CLOSING COMMENTS 12-20-04

With Merger & Acquisition activity back in vogue and favorable seasonal trends, investors overcame surging energy prices and disappointing news from the pharmaceutical sector, allowing the stock market to post a small gain for the week. The Russell 2000 rose 1.6% adding to gains for the year that now total 15.3%. Unless a dramatic change occurs before year-end, small cap stocks will have outperformed the other indexes for the fifth consecutive year. The Dow added 106 points, or 1%, closing the week at 10649, up 1.9% for the year.

The S&P 500 gained 6 points, or 0.5%, and is now up 7.4% for the year based upon Friday's close of 1194. The NASDAQ rose 7 points, and is up 6.6% for the year. There were few earnings announcements last week, so Wall Street focused on M&A activity, as high-profile deals between Oracle/Peoplesoft, Johnson & Johnson/Guidant, Sprint/Nextel and Symantec/Veritas Software helped investors overlook the oil rose $5 to close the week above $46, due to fears of cold weather across the country and lower than anticipated reserves. Concerns about Pfizer's Celebrex helped limit the gains in the Dow, as high-profile drugs from the pharmaceutical sector continue to disappoint. The gaming sector received a boost from the huge success of the IPO of Las Vegas Sands (LVS).

Seasonally the "January Effect" is worth noting as stocks over the next two weeks often turn in their best performance of the year. This has possibly become the worst kept secret on Wall Street, as sentiment surveys such as the put/call ratio and the CBOE Volatility Index (VIX) suggest that there exists an unusually high level of optimism, which can often signal a market top. The NASDAQ may be the most vulnerable, as a failure to break above the 2,165 resistance level would create a double top, which would be a bearish trading indicator for technicians. The NASDAQ declined Friday for the second consecutive day, the first time that has occurred since late October. Still, seasonal considerations could carry the indexes higher over the next few weeks.

What can investors expect this week? During this holiday-shortened week, there will be few market-moving earnings announcements. Monday afternoon, Jabil Circuit (JBL) issues earnings. Tuesday morning ATI Technologies (ATYT) and brokers Morgan Stanley (MWD) and Bear Stearns (BSC) report results. After the close, Research in Motion (RIMM) and Solectron (SLR) release earnings.

The economic calendar is a bit active. November Leading Indicators will be released Monday morning. Wednesday, the final Q3 GDP number will be announced. Weekly crude oil inventories will also be disclosed. Thursday, November Personal Income and Spending Durable Goods Orders, the Michigan Sentiment Index, and November New Home Sales will be announced. Also, weekly Unemployment Claims will be reported.

Stay tuned!