The Dow started the new year with a big jump on Friday as investors looked beyond yet another piece of grim economic data and hoped that a recovery is on the horizon x`after a disastrous 2008.
Analysts said investors seemed to be discounting economic data, including Friday's release showing a sharp contraction in factory activity, in anticipation of a turnaround in the second half of 2009.
Those expectations helped push indexes to their highest levels since early November, although volumes were light with trade wedged between Thursday's New Year's holiday and the weekend.
Analysts cautioned the light volume could have exacerbated swings in the market.
Strategy Session with the Fast Money Traders
Investors were buying the news that 2008 has ended, says Jeff Macke. But the rally is probably irrational.
We could see 1000 in the S&P but then it will probably drift lower through the spring, adds Guy Adami.
I agree, adds JJ Kinahan. I think we could rally on optimism ahead of Barack Obama’s inauguration.
The Dow had been trading in a range of 8050 to 8925 until Friday adds Joe Terranova. I think it’s a good sign.
COMMODITY STOCKS START YEAR ON FIRE
Supply concerns drove the price of oil higher on Friday with tensions in the Middle East and Russia both adding to geo-political uncertainty. Over the past 5 days the price of oil has surged 31%.
Meanwhile steel names such as Alcoa and US Steel both closed with gains on hopes that Barack Obama’s stimulus plan could signal a windfall for these companies.
It’s a nice recovery, counsels Joe Terranova. I think the biggest catalyst is the clean slate of the new year.
It’s an asset bubble that’s broken, scoffs Jeff Macke. But I wouldn’t trade it on the short side, either. And I’d be careful of United States Steel. They want a bailout.
In the short-term I’m a buyer of oil, says JJ Kinahan. I think there could be a pop.
If you believe he energy sector isn’t going down any more look at Bristow Group , counsels Guy Adami.
CONSUMER SHARES CHARGE HIGHER
Shares of Macy’s, Wal-Mart and the Gap all sprang higher as investors sought value in a sector that’s been badly beaten down.
I’m long Wal-Mart reminds, Jeff Macke. But I wouldn’t buy any other retail stock. In fact, there was bad performance on Friday in Simon Property Group (a mall REIT) which doesn’t bode well for retail.
I like the Gap, counters Guy Adami. They’re becoming a better merchant and when the economy turns they should benefit.
I think Macy’s could level off right around current levels, adds JJ Kinahan.
DOLLAR GAINS ON EUROPE'S WEAKNESS
The U.S. dollar was firmer at the start of 2009 on Friday as investors sold the euro after data showed deepening recession in the euro zone.
However, the move might not mean all that much as “markets are thin with many opting to take today off," says Dustin Reid, director of FX strategy at RBS Global Banking & Markets.
Commodities rallied but the dollar didn’t sell-off, explains Joe Terranova. I think the US remains the economic superpower and investors still seek out dollar.
If you want to play the financials, I’d only look at US Bancorp, says Guy Adami.
I think the market will recover and the financials should lead us higher, adds JJ Kinahan.
I think it’s a little early to get into financials, counters Joe Terranova. I’d buy something in another sector with a strong balance sheets.
The balance sheets in financials are nothing more than a chunk of hope, bristles Jeff Macke.
And watch Goldman Sachs, they have to provide new information as they convert to a bank, adds Macke. It could be telling.
STOCK SEER SEES MORE PAIN
Jeremy Grantham, who became renown for calling the market collapse in 2000, told the Wall Street Journal that there’s “better than 50-50 chance that the S&P 500 falls further in ’09.”
Jeremy Grantham's Predictions for '09
- Better than 50-50 chance S&P 500 falls in '09
- Could see "a shockingly low number" on the index, like 600
- Sees an inflation "surge"
Source: Wall Street Journal
Isn’t 50/50 the same as a coin flip, scoffs Jeff Macke.
Grantham has been saying this since 2002, adds Kinahan. And he missed a lot of up moves.
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Trader disclosure: On Jan 2, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE): Macke Owns (MCD), (WMT), (TM), (DIS): Kinahan Owns (DELL), (GE), (HD), (HPQ), (INTC), (LEHMQ), (C ), (YHOO): Kinahan Is Short (BAC) Puts, (CSCO) Puts, (MSFT) Puts
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Terranova Works For (VRTS): Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.: Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (DLR), (EPR), (EXR), (IGE), (SLB), (MAC), (DBC), (DBV), (SKT), (UA), (CLB); Virtus Investment Partners Owns More Than 1% Of Corporate Office Properties Trust SBI MD; Virtus Investment Partners Owns More Than 1% Of Goldman Sachs Financial Square Fund – Money Market Fund; Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights
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