The new year began with some loud bellowing as the bulls took control on the first trading day for U.S. markets. Traders bid up the futures market well before the bell, which was followed by a surge in equity prices pushing the broad based indexes higher to start 2012 trading. Globally better than expected manufacturing data helped riskier assets outperform.
December PMI data in the U.K., China and Switzerland all posted better than expected manufacturing numbers. The U.S. also boosted investor sentiment with an ISM survey that beat analysts’ forecasts. The Chinese 50.8 print, which moved the index back into the expansion zone, shows that China could experience their coveted soft landing.
The U.S. is chock full of economic data points that began the holiday shortened week with the ISM Manufacturing report. The Institute for Supply Management PMI index rose to 53.9 last month from 52.7 in November while economists surveyed had expected an increase to 53.5. The ISM’s new orders index rose to 57.6 from 56.7 in November, while the production index jumped to 59.9 from 56.6. The factory employment index increased to 55.1 in December from November’s 51.8 reading. The prices index edged up to 47.5 from 45 in November.
Separately, Construction Spending rose by 1.2% to an annual rate of $807.11 billion, according to the Commerce Department, and the increase in overall outlays was the best since last August besting the consensus forecast of an increase of 0.3%. The move in the overall index was driven by private sector spending on construction which climbed 1.0% to $522.26 billion in November. Residential spending also rose in November, up 1.8% compared to the prior month.
The Federal Reserve minutes which reflect the discussions that took place during the latest FOMC meeting, were published on Tuesday. The newest wrinkle is that Fed officials will now tell the public when they expect short-term interest rates to rise from the current near zero, given their projections for economic growth, unemployment and inflation. They will begin to make the rate forecasts public following the next FOMC meeting which is scheduled to be held on January 24-25.
The “Dogs of the Dow Theory” was in vogue on the first trading day of the month, with all but two of the Dow’s 30 components trading and finishing the day higher. Bank of America, the Dow’s biggest loser in 2011, was higher by 4.5% while McDonald’s, the biggest blue-chip gainer last year, dropped 1.4%.
Oil prices surged mopre than $3 per barrel, moving above $102.5 and testing resistance levels, pushing along with it prices for energy stocks. A break above $102.5, seen as a pivot point, will likely create a resistance target near $105.
European markets helped the U.S. session start off on the right track after Germany reported better than expected labor data. The numbers of unemployed fell by 22,000 in December, and the unemployment rate was reported at 6.8%, down from the previous 6.9%. Analysts had predicted that the rate would remain unchanged and that the numbers of unemployed would fall to 10,000.
Despite the positive momentum in stocks, the VIX volatility index hardly budged, edging lower by only .54 to close the trading session near 23%.
Technically, the U.S. markets tested the upper end of the trading range on the S&P 500 Index. The large cap index traded up to 1285, but needs to close above 1300 to reflect a convincing break out. Support is now seen near the 200-day moving average near 1258. With the 20-day moving average approaching the 200-day moving average, upward momentum is likely to continue. Additionally, the RSI moved above 60 and is closing in on the highs created during October
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