After a volatile 2005 and meager returns to show for it, investors are hoping 2006 will bring better fortunes. And if there's good news this week, the new year could get off to a good start.
Last January, stocks tumbled after an impressive December rally. Word that the Federal Reserve would continue hiking interest rates, combined with mediocre jobs figures, worried investors considerably. The Standard & Poor's 500 dropped 2 percent in the first two trading days of 2005.
Yet this year could be far different. First of all, there was no real December rally, so it's safe to say stocks aren't overbought. Second, the Fed has signaled that it's closer to ending its regime of rate hikes. That could be reinforced Tuesday as the Fed releases the minutes of its Dec. 13 meeting.
And the Labor Department's payroll figures for December should point to steady job growth — strong enough to keep consumers spending, but slow enough to forestall inflation.
Should everything fall into place — never a sure thing on Wall Street, but still possible — stocks could avoid the January malaise that plagued them last year.
Certainly, the stock market could stand an infusion of optimism after a disappointing December. Last week, the Dow Jones industrials 1.52 percent, the S&P lost 1.61 percent and the Nasdaq composite index dropped 1.96 percent.
That took year's returns lower and pushed the Dow into negative territory for 2005. For the year, the Dow was off 0.61 percent, while the S&P rose 3 and the Nasdaq climbed 1.37 percent.
Friday's jobs data from the Labor Department will be the key to determining whether January 2006 is anything like January 2005. Economists estimate the economy will have created 200,000 jobs in December, down slightly from 215,000 in November. A lower-than-expected number, if not sharply lower, could actually boost stocks, since fewer new jobs would mean fewer wages and less of a chance for inflation to take hold.
The Institute for Supply Management will release its December indexes this week. The ISM manufacturing index, which measures growth in that sector, is expected to come in at 57, compared to a 58.1 reading in November. And the ISM services index is expected to post a reading of 59 for December, up from November's 58.5.
A dash of earnings
Only a handful of notable companies will report earnings in the week ahead. Constellation Brands Inc., the world's largest winemaker, is expected to earn 50 cents per share, up from 43 cents in the year-ago quarter, when it reports earnings before Thursday's trading session. The Rochester, N.Y.-based wine, beer and spirits maker has seen its shares slump in the second half of 2005, off 16.9 percent from its 52-week high of $31.60 on June 29. Constellation Brands closed Friday at $26.23.
Drugstore chain Walgreen Co. saw a volatile 2005, but ended the year with its shares up 15.4 percent from its 52-week low of $38.35 on Dec. 31, 2004, closing Friday at $44.26. The company is expected to earn 35 cents per share, up from 31 cents a year ago, when it reports earnings Tuesday morning.
Consulting firm Accenture Ltd. will report its earnings Thursday afternoon, and is expected to earn 34 cents per share, compared to 33 cents a year ago. The company's stock has climbed 37.5 percent from its 52-week low of $21 on May 13, closing Friday at $28.87.
Aside from actual reports, companies are likely to take the opportunity of a short trading week to issue warnings on their upcoming fourth-quarter earnings. Depending on the company and how dire the warning is, such warnings could shake other stocks within a sector, or even limit the overall market's gains.
On Tuesday, the Federal Reserve will release the minutes from its Dec. 13 meeting. Last year, the minutes caused stocks to slide as the Fed showed it remained committed to raising interest rates. This time, the minutes could prompt a rally if they show that the Fed's Open Market Committee members are willing to end rate hikes soon.