Monday, December 8th, 2008 Afternoon Market Update

Monday: 12/08/08 5:00 PM EST :
Market Afternoon Update

Stocks rallied for a second day on speculation that a massive spending plan proposed by President-elect Obama will lead the economy out of recession. Treasuries were less attractive against stocks and they declined today, though losses were relatively mild.

In late trading, the 10-Year Treasury Note was down by 10/32, raising its yield by 4 basis points to 2.74%; the Dow was up by 298.76 points to 8,934.18; and the Nasdaq was up by 62.43 points to 1,571.74.

Besides the proposed spending plan unveiled this weekend, stock traders were encouraged by news that a rescue package for the auto industry may be close at hand. The prospect sent the auto sector sharply higher.

Oil futures rebounded somewhat today following declines in the previous six trading sessions. The rise came in part as a result of the brighter economic sentiments, which suggest increased demand for the commodity. But they also rose as a result of word over the weekend that the Organization of Petroleum Exporting Countries (OPEC) is leaning toward a significant cut in production limits. Representatives of the cartel will be having a policy meeting on the 17th of the month.

The price of a barrel of light, sweet crude oil for January delivery rose by $2.90 on the New York Mercantile Exchange to close at $43.71. The move helped support the energy sector of the stock market today. Yet, despite the increase, the closing price on the front month crude oil contract was still the third lowest since January 5, 2005.

By the end of stock trading, the Dow had gained 3.46%; the S&P 500, 3.84%; and the Nasdaq, 4.14%. The S&P 500 and Nasdaq closed at their highest levels since November 13. The Dow posted its highest close since November 7. In the last two sessions, the Dow has gained 6.66%, the S&P 500 has gained 7.63%, and the Nasdaq has gained 8.73%.

The pressure on Treasuries was augmented by the competition of a greater than expected amount of supply headed to market this week. The Treasury announced today that Wednesday's issue of 3-Year Notes will have a face value of $28 billion, up from last month's $25 billion. Thursday's 10-Year reopening of last month's issue will have a face value of $16 billion.

Today's losses followed deeper ones on Friday. The yield of the benchmark 10-Year Note has risen by 19 basis points in that time (yield moves inversely to price). But this followed a seven-day rally that had pushed the yield down by 77 basis points. Today's closing yield was the highest in the last six sessions but it is the sixth lowest since possibly sometime in the 1950s (daily closing data before 1960 is unavailable).

Tomorrow brings the report on pending home sales for October. The pace of existing home sales had been falling, reaching an eight year low in June; but the trend has been rising due to falling home prices. However, tight credit conditions and consumer gloom with the economy -- especially accelerating job losses -- are expected to keep sales under pressure. September's report on pending sales indicated a 4.6% decline following a sharp jump the month before of 7.5%. Another decline is anticipated for September of about 3.0%.