Led by tech and telecom stocks, the market rallied after a two-week slide. The festive year-end upturn marked one of the largest bounces in several weeks, as all three market indexes rose over 2%.

Several media outlets called this a "Santa Claus" rally after an analyst commented on a jump in retail stocks. The sector is banking on a last-minute jump in sales, as consumers head to the stores in the remaining few days before Christmas.

Embarrassed to do the chicken dance and wear a fuzzy yellow suit, the FOOL 50 waltzed up over 2% today.

In today's Motley Fool Take:

No Penneys for Wal-Mart

Two discount giants tell different stories today, underscoring the wishy-washiness of this year's holiday shopping outlook.

Things are looking up at J.C. Penney(NYSE: JCP), while the world's biggest retailer, Wal-Mart(NYSE: WMT), said last week's sales weren't as strong as it had hoped but remain within range.

Penney's sales and demand are ringing up ahead of its expectations so far this month -- even more evidence that the company's turnaround plans are solidly progressing. It expects a low single-digit comps gain for December and anticipates more customers will realize "it's all inside" for the last-minute shopping crunch this weekend.

Wal-Mart's week didn't go as planned, however, with sales trending at the low end of expectations. It attributes the relative weakness to customer procrastination and looks forward to a flood of shoppers as Christmas approaches. The retailer isn't budging on its outlook, and still predicts comp sales will increase 3% to 5% for December.

What will the end story be? Will Penney's results stay strong? Will Wal-Mart's aisles fill with people come next week? The University of Michigan's consumer sentiment index painted a rosy scene of shoppers apparently feeling more festive this month than last. Whether those cheery thoughts will translate into actual buying remains to be seen.

Stay tuned.

Quote of Note

"As we struggle with shopping lists and invitations, compounded by December's bad weather, it is good to be reminded that there are people in our lives who are worth this aggravation, and people to whom we are worth the same." -- Donald E. Westlake, American novelist

Reg FD Reverberates

When Raytheon(NYSE: RTN) Chief Financial Officer Frank Caine resigned last week, neither he nor the company gave a reason for his departure.

The media speculated his resignation was tied to the SEC's finding that he had violated Regulation FD by telling analysts in February 2001 that their first-quarter estimates were too high. This selective disclosure came one day after a Web broadcast in which he gave no such guidance.

We first wrote about this shortly after the incident, suggesting it would be a good first case for the SEC to prove Reg FD has some teeth. Unfortunately, although the agency concluded they violated the policy, Raytheon and Caine got off with a slap on the wrist. Without admitting guilt, they agreed to "cease and desist" what they didn't have to admit doing, along with the curious punishment of also admitting "the jurisdiction of the Commission over them and over the subject matter of these proceedings."

Still, that incident -- along with the fact Raytheon has struggled, while defense rivals Lockheed Martin(NYSE: LMT) and Northrop Grumman(NYSE: NOC) have done comparatively well recently -- probably contributed to Caine's departure.

While we urge stronger sanctions from the SEC in future Reg FD cases, it's nice to know that even a wrist slap can have some positive effects.

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The New Nasdaq 100

It's in with the old names and out with the new tech stocks for the Nasdaq 100, as consumer brands take over the indexing space of their fallen, over-the-counter tech brethren.

Yes, it's mid-December again. That means the Nasdaq reconfigures its 100 stock index. Because the list consists of select choices among the 150 largest Nasdaq-listed companies, the annual rite of adjustment tends to favor stocks and industries that have outperformed the market over the past year.

Who's moving in? Fifteen new stocks this year, including Expeditors International of Washington(Nasdaq: EXPD), Ross Stores(Nasdaq: ROST), DENTSPLY(Nasdaq: XRAY), Lamar Advertising(Nasdaq: LAMR), Whole Foods Market(Nasdaq: WFMI), First Health Group(Nasdaq: FHCC), PETsMART(Nasdaq: PETM), Pixar(Nasdaq: PIXR), Fastenal(Nasdaq: FAST), American Power Conversion(Nasdaq: APCC), C.H. Robinson(Nasdaq: CHRW), Patterson-UTI Energy(Nasdaq: PTEN), Gentex(Nasdaq: GNTX), Henry Schein(Nasdaq: HSIC), and Ryanair Holdings(Nasdaq: RYAAY).

While it's not the oft-quoted Nasdaq Composite, the Nasdaq 100 is a meaty collection of equities. Nearly two dozen index funds mirror the holdings and its own Nasdaq 100 Index TrackingStock(NYSE: QQQ), with $18 billion in assets. While it's not the more widely imitated S&P 500 Index, the impact of being added tends to lift the latest additions higher. With the moves set to go into effect by the end of the week, there's a built-in bias, as money managers buy into the new companies to stay current with the new composition.

Of course, the Nasdaq isn't being renamed the Index 115 so it has to make room for the new stocks. While one of the dearly departing, Rational Software(Nasdaq: RATL), was already set to bow out after IBM's(NYSE: IBM) buyout bid, the other 14 aren't so lucky. The mostly picked-over tech stocks include: Abgenix(Nasdaq: ABGX), Andrx(Nasdaq: ADRX), Applied Micro Circuits(Nasdaq: AMCC), Atmel(Nasdaq: ATML), Charter Communications(Nasdaq: CHTR), Conexant(Nasdaq: CNXT), Cytyc(Nasdaq: CYTC), Integrated Device Technology(Nasdaq: IDTI), ImClone Systems(Nasdaq: IMCL), i2 Technologies(Nasdaq: ITWO), Protein Design Labs(Nasdaq: PDLI), PMC-Sierra(Nasdaq: PMCS), Sepracor(Nasdaq: SEPR), and Vitesse(Nasdaq: VTSS).

