Investors Wait for ‘Santa Rally’
Investors are beginning to worry that Santa will be a no-show on Wall Street this year.
Stocks were broadly lower Monday as buying interest early in the session evaporated in the final few hours, despite a fourth straight decline in oil prices.
The Dow Jones industrial average lost 39.06 points, or 0.4%, to 10,836.53, and indexes of smaller stocks fell sharply as profit takers sought to lock in some of this year’s gains.
In the Treasury bond market shorter-term yields edged up more than longer-term yields, leading to a slight “inversion” between two-year and five-year securities -- a bearish sign for the economy, some analysts say.
The stock market struggled even though crude oil futures in New York slid 72 cents to $57.34 a barrel, the lowest price since Nov. 30.
Warmer weather expected in the East has damped worries about energy supplies.
On Wall Street, “a lot of people are still expecting a Christmas rally [but] the rally is over,” said Richard Eakle, head of Eakle Associates, a money manager in Palm Beach, Fla. “That’s starting to sink in. They’re seeing their positions erode and roll over.”
The market had rallied strongly in November but has found it hard to build on that.
The Dow is up 0.3% this month; broader indexes are mixed.
Investors do not want to “get caught in some sort of downdraft,” said David Straus, who helps manage $200 million at brokerage firm Johnston Lemon in Washington. A January slide “is something that is probably a concern to investors at this point.”
Small-company stocks, one of the hottest market sectors this year, are in the red this month as measured by key indexes. The Russell 2,000 index of smaller shares slumped 1.6% to 672.25 on Monday and is down 0.7% this month, although year to date it is up 3.2%.
The blue-chip Standard & Poor’s 500 index lost 7.40 points, or 0.6%, to 1,259.92 on Monday. The Nasdaq composite dropped 29.74 points, or 1.3%, to 2,222.74, amid heavy selling in semiconductor stocks.
Losers topped winners by more than 2 to 1 on the New York Stock Exchange and on Nasdaq.
The “Santa Claus rally” is a part of Wall Street’s folklore, but analysts note that refers to gains traditionally expected the week after Christmas, rather than the week before.
“The week after Christmas is typically pretty strong,” said Rick Pendergraft, a trader at Schaeffer’s Investment Research in Cincinnati. “But given how much we’ve run up since October, I don’t know if you should expect the same kind of gains.”
The bond market may be giving some equity investors pause. The two-year Treasury note yield ended Monday at 4.37%, up from 4.35% on Friday. The five-year T-note yield was at 4.36%, also up from 4.35%.
Normally, yields on longer-term securities are higher than yields on shorter-term securities. Historically when yields have inverted it has been because bond investors expected the economy to weaken and the Federal Reserve to begin cutting interest rates.
But many experts doubt that the economy will weaken significantly in the first half of 2006.
The 10-year T-note yield was unchanged at 4.44% on Monday. Experts say the warning about the economy would be stronger if the 10-year yield were to fall below the two-year yield.
In other markets Monday, gold prices inched up after tumbling last week. Near-term futures in New York rose 20 cents to $503.60 an ounce.
Among the day’s highlights:
* Pfizer jumped $1.74, or 7.7%, to $24.32 after a federal judge on Friday said that a version of Pfizer’s Lipitor by India’s Ranbaxy Laboratories Ltd. would infringe Pfizer’s patents. The ruling means that the drug maker won’t face competition for the anti-cholesterol drug until 2011.
Other beaten-down drug giants also surged. Merck gained $2.24 to $32.25, and Wyeth rose $1.43 to $46.31.
* On the downside, Alcon slid $6.17 to $131.40 after a federal judge on Friday ruled that the company should pay $214 million in patent-infringement damages to Santa Ana-based Advanced Medical Optics. Advanced Medical’s shares slipped 11 cents to $42.05.
* The utility sector failed to rally despite FPL Group’s $11-billion deal to buy Constellation Energy Group. FPL lost 19 cents to $42.76; Constellation dropped $2.52 to $59.10. The Dow utility index slumped 1.4%.
* RadioShack led a gauge of S&P; 500 retail shares down 1.3%, on average, on concerns about holiday sales. RadioShack lost $1.01 to $21.18. But Circuit City Stores jumped $1.45 to $22.70 after the company said it expected fiscal 2006 sales growth of 8% to 10%, up from a September forecast of 5% to 8%.
* Chip stocks were broadly lower, led by Intel, which sank 60 cents to $25.78, and Texas Instruments, off $1.04 to $32.03.
* General Motors closed at an 18-year low of $21.05, off 84 cents, as investors continued to bail out of the stock.
* Caterpillar fell $2.81 to $56.83. The world’s largest maker of earthmoving equipment said on its website that growth in engine sales was 8% in November, down from 16% in October.
