Holiday on Wall Street as Yen for Risk Returns

News at a Glance

• Four Wins in a Row: Buyers shrug off weak economic data.
• Wallets Sealed: Personal spending fell 1.0% in October.
• Housing Letdown: New home sales at 17-year low.
• Part-Time Work: Markets closed for Thanksgiving; half-day Friday.

The Lowdown

Falling mortgage rates and bond yields trumped another batch of dismal economic data Wednesday, conjuring a rare four-day win streak on hopes that stocks have seen the worst.

The Dow ramped up 247 points to 8727, its daylong strenghtening interrupted only briefly by deadly attacks on luxury hotels in Mumbai. The Nasdaq, which has lagged in recent days, played catch-up with a gain of 67 points, or 4.6%, to 1532. The S&P 500 jumped 30 to 888, for an 18% surge from last Thursday's 11 year-low.

The Russell 2000 smallcap index soared almost 6% in a day as credit concerns eased. Treasurys rallied in response to weak consumer spending. The 10-year Treasury yield dropped to 2.99%.

Retailers, home builders and techs celebrated a half-point reduction in mortgage rates following Tuesday's announcement of massive new federal financing for that market. Drillers geared up as crude prices rebounded above $54 a barrel, while U.S. supplies of natural gas declined more than expected.

Health care and consumer staples stocks, rainy-day sectors that have outperformed for much of the year, turned defensive.

Traders brushed off the day's economic reports, most of which seemed to portend a deepening recession. Personal spending fell 1.0% in October, as consumers grew increasingly uneasy about the state of the economy. Separately, the index of consumer sentiment fell to its lowest point since May 1980.

The consumer malaise is in part a function of soaring unemployment. It's difficult to get excited about buying things when you're cash-flow negative, a position more Americans are finding themselves in each week. The economy shed 240,000 jobs last month, and the unemployment rate jumped to 6.5%. Today, the labor market looked weaker still, as the latest initial jobless claims report showed more than 500,000 people began applying for unemployment benefits for the third consecutive week.

The housing sector also showed weakness and no sign of a bottom. The October reading of the annual rate of new home sales fell below economists' estimates.

Weak demand for new homes has been compounded by the inability of many Americans to convince gunshy commercial banks that they are worthy of a mortgage. A new program launched yesterday by the Treasury and the Federal Reserve appeared to make progress on that front, dropping mortgage rates as much as a half-point to 5.5% and loosening other debt markets as well.

The manufacturing sector remained hobbled by anemic demand. The latest reading on durable goods orders and the Chicago Purchasing Managers' Index each came in below consensus estimates.

In Washington, the Obama administration's economic team got a little more experienced with the addition of former Federal Reserve Chairman Paul Volcker. Volcker, who served as Fed chief under Presidents Jimmy Carter and Ronald Reagan, will lead a White House advisory panel aimed at digging the nation out its recession.

World markets were mixed. In Asia, Japan's Nikkei dropped 1.3%, while Hong Kong's Hang Seng picked up 3.8% after China cut its benchmark interest rate. In Europe, the FTSE fell 0.4%.

Corporate News

• American International Group (AIG) will receive a $40 billion capital infusion from the Treasury in exchange for preferred stock under the Troubled Assets Relief Program, the insurance giant said. The money will be used to pay off a portion of the firm's debt to the Federal Reserve. The Fed will cut AIG's borrowing cap from $85 billion to $60 billion.
• Toyota (TM) saw its long-term foreign and local debt ratings downgraded to AA from AAA by Fitch Ratings on Wednesday. The ratings agency also gave the automaker a negative outlook. Moody's and Standard & Poor's have a AAA rating on the firm.
• LandAmerica Financial (LFG), the Richmond, Va.-based title insurer, has filed for Chapter 11 bankruptcy protection, the firm said. LandAmerica agreed to sell off its two of its subsidiaries to Fidelity National Title Insurance (FNF) and a third to Chicago Title Insurance.

The Economy

• Pesonal spending fell 1.0% in October, down sharply from a revised September decline of 0.3%, the Commerce Department said. Economists had expected spending to decrease 0.7% in October. Meanwhile, personal income rose 0.3% last month, up from a revised September gain of 0.1%. Economists had predicted income would edge up 0.1% last month. REPORT
• The November reading of the Reuters/University of Michigan index of consumer sentiment was revised to 55.3, down from a preliminary reading of 57.9 and an October reading of 57.6. The new reading represents a 28-year low for the index. Economists had expected a slight upward revision to 58.0. STORY
• Weekly jobless claims slipped to 529,000 last week, down from a revised 543,000 claims in the prior week, the Labor Department said. Economists had expected the number of people seeking unemployment benefits for the first time to have slipped to 537,000. REPORT
• The annual rate of new home sales fell to an October reading of 433,000, down from a revised annual rate of 457,000 sales in September, the Commerce Department said. Economists had projected the rate would fall to 450,000. REPORT
• Crude inventories rose by 7.3 million barrels last week, leaving them in the upper half of the average range for this point in the year, the Energy Department said. REPORT
• Durable goods orders fell 6.2% in October, down sharply after a revised 0.2% decline in September, the Commerce Department said. Economists had expected orders to have slipped 2.5%. REPORT
• The Chicago Purchasing Managers' Index, measure of regional business conditions, fell to a November reading of 33.8, down from 37.8 in the prior month. Economists had predicted the Chicago PMI would rise to 38.5.

ReadMe

• BusinessWeek on the Fed's new credit plan: By shouldering a heavy load of mortgage-related debt, the Fed risks being locked into those assets even after the economy improves. STORY
• Salon on the auto industry: One alternative to a federal bailout might be the timely passage of a universal health care plan. STORY
• Bloomberg on Black Friday: Big box retailers are taking extraordinary measures to attract customers during a gloomy holiday season. STORY
• The Washington Post on hunger: The use of food stamps in America is approaching a record high. STORY

WatchMe

• CNBC on the energy sector: Jens Zimmermann, senior equity analyst at ABN Amro Global Private Banking, says energy firms are expected to remain in the black next year. VIDEO
• Bloomberg on Q4: Stephen Davies, chief executive officer of Javelin Wealth Management, expects corporate results to turn "nasty" this quarter. VIDEO
• The White House: Behind Closed Doors: President Bush and First Lady Laura Bush offer a tour of one of a handful of American residences not in danger of foreclosure. HIST, 9 p.m.