Stocks are jumping on a third quarter U.S. gross domestic product (GDP) revision that was much stronger than expected.» Read More
This indicates that some traders are expecting short-term volatility (around the Federal Reserve meeting) but are expecting things to calm down fairly quickly.
That's the argument some bulls are making to me. The Fed's tapering move, whether it happens today, January, or March, is, as David Lutz said, "the most telegraphed move in the Fed's history."
The economic news is improving. November Housing Starts were strong. Industrial Production and Capacity Utilization, out Monday, were also strong. Inflation is low (perhaps too low), and thanks to deficit reduction the supply of bonds for sale will drop next year-- making it easier for the Fed to reduce bond purchases.
Capping a big year for dividends and buybacks are Boeing and 3M, both of whom gave markets an early Christmas gift.
Boeing announced a $10 billion buyback and 50 percent increase in its dividend (to $0.73 a share). Meanwhile, MMM says they will hike their dividend by 35 percent. The company has also been aggressively buying back stock, amounting to about four percent of the company's market cap this year.
Last week, MasterCard announced a 10-for-1 stock split, 83 percent dividend increase, and a $3.5 billion stock buyback program.
Considering it's close to Christmas, next week will be busy. While everyone knows about the Fed meeting Wednesday, there is considerable interest in the Federal Reserve's very large Permanent Open Market Operation (POMO) operation on Thursday...the Fed typically conducts bond-buying operations every day, but the size is usually $1 to $3 billion. On Thursday, it is $6 to $7.5 billion; many believe that it is no coincidence it is the day after the Fed meeting. There is no POMO on Wednesday, however.
The Senate vote on Janet Yellen as the new Fed chief will be next week, date to be determined.
Tuesday: Senate begins debate on budget deal
Wednesday: Fed announcement with press conference
Thursday: Huge Fed POMO; $6 billion to $7.5 billion over two operations
Friday: Quadruple witching expiration (quarterly expiration of individual stock and index futures options), S&P 500 quarterly rebalancing (Facebook, Alliance Data Systems, and Mohawk Industries to go into S&P 500), and Nasdaq 100 annual rebalancing
Every day NYSE floor legend Art Cashin and I chat about the day's market action, which goes up on CNBC.com midday.
But once a year, the director of floor operations at UBS and I sit down at Bobby Van's Steakhouse across the street from the NYSE to remember the year that has passed and to look ahead to the coming year.
There was much for Art and I to talk about. It has been a record year for stocks: The Dow Industrial Average hit a historic high for the first time this year on March 5 and is up another 10 percent since then. The S&P 500 has rallied a stellar 24 percent alone in 2014. What's fueled stocks higher? Massive money pumping by the Federal Reserve, upbeat corporate earnings, and a slowly improving economy.
2013 key events:
—Jan. 1: U.S. reaches fiscal cliff resolution
—March 5: Dow sets record high
—April 4: Bank of Japan launches stimulus
—May 22: Ben Bernanke testifies before Congress
—July 18: Detroit files for bankruptcy
—Aug. 21: Syria chemical attacks
—Oct. 1: Government shut down begins, lasting 16 days
—Oct. 15: Fitch puts U.S. on "watch negative"
—Nov. 14: Janet Yellen testifies before Congress
(Read more: Don't expect big things from Washington in 2014)
When it comes to 2014, Art mentioned several hot-button topics: if and when the Fed tapers, Yellen's potentially short-lived honeymoon, and where interest rates may be in the next six months.
Which is it: a sell-off coming, or another buy-on-the-dip opportunity? Funny thing is, almost everyone wants to see the markets drop, but for two very different reasons.
One camp wants the market to drop another five to ten percent so they can buy the market cheaper. They believe the economy is strengthening, and with several key issues--including the budget--out of the way, they believe a modest multiple expansion, with the potential for higher revenues, will make lower stock prices a buying opportunity.
The other camp is convinced that tapering is beginning in either December or January, and that the stock market will not handle it well. They believe 2014 could be a real disappointment.
November retail sales checked in at 0.7 percent higher, better than the 0.6 percent increase expected. Importantly, ex-auto sales were up 0.4 percent, better than the 0.2 percent gain expected--so this was a broad improvement, not just in the auto sector. Also: October was revised up, which should result in a upside revision in fourth quarter growth estimates, and further add to the December taper debate, as Adrian Miller at GMP Securities noted.
However, the small-cap Russell 2000 is 4 percent below its historic high and has broke below its 50-day moving average.
Autohome (ATHM), a Chinese online auto site, priced 7.8 million shares at $17 last night, above the raised price talk of $14 to $16, and opened this morning at $30.16.
500.com (WBAI), a sports lottery business, priced 5.8 million shares at $13 ... now trading at $25, up almost 100 percent, a few days after going public.
Sungy Mobile (GOMO), which offers mobile Internet products (app management, for example), priced 5.4 million shares at $12 a few days ago, now trading over $16.
What's going on?
