Afternoon Review

S&P 500: +6.06(+0.55%)

For the third straight day, stocks set fresh 2009 highs but failed to sustain gains. Still, stocks managed to fight off a couple of dips into negative ground to close the session in the black.

The main news today was the much better-than-expected November employment report. U.S. nonfarm employment fell by 11,000 in November, the smallest lass since 2007 and much better than the expected drop of 125,000. In addition, previous months were revised to reflect fewer job losses. Accordingly, unemployment decreased to 10.0%, from the previous reading of 10.2%.

The employment data helped drive the Dollar Index to a 1.4% gain. In turn, the CRB Commodity Index dropped 1%, with gold falling 4%. Strength in the Dollar ultimately limited gains in equities as well.

The employment report also led to increased bets that the Federal Reserve will move off its zero-interest-rate-policy sooner than originally anticipated. There is some concern that raising rates too early would de-rail the nascent recovery, but it seems unlikely that rates would move higher than 1% in 2010 – a level that is still highly accommodative. The next scheduled meeting of the Federal Open Market Committee (FOMC) a few weeks from now will, as always, be worth watching for clues.
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Peter J. Lazaroff, Investment Analyst