Fourth best December in S&P 500 on record

The U.S. equity markets will open flat to slightly lower following a mixed day in Europe and a historical U.S. close yesterday ending around pre-Lehman bankruptcy levels. Investors seem to be indifferent about Europe’s sovereign debt problems and are pushing stocks higher. So far, this December in S&P 500 has been the fourth best on record according to Bloomberg data; however will the steam last until New Year?

We expect today’s session to go higher with a possibility of minor profit-taking later in the session. The bullish case is built on continuously momentum despite Europe’s sovereign debt problems, strong investor sentiment on good economic data, increasing M&A activity and Walgreen reporting better-than-expected first-quarter EPS of USD 0.62 vs. USD 0.54 expected in pre-market confirming improving U.S. consumer spending. From a technical standpoint the S&P 500 is up 6.3 percent, volume is slowly falling towards Christmas and we are clearly moving closer to an outright overbought situation; on that note we seeing increasing probability of profit-taking today, or possible later in December, before slowly moving higher into January.

Today’s U.S. session will focus on the information technology, financials and consumer staples sectors. Investor sentiment is very strong in technology companies as they continue to deliver solid numbers (Adobe Systems delivered better-than-expected earnings yesterday) and on rising expectations of corporate technology investments in 2011. Financials are supported by anticipation of positive financial markets in 2011 and pick-up in M&A activity which will fuel earnings in the investment banking divisions. With Walgreen’s better-than-expected first-quarter EPS consumer staples will also be in the spotlight on improving consumer spending; so look out for Microsoft, Google, IBM, Oracle, Goldman Sachs, JPMorgan Chase & Co., Morgan Stanley, Wal-Mart Stories, Walgreen and Coca-Cola.