Strong week for stocks sets stage for possible December rally
Stocks rocketed to their strongest week in more than two years, and that’s left many on Wall Street optimistic about a year-end rally.
Investors pumped $1.1 trillion into U.S. stocks in the last week and brought the Dow Jones industrial average solidly into the black for the year, sharply rebounding from what had been a rocky November for global financial markets. Meanwhile, the Standard & Poor’s 500 index and the technology-heavy Nasdaq composite are within striking distance of turning positive this year.
The surge comes at the right time for market bulls: December is traditionally one of the best months for stocks. Since 1950, the Dow has risen an average of 1.7% during December — that’s about two times better than the average for the rest of the year, according to the Stock Trader’s Almanac.
“You could potentially really see the market power ahead,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
The markets were fueled by a raft of strong economic data, including Friday’s announcement that the U.S. economy added 120,000 new jobs in November, pushing the unemployment rate down to 8.6%. It was the last major economic report expected out before the holidays.
Investors were also left hopeful after the central banks’ infusion of cheap dollar loans into the global financial system, an action that helped contain fears that Europe’s debt crisis would spread around the world.
The Dow finished the week up 7.01%, the best performance in percentage terms since July 2009; the 787.64-point gain was the best since October 2008. The Nasdaq rose 7.6% this week, while the S&P rose 7.4%.
The surge was a welcome relief for investors battered in November, when the Dow suffered through its worst Thanksgiving week since 1932. Investors were on edge as the debt crisis in Europe appeared to worsen until the Federal Reserve and European Central Bank initiated efforts to contain the crisis.
Europe still remains the wild card that could disrupt stocks in the final weeks of the year when big institutional investors such as mutual funds begin positioning their portfolios for the new year.
“We’re in yo-yo markets,” said Robert Bissell, chief investment officer of Wells Capital Management. “This can really erode confidence because investors get confused. One day it looks like the problem is solved and the next day it’s not. After a while serious investors will just stay on the sidelines.”