First: massive growth potential. We had the CEO of Autohome on this morning—he said most of the people who visited his site were buying a car for the first time in their lives! Think about that! China has 1.6 billion people. There are hundreds of millions who have never owned a car. Or a watch. Or insurance.
Second: Transparency issues have gone away. Remember all the worries about whether you could believe the numbers coming out of these Chinese companies? What happened to all those worries? As far as I can tell, nothing has changed. Nobody has made any moves to revamp the accounting procedures, or improve transparency. Heck, sometimes you can't even get info on these companies. Some Chinese companies don't even file quarterly reports. It's just that more than a year has passed since it was an issue and everyone has forgotten. Oh sure, there was a brief period of six or seven months earlier this year when Chinese IPOs evaporated here. But that started changing in the second half. China is "out of the penalty box," as one trader said.
Third: Deals doing well spur even more deals. It helps that 500.com and Sungy Mobile have done so well in the past two weeks; it also helps that the markets are holding up so well. There are now 10 Chinese IPOs waiting to go public at the NYSE.
That's something, considering that there have only been seven or eight this year, all of them in the second half of the year. And they have done well, for the most part. The only dog has been LightInTheBox (LITB).
Chinese IPOs this year: Percent change from initial price ...
Capping a big year for buybacks on Tuesday night, MasterCard announced a 10-for-1 stock split (effective January 9th), as well as an 83 percent dividend increase and a $3.5 billion stock buyback program.
This highlights one of the main drivers of the stock rally in the last few years: strong buybacks and dividend hikes. From 2010 to 2012, Mastercard paid roughly $288 million in dividends and repurchased $2.9 billion worth of shares. In 2013 alone, the company paid $182 million in dividends and repurchased $1.7 billion in common stock...about two percent of the market cap.
They will likely buy back about 2 million shares in 2014, again reducing shares outstanding by roughly 1.6 percent. Baird estimates that each 1 million share repurchase adds a little less than one percent to annual earnings per share (EPS) growth. Bottom line: the new buybacks will increase the chances for upward earnings revisions in 2014.
This is it...the last week for IPOs before it dries up for the holidays.
This a high-quality IPO week. Very few dogs here. The list of companies going public include a couple well-known names (Hilton, AMC Entertainment), a hot Chinese internet company (Autohome), and a company with new technology in the hot storage space (Nimble Storage).
Pricing tonight: Autohome (ATHM) and Valero Energy Partners (VLP).
Autohome is a Chinese online auto site seeking to raise 7.8 million shares at $14-$16. I know--a Chinese online auto site. Huh? There's demand: Initial price talk was $12-$14, it's now $14-$16.
Why? They are the number one auto website in China in terms of daily visitors and time spent per user. The advertising money comes from roughly 100 auto makers. (Yes, there are 100 automakers in China!). Dealers pay a subscription fee, which gives them stability in their revenues. Sales are $195 million this year; operating profit of $96 million, so they are profitable. Sales for the nine months ending in September grew 67 percent.
And Chinese IPOs, after a long period of dormancy, have suddenly become hot: Take 500.com (WBAI), a sports lottery business that went public last month, pricing 5.8 million shares at $13....now trading at $25.
Or Sungy Mobile (GOMO), which offers mobile internet products (app management, for example), pricing 5.4 million shares at $12, now trading over $15.
Here's what's interesting: one of their main competitors, Bitauto Holdings (BITA), which went public at the NYSE in February, is trading at 25 times 2014 earnings, according to analysts. Autohome is trading at 18 times forward earnings.
Valero Energy Partners is offering 15 million shares at $19-$21, a Master Limited Partnership (MLP) that is an oil pipeline/terminal operator affiliated with refiner Valero (VLO).
Pricing Wednesday: Hilton Worldwide (HLT), AMC Entertainment (AMC), and ARAMARK (ARMK).
Hilton Worldwide is offering 112.8 million shares at between $18 and $21. The biggest hotel operator, with 4,000 hotels and almost 700,000 hotel rooms. I wrote about this in my morning Trader Talk note.
AMC Entertainment, one of the world's largest movie screen chains (343 theaters with 4,937 screens), is offering 18.4 million shares at $18-$20. It is owned by the Wanda Group, a Chinese real estate company.
ARAMARK Holdings, one of the leading providers of food and uniform services to healthcare, education, sports centers, and prisons, is pricing 36.3 million shares at $20-$23.
Pricing Thursday: Cheniere Energy Partners (CQH) and Nimble Storage (NMBL).
Cheniere Energy Partners is offering 30 million shares at between $19 to $21, a limited partnership (LP), will own a 55.9 percent interest in Cheniere Partners, which owns liquid natural gas facilities.
Nimble Storage is pricing eight million shares at $16-$18, an enterprise storage business, which incorporates high-performance flash storage. It's a technology change because flash is a quicker, more reliable medium than traditional disk-based storage. This is a hot space, and we could see a nice move up.
—By CNBC's Bob Pisani