Momentum May Support Markets As Averages End Year Close To Record Highs

(RTTNews) - The major U.S. index futures are pointing to a higher opening on Wednesday, with sentiment suggesting that stocks may open higher in the final trading session of the year. The major European markets that remained open for trading ended on a positive note. With crude oil resuming its descent and jobless claims data showing a bigger than expected increase for the recent reporting week, stocks may come under pressure, although the markets continue to derive support from the momentum. Subdued activity is likely ahead of Thursday's public holiday on account of the New Year even as housing and regional manufacturing data could provide some direction.

U.S. stocks retreated in thin pre-holiday trading on Tuesday, as valuation concerns and an uncertain global economic environment triggered some profit taking. The major averages opened lower and languished below the unchanged line before closing moderately lower.

The Dow Industrials ended down 55.16 points or 0.31 percent at 17,983, while the S&P 500 Index lost 10.22 points or 0.49 percent before closing at 2,080 and the Nasdaq Composite closed at 4,777, down 29.47 points or 0.61 percent.

Twenty-five of the thirty Dow components closed lower and one stock was unchanged, while the remaining four stocks moved to the upside. Caterpillar (CAT), Intel (INTC) and Microsoft (MSFT) were the biggest decliners of the session.

Among the sectors, utility, oil service and computer hardware stocks came under selling pressure, while gold and airline stocks gained ground.

On the economic front, the Conference Board reported that its consumer confidence index rose to 92.6 in December from an upwardly revised reading of 91 for November. The current conditions index climbed 5.1 points to 98.6, while the expectations component slid 0.8 points to 88.5.

The Year That Was For U.S. Markets

The domestic markets were on a tear in 2014, supported by sound economic data that spoke volumes about the fundamental strength of the U.S. economy. This came despite cracks emerging elsewhere globally.

Data released last week showed that the U.S. economy grew at a fairly decent clip of 5 percent in the third quarter following the 4.6 percent growth in the second quarter. However, this came after a 2.1 percent contraction in the first quarter.

The growth in personal spending continued to strengthen to 3.2 percent in the third quarter from 2.5 percent in the second quarter and 1.2 percent in the first quarter.

Activity data has also been encouraging, with the manufacturing and the service sectors expanding at a fairly robust pace throughout the year. Industrial production growth has also been encouraging. Between June and November of 2014, industrial output was up about 2.5 percent.

Another contributing factor towards the market rally is the extremely accommodative stance of global central banks. The European Central Bank and the Swiss National Bank took rates to negative territory, the Federal Reserve continues to sound dovish despite market fears over potential tightening and the Bank of Japan has also eased monetary policy further amid deflation worries.

Among the major U.S. averages, the Dow Industrials is up 8.48 percent thus far this year and had topped the 18,000 level, although it is currently slightly below that level. The S&P 500 Index has rallied 12.55 percent compared to a steeper 14.39 percent gain for the technology-weighted Nasdaq Composite Index.

Utilities has been the best performing sector, with the Dow Jones Utility Average notching up a gain of 28.33 percent by December 30th. The Dow Jones U.S. Basic Materials Index was up a more modest 2.32 percent for the year.

Meanwhile, the precipitous drop in crude oil prices over the later part of 2014 has weighed on the NYSE Arca Oil Index, which is down about 9.8 percent this year.

Currency, Commodity Markets

Crude oil futures are sliding $1.43 to $52.69 a barrel after climbing $0.51 to $54.12 a barrel on Tuesday. An ounce of gold is currently trading at $1,198.60, down $1.80 from the previous session's close of $1,200.40. On Tuesday, gold rallied $18.50.

For the year, the U.S. dollar has been the best performing currency, with the greenback gaining 11.5 percent and 13.5 percent against the euro and the yen, respectively.

On the currency front, the U.S. dollar is trading at 119.60 yen compared to the 119.48 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.21462 compared to yesterday's $1.2156.

Asia

The major Asian markets had a mixed session in the final trading day of the year, although the Japanese, South Korean and Indonesian market remained closed for extended New Year's breaks.

The Chinese, Hong Kong and Taiwanese markets advanced, while the Australia, Malaysian, New Zealand and Singaporean markets lost some ground.

Australia's All Ordinaries opened higher and saw some strength in the morning before losing momentum and retreating in a truncated session. The index ended down 3.70 points or 0.07 percent at 5,389.

Real estate stocks retreated sharply and financial stocks also saw some degree of weakness, while energy, material and consumer staple stocks found some buying interest.

Meanwhile, China's Shanghai Composite ignored a nervous start and advanced strongly for much of the session before closing 68.86 points or 2.18 percent higher at 3,235. The Hong Seng Index of Hong Kong also ended an abbreviated session up 103.94 points or 0.44 percent at 23,605.

On the economic front, final figures released by HSBC and Markit showed that China's manufacturing sector moved into contraction territory in December. The manufacturing purchasing managers' index fell to 49.6 from 50 in November, although it is above the flash estimate of 49.5.

A report released by the Reserve Bank of Australia showed that private sector credit in Australia rose at a slower rate in November, with the metric up 0.5 percent month-over-month following a 0.6 percent increase in October. The November growth was in line with expectations.

Europe

In Europe, the French and the U.K. markets opened higher and held on to their gains. Nevertheless, sentiment is muted in the truncated session ahead of the New Year's Day holiday on Thursday.

U.S. Economic Reports

After reporting an unexpected drop in first-time claims for U.S. unemployment benefits in the previous week, the Labor Department released a report showing that initial jobless claims rebounded by more than expected in the week ended December 27th.

The Labor Department said initial jobless claims climbed to 298,000, an increase of 17,000 from the previous week's revised level of 281,000. Economists had expected jobless claims to rise to 290,000 from the 280,000 originally reported for the previous week.

MNI Indicators is due to release the results of its regional business survey for the Chicago region at 9:45 am ET. The consensus estimate calls for the Chicago business barometer to remain unchanged at 60.8.

Business activity in the Chicago region showed a slowdown in the pace of growth in November. The business barometer slid to 60.8 in November from 66.2 in October, while economists expected a more modest decline to 63.2. The new orders index slumped 11.7 points to 61.9.

The National Association of Realtors will release its pending home sales index for November at 10 am ET. Economists expect pending home sales to have risen 0.5 percent month-over-month.

Pending home sales, which represent contracts signed for sales of existing homes, fell 1.1 percent month-over-month in October. Nevertheless, pending home sales were up 2.2 percent year-over-year.

The Energy Information Administration is due to release its customary weekly petroleum status report for the week ended December 26th at 10:30 am ET.

According to the inventory report released for the week ended December 19th, crude oil inventories rose by 7.3 million barrels to 387.2 million barrels, with inventories remaining well above the upper limit of the average range. Gasoline inventories climbed by 4.1 million barrels and were also well above the upper limit of the average range.

Additionally, distillate stockpiles increased by 2.3 million barrels yet were in the lower half of the average range.

Refinery capacity utilization averaged 93.9 percent over the four weeks ended January 19th compared to 93.4 percent over the four weeks ended January 12th.

Stocks in Focus

Walgreen (WAG) and Alliance Boots said that they have completed the second step of their merger to form Walgreens Boots Alliance Inc. (WBA).

Pacific Ethanol (PEIX), and Aventine Renewable Energy Holdings announced they have entered into a definitive merger agreement under which Pacific Ethanol will acquire all of Aventine's outstanding shares in a stock-for-stock merger transaction.