Wall Street has much to be thankful for this week. Despite the looming threat of inflation and high energy prices that continue to threaten to limit consumer spending, the stock market seems to have embarked on its usual year-end rally.
It remains to be seen, however, whether this rally will last until the new year.
The big concerns remain. The economy is slowing, and when winter heating bills show up in the mail, consumers will have even less to spend. The Federal Reserve is unlikely to stop raising interest rates in the face of inflation. So while higher rates will keep prices in check, those too will reduce the amount of money people and companies have to spend.
For now, however, that hasn't mattered. The market has rallied strongly through November, with the Standard & Poor's 500 and Nasdaq composite indexes reaching four-year highs last week. For the week, the Dow Jones industrial average gained 0.75 percent; the S&P 500 rose 1.1 percent and the Nasdaq climbed 1.12 percent.
Yet by Friday, the markets slumped before finishing modestly higher, and many on Wall Street are worried that the "Santa Claus" rally will run out of momentum before St. Nick actually arrives. The news on the economy isn't expected to be good, and investors can only ignore so much bad news before starting to hedge their bets.
So far, the Nasdaq and S&P 500 are up between 2 percent and 3 percent for the year, with the Dow off just 0.15 percent from Dec. 31, 2004. If all three indexes can end the year higher, investors should be thankful indeed.
ECONOMIC DATA
The market could receive some support this week from a pair of economic reports, the most important of which is the University of Michigan's consumer sentiment index, due out Wednesday. The index is expected to be revised upward for November, to 80.5 from a previous reading of 79.9. A boost in confidence will make investors feel better heading into the holiday retail season.
On Monday, the Conference Board will release its index of leading economic indicators, a somewhat hit-and-miss attempt to predict the future of the economy six months from now. The index is expected to rise 0.8 percent for October after a 0.7 percent decline _ a wide month-to-month variation that could make it difficult for investors to gain any insight from the report.
EARNINGS
With Thanksgiving week a traditionally slow time of year, few companies have opted to release earnings reports in the week ahead. The largest, in terms of revenues, is grocery store chain Albertsons Inc., due to report its results Tuesday morning. The company _ the subject of takeover talks for weeks _ has rallied from a 52-week low of $19.26 set on March 18, rising 29.2 percent since then to close Friday at $24.88. Albertsons is expected to earn 27 cents per share for the quarter, down from 32 cents per share in the year-ago quarter.
Also Tuesday, lawn and farm equipment maker Deere & Co. is expected to earn 79 cents per share for the quarter, down from $1.41 per share last year, when it reports its earnings. The company's stock has dropped 15.6 percent from its 52-week high of $74.73 on Dec. 31, 2004, closing Friday at $63.10.
EVENTS
Much of the rally's future strength will depend on how the Federal Reserve perceives the economy's health. Investors will gain some insight into the Fed's thinking Tuesday afternoon when the minutes from the Nov. 1 Open Market Committee meeting are released.
Since the Fed started releasing minutes in between meetings back in January, they have become a market mover, and could precipitate some volatility Tuesday afternoon, which will be exacerbated by the customary light trading volume during Thanksgiving week.
The trading week will be shortened by the holiday. The bond market will close early on Wednesday, though the stock market will go for a full session. After taking the Thursday holiday off, both the stock and bond market will have a shortened trading session Friday.