S&P 500: +4.06 (+0.37%)
The S&P 500 managed to finish the week with a small gain after better-than-expected retail sales and consumer confidence offset concerns regarding sovereign government debt. Also lifting sentiment was bullish data from China (larger-than-expected increase in industrial production and new lending) as well as a bullish 2010 forecast from J.P. Morgan.
November retail sales signal the holiday shopping season got off to a nice start, with strength in electronics and “nonstore” (i.e. internet) retailers. It appears consumers can continue to spend during the deleveraging process, but a challenging labor market and tightening credit should restrict the pace at which spending will rebound in 2010.
The U.S. Dollar Index again made gains along stocks, gaining 0.7% today and now up 3.1% since November 25.
During the past several months, stronger economic data caused risk aversion to fade, pushing stocks higher and the greenback lower. This trend may be changing, though, with the market increasing bets on interest rate hikes in 2010.
If the dollar continues to rally, we should see a shift in outperformance from the companies that derive a large portion of their revenues internationally to those that derive the most of their revenue domestically.
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Peter J. Lazaroff, Investment Analyst
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