The year ended with an up week. That was fitting, as it was a fantastic year for the market. The S&P 500 index ended with a gain of 13.6% for 2006.
It was a fairly quiet week. The market was up the first two days following the Christmas holiday on Monday. In part, this was due to expectations of a classic year-end "Santa Claus rally." The 6 point gain in the S&P 500 index on Tuesday was bolstered by a drop in oil prices back to near $61 a barrel, but that was largely an excuse for buying after a dip in the market the previous week.
On Wednesday, the S&P surged 10 points. The market got a boost from the report that new home sales were up 3.4% in November and that prices were up 5.8% from a year ago. The data raised hopes that the housing market is bottoming. In fact, new home sales hit their lowest levels in July and are up 7.0% since then.
There was more good news on housing on Thursday. Existing home sales, which run at much higher levels than new home sales, were up 0.6% in November. This followed a 0.5% increase in October. The median sales price was down 3.1% from a year ago, but this supported the theory that the housing market is stabilizing. There is no talk that the housing industry will take off any time soon, but there is a growing consensus that the worst of the decline is over.
That wasn't taken as good news by the stock market. The S&P actually dropped 2 points that day. The housing data, along with a jump in the December Chicago PMI manufacturing survey to 52.4 from 49.9 in November and a jump in consumer confidence, led to concerns that a Fed rate cut in early 2007 was less likely. After all, if housing is stable, and consumer spending and the manufacturing sector are rising, there is not much reason for the Fed to cut rates. The market may well have gotten ahead of itself in anticipating several rate cuts for 2007.
Friday there was little news as the S&P lost 6 points.
There were no earnings reports this past week and no guidance of note. The only real corporate news involved Apple and the possibility that Jobs was involved in some inappropriate timing of stock options. The stock ended up for the week, however.
Oil prices ended the week down a little over $1 at $61.05 a barrel. The yield on the 10-year note rose to 4.71% from 4.62% the week before on the stronger than expected economic data.
There are concerns that the market could face a consolidation in January. But the economic outlook is reasonably good, the interest rate outlook is stable to bullish, and profit momentum is strong. Those factors suggest 2007 should be another up year for stocks.
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