Yes, between dental supplies and a dog-chew retailer, the new list has some bite.

Discussion Board of the Day: Index Funds

Are you following the changes to the Nasdaq 100, or do you index without giving much thought to the stocks involved? Is there more to selecting an index fund than low expenses? All this and more -- in the Index Funds discussion board. Only on Fool.com.

Which Index Fund?

If you're ever looking for some Foolish musings but can't get to Fool.com (perhaps your dog ate the F on your keyboard), visit the Dallas Morning News website (registration required) and read what Scott Burns has to say.

Here's a guy full of all kinds of good insights (not to mention his Couch Potato Portfolio). In a recent article, "Index funds not created equal," Burns quotes some interesting stats:

  • Twenty years ago, there were just two index funds: the Vanguard 500 Index fund and the Vanguard Small Cap Index fund. Today, there are 678 index funds, 544 of which invest in domestic stocks.
  • The average expense ratio (i.e., how much the fund charges each year to cover administrative costs) for the domestic index funds is 0.76. Many index funds sport expense ratios that far exceed those charged by their actively managed peers.
  • Portfolio turnover in domestic index funds averages 95%. In other words, only 5% of the investments in a fund are still there a year later.

The theory behind index investing is that it's a simple way to benefit from the growth of the overall stock market. It's no-brainer, couch-potato investing. But it's not so simple when there are hundreds of funds to choose from. So what's an investor to do? Let's hearken back to why index investing works.

Two of the biggest reasons to invest in an index fund are low costs and low taxes. Many index funds charge 0.20% a year to operate and keep turnover to a minimum (which reduces taxes to fund shareholders). There's no reason to choose an index fund that charges 0.76%. That's like buying an umbrella with holes.

How big of a deal is paying an extra 56 basis points a year? Over the long term, it can make a noticeable difference. Over 20 years, a $10,000 investment growing at 10% would be worth $73,281. However, that investment earning 56 basis points less each year would be worth just $65,575.

Then there's the question of which kind of index fund to choose -- an S&P 500 fund? A Russell 2000 fund? The Nasdaq 100?

If you're truly going for autopilot investing, look for a total market fund, such as one based on the Wilshire 5,000 (which, despite its name, has more than 6,500 companies in its index). Though it has 6,000 fewer companies, the Standard and Poor's 500 is also a good barometer of the overall market.

For more on index investing, visit our 60-Second Guide.

Quick Takes

French bank Credit Agricole has made a bid to buy French bank Credit Lyonnais in a $20 billion cash-and-stock deal. If this goes through, it will create one of Europe's biggest financial institutions with market share of 32% in French consumer deposits, dwarfing the next-biggest competitors, BNP Paribas and Caisse d'Epargne, which each sport market shares of 11%. Oo-la-la!

The Consumer Federation of America (CFA) is taking issue with the FCC's inclination to ease restrictions on media companies, which would thereby permit further consolidation. Jeffrey Chester, director of the Center for Digital Democracy, is quoted as saying, "The stakes for the nation are huge." He also explained, "Convergence of communications and mass media in digital networks increases the power of the media, and the threat that concentrated control of the media in the hands of a few corporations will destroy the people's First Amendment free speech rights." According to The Washington Post, the FCC is planning a hearing in February to get public opinion on its media ownership review.

Remember the rumors shot down by Warren Buffett that he was thinking of buying Burger King? Well, he didn't buy it. British liquor giant Diageo PLC(NYSE: DEO) has agreed to sell the home of the Whopper to a consortium, including Texas Pacific Group, Bain Capital Partners, and Goldman Sachs Group's(NYSE: GS) Goldman Sachs Capital Partners. The price was $1.5 billion, down from $2.26 billion discussed in the summer, and Diageo will guarantee debt being assumed in the deal.

"Can a Bloodied S.E.C. Dust Itself Off Now and Get Moving?" That's the question posed in a New York Timesarticle (free registration required), which describes an underfunded and overburdened agency facing many issues and changes. It noted that the SEC is leaning toward suing accounting firms rather than their partners for serious violations, which would represent a change in direction. Also, incoming SEC chief William Donaldson appears to not be a big fan of Regulation FD, which prohibits selective disclosure of information by public companies. One expert is quoted as saying, "This is the year in which the agency defines itself for the next decade."

A Washington Postarticle describes a looming shift in American tax policy, as the Bush administration seems poised to transfer more taxes from the richer to the poorer. That might seem a hard sell, but it's less so when you choose to not classify payments made by workers into the Social Security system as taxes, since they're recouped as benefits later on. With such taxes removed, it suddenly looks like the non-rich are paying a lot less in taxes. (Not counting these taxes as taxes might puzzle some Fools, though, since many other taxes of ours result in benefits with tangible value, such as the military, police, free public schools, and so on.)

And Finally...

Today on Fool.com: Matt Richey says don't judge a stock by its cover. First impressions can be risky business.... Jeff Fischer argues that when it comes to ethics, Citigroup is bankrupt.... In Fool's School, should you consider pre-need funeral arrangements?... And the Post of the Day: dissecting Costco.

Contributors:
Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim