Weekly Market Recap: Santa Rally Gives Investors a Cheer

DJIA 12,294 S&P500 1,265 Nasdaq 2,618 Gold 1,608 Oil 99

The Nasdaq (NASDAQ:QQQ), Dow Jones Industrial Average (NYSEARCA:DIA) and S&P 500 (NYSEARCA:SPY) took a ride on Santa’s sleigh this week. On the commodities front, Oil (NYSEARCA:USO) gained back the $6 lost last week, and Gold (NYSEARCA:GLD) found some support.

Trending Now: Which Gold and Silver Stocks Does Dr. Ron Paul Favor?

Now, for our analysis of the 15 reasons markets moved this week:

Monday

1) Draghi. Already trading lower today, U.S. stocks plummeted after European Central Bank President Mario Draghi said the ECB cannot, under its founding piece of legislation, step up government bond purchases. “The [EU] treaty specifies very closely what our remit is, namely [to] ensure price stability in the medium term,” Draghi said in testimony to the European Parliament on Monday. “The treaty also forbids monetary financing, and we want to act within the treaty,” as breaching the treaty “would also negatively effect the credibility of our institution.”

2) EU. European Union finance ministers have reportedly failed today to agree on raising the joint ceiling for the European Stability Mechanism and European Financial Stability Facility. Germany continued to oppose an early decision to raise the limit of 500 billion euros on overall emergency aid. Furthermore, while some members and non-members of the single-currency euro zone have agreed to provide 150 billion euros of additional resources to the International Monetary Fund, no details were given as to how much each would contribute, and there was no firm commitment from the U.K.

3) Capital. Banks were the day’s sharpest decliners on a report that large financial institutions will have to further boost capital reserves. The U.S. Federal Reserve is expected to embrace the Basel Committee on Banking Supervision’s new global framework requiring big banks to hold extra capital. Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Morgan Stanley (NYSE:MS) all fell more than 4 percent today, while JPMorgan (NYSE:JPM) decline 3.73 percent and Goldman Sachs (NYSE:GS) and Wells Fargo (NYSE:WFC) each declined more than 2 percent. Banks might also be required to reveal more data about their financial reserves so they cannot conceal poor management decisions and excessive risk-taking from investors, the Basel Committee said in an e-mailed statement today.

BONUS: Homebuilders More Confident in Housing Recovery as Perspective Buyer Traffic Improves.

Tuesday

1) Housing. Housing starts surged in November to their highest since April 2010, led by a three-year high in multifamily units, offering hope for the weak housing market. The Commerce Department announced on Tuesday that housing starts last month jumped 9.3 percent to a seasonally adjusted annual rate of 685,000 units. Residential construction was up 24.3 percent year-over-year in November, while building permits, a proxy for future construction, were up to their highest level since March 2010. Construction on multifamily units like apartments and townhouses surged 25 percent as the rental market improved, foreclosures having turned more Americans from buyers into renters. Still, new construction of single-family houses rose 2.3 percent last month as well.

2) Spain. Spanish borrowing costs plunged at an auction of short-term debt today, in a sign that investors are becoming more confident in the country’s ability to stay afloat and pay them back when the bonds mature early next year. Spain raised 5.6 billion euros, more than its goal of 4.5 billion euros, with investors demanding an interest rate of just 1.74 percent to lend to the government for 3 months, down sharply from the 5.1 percent yield at an auction in November.

3) Dow. All 30 of the Dow’s components were trading in the green today as the index popped nearly 3 percent. Even AT&T benefited from the rally despite announcing yesterday that, after much regulatory pressure, it would no longer pursue an acquisition of T-Mobile. Some of the Dow’s worst-performing stocks this year, including Caterpillar (NYSE:CAT), JPMorgan (NYSE:JPM), Hewlett-Packard (NYSE:HPQ), Cisco (NASDAQ:CSCO), Bank of America (NYSE:BAC), and Alcoa (NYSE:AA) were up more than 3 percent today, despite being deep in the red for the year.

