Closing Market Summary: Technology Leads Stocks Higher
The S&P 500 settled higher by 0.5%, registering its third consecutive gain. The benchmark index extended its December advance to 1.2% as eight of ten sectors ended in the green. Stocks jumped at the open with the technology sector (+1.5%) driving the early surge. The space received considerable support from its largest component, Apple (AAPL 570.09, +21.07), which spiked 3.8% after inking a long-rumored distribution agreement with China Mobile (CHL 52.47, +0.84). Emboldened by Apple's strength, other top sector components also rallied. Google (GOOG 1115.10, +14.48), Oracle (ORCL 36.94, +0.57), and Intel (INTC 25.32, +0.27) gained between 1.1% and 1.5%. Despite Intel's strength, other chipmakers struggled to keep pace with the sector as Micron (MU 21.49, -0.68)weighed after Bank of America/Merrill Lynch downgraded the stock to ‘Underperform' from ‘Neutral.' The broader PHLX Semiconductor Index advanced 0.9%. Social media names also took part in the tech party as Facebook (FB 57.77, +2.65) and Twitter (TWTR 64.54, +4.53) settled higher by 4.8% and 7.6%, respectively. Outside of technology, gains in other sectors were much more subdued. In fact,the telecom services sector (+1.1%) was the only other outperformer. Although all six growth-oriented groups posted gains, the energy sector spent the entire session in a steady slide from its opening high. The group ended little changed while crude oil slipped 0.4% to $98.93 per barrel.
The remaining cyclical sectors—consumer discretionary (+0.5%), industrials (+0.4%), and materials (+0.4%)—logged modest gains. However, the discretionary sector failed to capture the relative strength of homebuilders. The iShares Dow Jones US Home Construction ETF (ITB 24.31, +0.71) jumped 3.0%. A Citigroup upgrade of KB Home (KBH 18.19, +1.28) to ‘Neutral' from ‘Sell' and news that incoming FHFA Director Mel Watt is going to delay the implementation of new mortgage fees on government-backed loans, which many think will crimp new housing demand, factored into the outperformance. On the countercyclical side, the telecom sector posted a solid gain while consumer staples (-0.2%), health care (+0.4%), and utilities (-0.3%) lagged.
Also of note, following Friday's close, the CBOE Skew Index (SKEW 143.20,+5.34) jumped above the 139 level for the first time in almost two years. Unlike the VIX, which measures the expected near-term volatility to the upside or downside, the Skew index updates after each session and measures the perceived likelihood of a tail event. The index ranges from 100 to 150 with higher values signaling increased demand for low-strike puts. With the index hovering just below its upper limit, we can conclude that investors are demanding downside protection. Treasuries settled on their lows with the benchmark 10-yr yield up four basis points at 2.93%. Participation was well below average as many elected to sit today's session out. Only 598 million shares changed hands on the floor of the New York Stock Exchange. Today's economic data was limited to just two reports, neither of which saw a notable reaction in the market. Personal income increased 0.2% in November after declining 0.1% in October. The consensus expected personal income to increase 0.5%. Compensation levels were a little softer than the employment report implied, increasing 0.3% instead of 0.6%. That difference likely caused the weaker-than-expected income gain. Personal spending rose 0.5%, in-line with consensus expectations, after increasing an upwardly revised 0.4% (from 0.3%) in October. Separately, the December University of Michigan Consumer Sentiment Index remained at 82.5 in the final reading while the consensus expected the index to be revised up to 83.3. Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while November Durable Orders will cross the wires at 8:30 ET. The October FHFA Housing Price Index will be reported at 9:00 ET while the New Home Sales report for November will be revealed at 10:00 ET.
o Nasdaq +37.4% YTD o Russell 2000 +36.3% YTD o S&P 500 +28.2% YTD o DJIA +24.4% YTD