next week’s calendar includes the US Conference Board’s report on consumer confidence for this month and figures for the trade deficit.

  Analysts said US stocks could drift higher in the final days of the year absent a negative catalyst given the current positive sentiment. However, market watchers are more cautious ahead of next year.

  “It’s wishful thinking to think we could sustain this type of rally,” said Johnson, who sees the travails of the Russian economy as a potential source of trouble for the global economy.

  “It’s hard for me to imagine that the crisis in Russia will not be transmitted to other parts of the world,” he said.

  Johnson predicted more volatility next year.

  Other risks to stocks next year include a move by the US Federal Reserve to raise interest rates, which is considered likely, and the economic hit to petroleum-linked regions such as the US Gulf Coast due to lower oil prices.

  Higher stock valuations will also put an onus on companies to keep results strong. Earnings stumbles will be punished, analysts said.

  “We’ve seen solid earnings,” said David Levy, portfolio manager at Kenjol Capital Management, who predicts more volatility next year.

  “The question is can earnings justify stocks at these levels?” he asked.
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