BONUS: New York Leads November Gains in Payrolls

Wednesday

1) Existing home sales. A report on existing home sales in November came in well below forecasts, while the National Association of Realtors also downwardly revised its existing home sales figures for the last four years by an average of 14.3 percent. The previously reported figures were inaccurate because of flawed data analysis, which artificially made it appear as though more homes were being sold than was in reality the case.

2) ECB. Ahead of opening bell in New York on Wednesday, markets in Europe and stock futures in the U.S. climbed higher after the European Central Bank announced it had injected 489 billion euros into the region’s banks as part of its new three-year loan program, which is meant to shore up lenders’ finances and address the euro-zone debt crisis. Investors initially read the figure, which was well above an expected 300 billion euros, as a positive sign, but later began to question whether the large sum means banks could be in more trouble than initially expected, using the money to stay afloat as other sources of lending dry up.

3) Software. Software dragged the Nasdaq lower today, as investors grew concerned that the sharp fall-off in earnings at Oracle (NASDAQ:ORCL) could signal a broader slowdown in consumer spending and in the technology sector. Oracle was by far the Nasdaq’s biggest drag, falling 11.66 percent, but competitors including Fortinet (NASDAQ:FTNT), TIBCO Software (NASDAQ:TIBX), and Teradata (NYSE:TDC) dropped more than 5 percent.

BONUS: Fed’s Easy-Money Policies Finally Spurring Growth

Thursday

1) Consumer sentiment. Consumer confidence in the U.S. rose more than forecast in December, to a six-month high, as unemployment declined and gasoline prices moved lower. The Thomson Reuters/University of Michigan survey of consumer expectations for six months from now, which more accurately projects the direction of consumer spending, also rose to 63.6 in December, compared to 55.4 last month, marking the fourth straight gain and the biggest point increase in a single month since May.

2) Jobless claims. In the week ended December 17, new claims for jobless benefits dropped by 4,000 to a seasonally-adjusted 364,000 — the lowest since April 2008bolstering the view that the economy is gaining momentum after the national unemployment rate declined sharply to 8.6 percent in November. Until last month, the unemployment rate had hovered at or just above 9 percent for many months on end.

3) Financials. Despite a rather thinly traded session, gains were broad-based, with financial stocks leading the way. Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) each climbed around 6 percent, while Bank of America (NYSE:BAC) and JPMorgan (NYSE:JPM) were both up more than 3 percent, Goldman Sachs (NYSE:GS) climbed 2.6 percent, and Wells Fargo (NYSE:WFC) climbed 1.3 percent.

BONUS: U.S. Mortgage Rates Drop to New Record Low.

Friday

1) U.S. economic data. Orders for U.S. durable goods jumped in November by the most in four months, helping to offset weaker-than-forecast consumer spending. Sales of new homes rose in November to a seven-month high, while auto sales were up 3 percent. But it is Thursday’s jobless claims report, which showed another weekly decline in initial unemployment benefits claims for the week ended December 17, that trumps all, as Americans look forward to a steadily declining unemployment rate.

2) Payroll tax cut. Congress passed a two-month payroll tax cut extension today, which will buy them more time to effect an extension that will keep the payroll tax rate at 4.2 percent through 2012. Without any legislative action before December 31, the payroll tax rate would have jumped back up to 6.2 percent of wages on the first of the year, costing the average American $1,000. Roughly 160 million Americans benefit for the cut, which the Obama administration put in place for all of 2011.

3) Tech. After four days of gains, the S&P 500 cut its losses for the year, leaving the tech-heavy Nasdaq the only major U.S. index down for the year. Netflix (NASDAQ:NFLX) has been a drag on the Nasdaq, as its share price more than halved this year, and fell from a $298 peak in July to $73 per share today. Still, the Nasdaq was up 0.74 percent today, led higher by Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL), both of which will, short of a catastrophe, close the year significantly higher than they began trading on January 3. Both Google and Apple are still battling for mobile market share with their Android and iOS devices, but both have emerged triumphant as the market for both continues to expand at the expense of other phone makers.

BONUS: Italy’s Senate Approves €30B Austerity and Growth Package.