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Market Update

Economy Rides On Consumers’ Backs – Just As It Should Be

December 23, 2014

‘Tis the season that many of us take note of personal milestones we achieved throughout the past year (and ambitiously take on a big To-Do for next year). Well, Monday brought a milestone for the S&P 500 (SPX)—its 50th record close for 2014. Yup, 5-0. It was no wimpy achievement either; SPX logged a 0.9% gain on a push from tech shares. It was also the fourth straight gain for major indexes that had started the month bogged down by energy sector weakness. As stats go, the U.S. economy also logged an impressive late-year performance, this morning’s release showed, a report that may fuel markets into the holidays.

The SPX’s close above congestion near 2070 opens up the charts to a fresh charge at 2100, most technicians note. And, bulls will argue that the Dow Jones Industrial Average is set to clear 18,000 for the first time in its history (a whisker away as today’s session gets going). Now, after the market chews over the flurry of front-loaded economic data this morning, volume could fade heading into Wednesday’s early market close and complete lights-out for Christmas Thursday. Be aware that thin volumes can crank up the impact of typically small market moves.

Households Drive GDP. Quality shared space with quantity in this morning’s latest reading on the broadest measure of the U.S. economic performance—gross domestic product, or GDP. Consumer spending drove a revised 5% annualized Q3 GDP. The reading matched the best number in 11 years and proved stronger than Street expectations. Consumer spending, the main source of economic activity, was revised up to 3.2% from 2.2%. Spending on business fixed investment was revised up to 8.9% from 7.1%, while spending on equipment was raised to 11.0% from 10.7%. Now, the gain in business inventories was revised to $82.2 billion from $79.1 billion, a historically high level that could encourage companies to scale back a little in Q4. Let’s see. But for now, this report is bullish for the stock market and certainly bullish for the U.S. economy.

Durables Disappointment (Did Anyone Notice?). Orders for durable U.S. goods fall 0.7% in November as an expected boost from orders for Boeing (BA) aircraft failed to materialize. We know that the volatile transportation sector can create noise for this report. Orders for core capital goods—a measure of business investment—were flat in November after two large declines. The thing is, it’s likely few are looking at this report today because of the Street-beating GDP report.

Walgreens Pleases Shareholders. Walgreen Co. (WAG) delivered a strong earnings report at an opportune time. It’s been in the hot seat as its international push is both heralded and heckled. Shareholders next week vote on Walgreen’s deal to buy the rest of drugstore chain Alliance Boots GmbH. It’s a push that will take the pharmacy retail chain’s 8,200 locations to a global operation in more than 10 countries with more than 11,000 total locations. But with the move came the debate, now shelved, for a headquarters change overseas that would give the store a more favorable tax status. As for today, WAG posted a profit excluding one-time items of $0.81 per share compared to $0.72 a year earlier and beating the Street view. Revenue improved 6.7% to $19.6 billion.

Good trading,

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