A miserable year for the market ended on a high note. In the final week of 2008 and the first trading day of 2009, the Dow gained nearly 6% and ended up above 9,000 for the first time in nearly two months. The S&P 500 was up over 7%. The market fell back slightly yesterday as some investors took profits, only to come back in stride today.
 

Yesterday, President-elect Obama met with Congressional leaders and reiterated the need for fast stimulus action. He’s favoring a two-year stimulus plan in the neighborhood of about $800 billion. In addition to extra federal spending, the plan includes tax cuts worth $300 billion for households and about $100 billion for businesses. Some specific provisions in the plan, such as a one year tax credit for companies who hire new employees, are still being negotiated. However, the plan even the way it looks today is certainly a confidence booster.
 

The Pending Home Sales Index, which tracks the number of home sales contracts signed, declined 4% in November. However, mortgage applications surged dramatically in December thanks to record low mortgage rates resulting from the Fed emergency actions. We are curious to see what December’s data will be, but we expect at least a modest improvement in the housing market in 2009.
 

The Institute of Supply Management’s December index of non-manufacturing businesses, although still showing signs of contraction, was better than forecasted; non-manufacturing businesses make up almost 90% of the U.S.’ economy, so this is a fairly encouraging sign. Oil and commodities have surged in recent days, signaling the anticipation of recovery. Recent violence and tension in the Middle East and data showing that OPEC was making good on its promise to cut output are being given credit for the surge in the price of crude oil, but we believe that the reality is that the decline was overdone and that the oil under $40 just does not make economic sense today. The anticipation of improvement in the economy, apparent in the increase in oil demand, is also behind the move.
 

During the past week, we did not recommend any new positions. Last Friday, we recommended closing a trade on Suntech Power with a 30 percent gain in 42 days.

During the past week, the S&P 500 rallied strongly, up about 7 percent from a week ago. We are happy to report that most of our low-priced picks, leveraged to both growth and the financial markets recovery, outperformed the general market during this time period. Notable movers were Seagate Technology (STX), which we upgraded to a buy just last week – up 40 percent; McDermott International (MDR), which we rate a hold, up 45 percent, Weatherford International (WFT), up 40 percent, Vale (RIO), up 30 percent, Manitowoc (MTW), up 30 percent, Pulte Homes (PHM), up 25 percent and SLM Corp. (SLM), up 25 percent.
 

While some of these stocks are now showing significant gains, the technical picture for most of them is very strong. In addition, these stocks are fundamentally sound and not expensive, and we are keeping our recommendations for now. STX, WFT, RIO, MTW, PHM and SLM are buys, while MDR is a hold.

The action on Intel (INTC) and Applied Materials (AMAT) was somewhat different; Intel slightly outperformed the market, while the most of Applied Materials’ relative outperformance came from today’s 9 percent move. Both stocks remain buys at current levels.
 

Schwab (SCHW), General Electric (GE) and Intrepid Potash (IPI) all performed relatively in line with the market. All three remain buys for different ways to gain exposure to a stock rally.

While gold was one of the big winners of 2008 (or, possibly, because of that), it did not start 2009 too strongly. Don’t let that defer you from your ultimate goal: to get the best leverage to the upside possible while staying diversified. The two miners we recommend, Yamana Gold (AUY) and Kinross Gold (KGC), remain buys. We keep our hold rating on the Market Vectors Gold Miners Index (GDX).

Upcoming IPOs

As we continually pointed out, in the latter half of 2008 the IPO market basically came to a stand still as a result of what was going on with the capital markets and the economy. Unfortunately, even as the market looks to be standing on more solid ground in the beginning of 2009 – the IPO market likely won’t heat up as quickly. According to data compiled by the University of Florida, IPO traffic likely won’t return to their 2007 levels until 2011. While the S&P 500 rose an average of 24 percent in the year after a plunge, it takes about 34 months for underwriting activity to return to their previous levels.
 

With this in mind, we don’t anticipate 2009 being anything close to a banner year for IPOs. While we are cautiously optimistic, the pickings should be slim. So rather than force the issue, we’ve decided to allocate more of our resources to finding those low-priced bargains in the market. Rest assured, if we do see an opportunity in the IPO market we will surely let you know.