Stocks Make Solid Gains in a Holiday-Shortened Week…..

U.S. stocks finished higher as the S&P 500 registered a fresh record closing level in the last session of a volatile, holiday-shortened week. Investors tried to shake off omicron concerns as some studies suggested it may be less severe than its brethren, and following additional COVID-19 treatments which were granted U.S. Food and Drug Administration (FDA) emergency use authorization. Despite the ongoing concerns around omicron, inflation, and interest rates, some upbeat economic reports boosted stocks, as jobless claims remain near pre-pandemic lows, durable goods orders came in well above forecasts, consumer sentiment was revised higher, and new home sales hit a seven-month high. Treasuries were lower, lifting yields, and the U.S. dollar ticked lower, while crude oil and gold traded to the upside. In light equity news, Quidel Corp. agreed to purchase Ortho Clinical Diagnostics for $6 billion, and Merck’s molnupiravir pill received FDA’s emergency use authorization for treatment of mild-to-moderate coronavirus disease in adults. Asia and Europe finished broadly higher on the back of gains out of the U.S. yesterday, and as omicron concerns receded.

The Dow Jones Industrial Average increased 197 points (0.6%) to 35,951, the S&P 500 Index rose 29 points (0.6%) to 4,726, and the Nasdaq Composite gained 131 points (0.9%) to 15,653. In lighter volume, 2.9 billion shares of NYSE-listed stocks were traded, and 3.9 billion shares changed hands on the Nasdaq. WTI crude oil moved $1.03 higher to $73.79 per barrel. Elsewhere, the gold spot price gained $7.70 to $1,809.90 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticker 0.1% lower at 96.00. Markets were solidly higher on the week, as the DJIA gained 1.7%, the S&P 500 increased 2.3%, and the Nasdaq Composite rallied 3.2%.

Busy economic calendar offers upbeat data…..

Weekly initial jobless claims came in at a level of 205,000 for the week ended December 18, in line with the Bloomberg consensus estimate and the prior week’s downwardly-revised level. The four-week moving average rose by 2,750 to 206,250, and continuing claims for the week ended December 11 dropped by 8,000 to 1,859,000, matching estimates. The four-week moving average of continuing claims fell by 49,000 to 1,919,750.

Personal income rose 0.4% month-over-month (m/m) in November, matching forecasts and following October’s unrevised 0.5% gain. Personal spending rose 0.6%, also meeting expectations, and compared to the prior month’s upwardly-adjusted 1.4% increase. The November savings rate as a percentage of disposable income was 6.9%.

The PCE Deflator rose 0.6% m/m, in line with expectations, but below October’s upwardly-adjusted 0.7% gain. Compared to last year, the deflator was 5.7% higher, matching estimates and north of the prior month’s upwardly-adjusted 5.1% increase. Excluding food and energy, the PCE Core Price Index rose 0.5% m/m, eclipsing expectations of a 0.4% advance, and compared to October’s 0.5% rise. The index was 4.7% higher y/y, above estimates of 4.5%, and higher than October’s upwardly-revised 4.2% rise.

November preliminary durable goods orders rose 2.5% month-over-month (m/m), well above estimates of a 1.8% gain and compared to October’s upwardly-revised 0.1% rise from an initial 0.4% decline. Ex-transportation, orders were up 0.8% m/m, ahead of forecasts calling for a 0.5% advance and compared to October’s downwardly-adjusted 0.3% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, decreased 0.1%, compared to projections of a 0.6% rise, and versus the prior month’s upwardly-revised 0.9% increase.

The December final University of Michigan Consumer Sentiment Index was revised to a higher level than expected, at 70.6, compared to expectations for it to be unadjusted at the preliminary reading of 70.4. The upward revision came as the expectations component of the survey was revised higher, more than offsetting a slight decline in the current conditions portion. The overall index was higher versus November’s 67.4 level. The 1-year inflation forecast fell to 4.8% from November’s 4.9% rate, and the 5-10 year inflation forecast ticked lower to 2.9% from the 3.0% level in the prior month.

New home sales rose 12.4% m/m in November to an annual rate of 744,000 units, a seven-month high, but below forecasts calling for a rate of 770,000 units, and compared to October’s negatively-revised 662,000-unit level. The median home price jumped 18.8% y/y to a record $416,900. New home inventory rose to 6.5 months from October’s level of a 6.3-months supply at the current sales pace. Sales rose in all regions m/m, except in the Midwest, with a sharp gain seen in the West region. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

Treasuries were lower, as the yield on the 2-year note was up 3 basis points (bps) at 0.69%, the yield on the 10-year note increased 4 bps to 1.49%, and the 30-year bond rate was 5 bps higher at 1.91%.

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