In the absence of any fresh economic data, traders’ moods appear to be buoyed by the spate of mostly positive economic news in recent weeks. Strong corporate profits have also pushed stocks higher for much of 2010. The Dow Jones industrial average is up 11 percent for the year, and is back to levels last seen in August 2008, prior to the heat of the financial crisis.
“The primary theme of 2010 was that corporate profits were much better than expected,” said Philip Dow, director of equity strategy at RBC Wealth Management in Minneapolis. “As we enter into 2011, my hope and belief is that we move from recovery to expansion and a self-sustaining economy.”
At midday on Wednesday, the Dow rose 29.48 points, or 0.3 percent, to 11,605. The S&P 500 was up 2.98 or 0.2 percent, to 1,261.49, and the technology-focused Nasdaq gained 6.39, or 0.2 percent, to 2,669.27.
Trading volumes on Wall Street are expected to be light throughout this week. Many investors have already closed their books for the year and are on vacation until January.
This month, Wall Street has been particularly encouraged that Americans took out their wallets to shop during the holiday season, after two years of holding back. However, RBC’s Dow warns that America cannot depend on consumers alone to pull it out of the trough this time.
“People probably got bored of not spending and it was time to celebrate a little, but we shouldn’t be surprised if the consumer retrenches again,” said Dow.
A disappointing report on consumer confidence released Tuesday showed that while holiday spending surged, consumers are still fretting about the economy and high unemployment.
In corporate news, BJ’s Wholesale Club Inc. was up 7 percent to $47.55 after reports that a private-equity firm might be interested in acquiring the discount club. The firm, Leonard Green & Partners, recently reached deals to buy other retailers including Jo-Ann Stores Inc., which sells fabric, and is partnering with TPG Capital to buy J. Crew Group Inc.
Traders will closely be watching the outcome of a U.S. Treasury auction of $29 billion in 7-year notes Wednesday. Fewer-than-expected buyers emerged for Tuesday’s government’s auction of $35 billion in five-year bonds, which caused the yield on the 10-year Treasury note to jump to 3.49 percent from 3.34 percent the previous day. The move also sent the blue-chip indexes slightly higher.
Treasury prices were slightly higher, sending the yield on the 10-year bond slightly lower to 3.44 percent.
Looking ahead to Thursday, investors will look for signs of how the housing market is performing when November data on pending home sales will be released. In October, there was a record 10% increase in new contracts signed on falling home prices and record low mortgage rates.
Now however, as mortgage rates are creeping up, the numbers will reveal whether home sales have kept up their pace.
Also on Thursday, the Labor Department’s report on weekly jobless claims will be released at 8:30 a.m. Eastern.
Overseas markets in China and Germany performed well Wednesday, with Hong Kong’s Hang Seng index up 0.2 percent and the German DAX up 0.3 percent.
In commodities, gold continued its climb, rising $6, or 0.5 percent, to $1411.90, while crude oil was off 0.4 percent at $91 a barrel.