Weekly Recap - Week ending 26-Dec-08

From an investor's standpoint, Wall Street didn't bring any Christmas cheer this week.  Amid light trading conditions, the market dropped 1.7%, bringing its year-to-date decline to 41%.

It was a typical week in that we received another batch of dour economic news, saw oil prices continue to decline, and heard the Fed invoke its emergency powers again to lend stability to the financial system.  

In a front-end loaded week for economic data, it was reported that November existing home sales declined 8.6% from October and that new home sales of 407,000 units on an annualized basis hit their lowest level in 17 years.

Initial jobless claims surged to a 26-year high of 586,000, durable orders declined 1.0% in November, and personal income and personal spending fell 0.2% and 0.6%, respectively, in November.

Separately, MasterCard Spending Pulse said Friday that holiday sales from Nov. 1 to Dec. 24 declined as much as 4%, excluding autos and gasoline. 

Amazon.com (AMZN) for its part said 2008 was its best holiday season ever.  What that means for its income statement remains a mystery, but at least Amazon saw record order activity of its own.

Unfortunately, Amazon will be the exception and not the norm this holiday season.  Consumers have clearly become guarded with their spending activity in the face of concerns about rising unemployment, falling home prices, and much lower stock prices.

The final Q3 GDP report released this week indicated as much.  Real personal consumption expenditures declined 3.8% in the third quarter and knocked 2.8% off real GDP growth, which was negative 0.5% for the quarter.

With the retrenchment in both consumer and business spending, and the global slowdown that is crimping demand for U.S. exports, we will see a much larger decline for real GDP in the fourth quarter.

What we won't see, hopefully, is credit being cut off to GM dealerships.  On Christmas Eve the Fed accepted GMAC's application to become a bank holding company.  In doing so, GMAC became eligible to receive TARP funds.

The GMAC news gave the beleaguered auto stocks a lift Friday and provided a measure of support for the broader market, which had been concerned about credit defaults by GMAC if it was unable to gain bank holding company status.  GMAC's new status isn't a cure-all, yet it is viewed as a step in the right direction.

On a similar note, the market took a step in the right direction in its effort to achieve a Santa Claus rally.

According to the Stock Trader's Almanac, the last five trading days of the year and the first two trading days of the new year comprise the period that is measured to determine if Santa Claus came to Wall Street.  A net gain for the period is considered to be an affirmative reading while a net loss is a negative one.

Some think Santa's failure to show is a harbinger of an opportunity to buy stocks at much lower prices later in the year.

Although the market was down for the week, with the bulk of its decline suffered on Monday and Tuesday, the Christmas Eve trade Wednesday marked the start of the Santa Claus rally period this year.

The final two sessions of the week saw the S&P tack on 10 points or 1.1%.  It can be said then that Santa Claus is at least circling Wall Street.  Whether he actually lands there is yet to be determined. 

If he does land there, rest assured that Rudolph will guide him away from Bernard Madoff's roof.

--Patrick J. O'Hare, Briefing.com