Watching Santa Rally's Last Day

We begin the "real" New Year with stocks at a 6-week high, and the S&P 500 24 percent above its November 20 low. Now let's see if we can change leadership: health care and consumer stocks have generally outperformed in the past few weeks, though recently industrial stocks have improved. A shift toward less defensive names would be a welcome development.

Stock traders believe the best use of the stimulus money would be tax cuts, so traders have cheered reports that the stimulus bill will be heavier on tax cuts than was expected. The dollar is rallying.


1) This is the last day of the Santa Claus rally (last five trading days of the old year, first two of the new), and so far it is a big success. The S&P 500 has rallied 8 percent in that period, well above the 1.4 percent average rally. So far, it is the best Santa Claus rally since 1974, when the S&P rallied 7.4 percent.

2) Walgreen December same store sales up 4.9 percent, an impressive number. However, the big gains appear to have come from pharmacy same-store sales, which were up 8.5 percent. This is still impressive, given the general weakness that has been showing up in pharmacy sales nationwide.

Separately, Rite Aid said same store sales were down 0.2 percent in December.

3) In an interview with FT, Pfizer's CEO said he would be "open to opportunities" to acquire a larger rival, though the real goal was to grow revenues. deal could drive a new round of consolidation in the industry.

4) Apple up 3 percent pre-open as CEO Steve Jobs has said he is suffering from a hormone imbalance that is robbing him of proteins. This is squelching the cancer rumors.

5) AT&T and Verizon downgraded at Bernstein. They sharply cut our expectations for both companies, and project slower wireless growth, negative enterprise growth, and significantly worse Wireline TelCo performance over the coming year.

6) Goldman Sachs raised Barnes & Noble to Neutral from sell based on valuation, and speculation Borders was in big trouble. Are book sales improving? No, however Amazon had a good season, and the Kindle is popular.

Separately, Borders reported that sales during the holiday season fell 11.7 percent.

7) December vehicle sales are out today, but the expected awful numbers have been eclipsed by the GMAC bailout and the closing of loans to GM and Chrysler. Goldman expects GM's to be down 42 percent, Ford down 31 pecent, Chrysler down 45 percent.


Questions? Comments?