Weekly Market Review 12-31-2004

Stock Market closes up for the year
By Rick Paler


The trading year ended with little fanfare as many traders were on vacation and there was no major corporate news released. The economic data released this week did not impact the market and market volume was low.

In corporate news no companies reported earnings. In retail, MasterCard International reported that holiday sales seemed to increase in the final weeks of the holiday shopping season. MasterCard reported an 8.1% rise in spending from last year. Analyst had estimated that holiday spending would increase only 4.5% over last year’s strong numbers. This should support the retail sector going into next year.

Wal-Mart Stores (WMT) announced that they saw an increase in store traffic in the final week of shopping. The company now expects their December same-store sale to come in towards the middle of their prior reduced forecast of 1% - 3% sales growth.

Amazon.com (AZMN) reported that they had the busiest season ever. The company reported that it had set a one day sales record of 2.8 million units ordered.

Pfizer (PFE) was in the news again this week as the FDA approved Lyrical. Lyrica is the first FDA approved treatment for the depilating forms of pain caused by nerve damage resulting from diabetes or shingles. The Wall Street Journal also reported that sales of the arthritis pain reliever Celebrex fell 56%, after a study indicated a possible link to heart problems. Some are now questioning the study, since the study was using twice the recommended dose and another recent study released indicated that there was no link to heart problems.

Economic news this week was light. Following last weeks better than expected consumer sentiment report the Conference Board reported that consumer confidence surged to 102.3 in December, well above economist estimates of 94.0. The reading indicates that consumers are more optimistic about the economy as oil prices drop, job growth increases and the stock market posted a gain for the year. The positive news is a plus for the stock market going into 2005.

The Chicago PMI fell to 61.2 below the estimates of 65.2, but still well into the range of an expanding economy. Any number greater than 50 indicates an expanding economy while any number less than 50 indicates a contracting economy.

Bond trading was also light due to the holiday and no major news releases. Bond yield closed lower across the board compares to last month. The 5 year Treasury notes yield closed at 3.60% versus last months 3.69%. The 10 year note closed at 4.21% down from 4.35%. While the 30 year Treasury bond closed the month at 4.82% versus Novembers 5.00%.

Over the next few weeks both institutional portfolio managers and individual investors will continue to evaluate their existing portfolio holdings making important changes in their composition and allocations as they look for what will be 2005’s hot sectors and losers.

The all important fourth quarter earnings season will begin shortly and the current consensus is that earnings for the S&P 500 will grow by 15%. I would not be surprised if the final number is north of 15%. As for 2005 it is my belief that it will continue to be a stock pickers market were active professional management will outpace the indexes.