In the first trading session after the Christmas holiday, the major indices moved slightly to the upside with retailers leading the way, but as the street looks ahead to the Treasury auctioning off $118 billion in debt this week, the question lingers whether higher rates have the potential to stifle the economy's recent rally.
Word on the Street
A standout among the retailers, Amazon.com is trading at new 52-week highs after the company announcement boosted sales of e-books in the wake of a successful holiday run for its flagship product, the Kindle. "At this point, Amazon looks great" says Scott Redler, the Chief Strategic Officer from T3Live.com. Although he says the prime entry point for this stock was last week, Redler believes the stock will continue to perform into the first weeks of January.
Another stock that has had a big run of late, Apple, also recently experienced positive comments from street analysts, but have investors missed the boat on this company? Based on both the "phenomenal" technicals and fundamentals, Joe Terranova thinks there is no reason to pull yourself from the stock, as he sees the stock continuing to move higher.
Although strong numbers through the holiday season are pushing retail stocks higher, such positive data gives traders pause, but should these be believed? Jon Najarian sees the important detail of these numbers weaved into the sales of electronics, boding well for Apple, who saw large volumes of its newest generation iPod coming off the shelves, giving itself positive momentum into 2010.
Higher Rates: A Rally Killer?
Treasurys were sliding Monday, with benchmark yields reaching their highest levels in 6 months, along with an impending government auction of $118 billion in notes this week. With uncertainty surrounding interest rates, some argue that stocks in 2010 are going to be mre influenced by changes in rates than in earnings, but how accurate is this prediction?
Mike Khouw of Kantor Fitzgerald sees a definite correlation between interest rates and stock prices, but he doesn't see an interest rate hike being a situation that necessarily brings down equities. Instead, being that the low interest rates have been put in place as a result of poor economic conditions, a rate hike could be a signal to the market that the economy has improved and may lend support for the overall market, he says.
So what is the average investor to do? Joe Terranova sees equities and corporate bond markets being attractive for individual investors in 2010, as the Fed is set to raise rates, but he is confident that the equities market is set to withstand a rise in 10-year rates next year. "If we get back to a more normalized rate for the 10-year and 30-year, that is not what's going to be bad, that is not what is going to hold the market back," adds Jon Najarian, who thinks taxes and other unforeseen events, such as terror attacks, have a greater potential to influence stocks.
Fear Trade: Airlines
Airlines were under pressure in Monday's trading session following the weekend's foiled terrorist attack, but do these stocks, which have experienced big gains over the past few months, present a buying opportunity during this dip? Analysts have been more bullish on the sector as a whole, but Jon Najarian thinks that threats of attack could potential derail the positive momentum experienced in the sector. With the government response in mind, he points out that longer wait times at airports may discourage people from traveling and hurt the industry's bottom line.
Scott Redler's firm has taken profits off the upside swings in airlines recently, but is now sitting on the sidelines for these stocks, waiting for the dust to settle in the wake of terrorist threats. Joe Terranova agrees with profit taking on the airlines, as oil prices are subsequently on the rise, which bodes poorly for the airlines.
Commodities Moving Higher
With commodities enjoying a move to the upside on Monday, oil is pushed through $78 while Copper reached its highest level since Sept 2008, Dennis Gartman joined the team to get an outlook on how to play the rising tide of commodities. "It still looks like a bull market in commodities," he said, noting increased buying in industrial commodities, as well as increased demand and decreased supply in agricultural commodities such as wheat, soy beans and corn.
In addition, strength in the dollar over the past six weeks has not significantly affecting moves in commodities, with many hitting new highs despite lack of weakness in the greenback. "One has to be impressed by that fact," says Gartman. A positive turn in the economy will also support commodity prices, adds Jon Najarian, who points out that industrial demand, notably for copper, is set to increase during the recovery.
Emerging market demand is also important, says Joe Terranvoa, highlighting the 4 "C's" of commodities - Coal, Copper, Crude and Corn - the last of which, corn, will be a critical component in the agricultural space in 2010. Scott Redler also suggests further bullishness in Gold throughout next year.
Goldman Poised to Break Downtrend?
Since October, Goldman Sachs has lagged the financial sector, and as Scott Redler points out in the Chart of the Day, traders are waiting to see whether the company can play catch-up and break its recent downtrend. He thinks, looking at a level of 165-166, that if there is a volume surge for GS shares through that level, such bullishness could help to ignite the sector, which has maintained a leadership role throughout the recovery.
Call The Close
Joe Terranova: Bullish, especially on China and Tech.
Mike Khouw: Also a buyer, "stay long" he says.
Jon Najarian: I'm a buyer.
Scott Redler: I'm a buyer through year-end.
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CNBC.com with wires