US Stocks Slip As Jobs Data Stokes Interest Rate Worries

Dec. 31, 2009

By Kristina Peterson

U.S. stocks slipped Thursday after better-than-expected weekly unemployment data stoked worries that a strengthening economic recovery could prompt the Federal Reserve to move more quickly to raise interest rates.

In the last trading day of the year, the Dow Jones Industrial Average recently dropped 30 points, or 0.3%, to 10519, but remained on track for its best year since 2003. Hewlett-Packard and Caterpillar weighed on the measure, with H-P down 1.2% and Caterpillar off 1%. Walt Disney was the Dow's best performer, up 0.9%.

The tech-heavy Nasdaq Composite dropped 0.2%, while the Standard & Poor's 500 edged down less than 1%, shored up by a strong financial sector.

In recent weeks, strong economic data has stopped fueling further market gains, instead leaving investors fretting that the Fed may be prompted to unwind some of its financial stimulus or raise interest rates.

The drop in the stock market on Thursday morning came after the Labor Department reported that weekly jobless claims fell to their lowest level in 18 months.

"A lot of improvement, that would force the Fed to raise interest rates, which is the number one fear for traders," said Keith Springer, president of Capital Financial Advisory Services. Investors are already accustomed to seeing the labor market improve, he said.

"What's really going to fuel the market now is earnings," Springer added.

Alan Lancz, president of Alan B. Lancz & Associates, said market watchers have already factored in a recovering economic picture and investors tracking a "V" shaped recovery think the market is halfway up its ascent.

"These economic numbers have to continue to be better than consensus for the market to continue to fuel further gains," Lancz said.

Still, stocks are on track to rise about 20% for 2009 after a booming 61% rally from its March 9 low - the strongest rebound since 1933.

American Express was the Dow's strongest performer in 2009, rising 120%, as of yesterday's close. Microsoft also climbed in 2009, gaining 59%. Exxon Mobil lagged, dropping 14% over the year, as of yesterday.

In other markets, the dollar rose against both the yen and the euro. The U.S. Dollar Index, which represents the greenback against a basket of other six currencies, was up 0.1%.

Oil futures and gold futures rose, while Treasurys sank. The 10-year note was recently off 13/16, to yield 3.896%.

Among stocks in focus, American Tower rose 0.2%, in recent trading, after the operator of wireless communications sites began talks to acquire a controlling stake in India's Essar Telecom Infrastructure, in a deal valued at around 20 billion rupees ($429.1 million).

Trading volume is expected to remain light throughout the day. Markets will be closed Friday for the New Year's Day holiday.

Keith Springer is President of Capital Financial Advisory Services, a registered investment advisor, providing Wealth Management and Mortgage Consulting Services.  For more information on how to build and maintain a solid retirement plan, please contact Keith Springer at 916-925-8900 or Keith@KeithSpringer.com