Wall Street will look to build on the strongest weekly performance for stocks since 1932 on Monday, with investors focused on how recession-minded shoppers fared at the malls and a raft of government data that could give a clearer picture of the economy.
So far, it appears consumers still opened their wallets and might have met analysts' gloomy projections for the kickoff of the holiday shopping season. Preliminary reports show that sales got off to a decent start on Black Friday, the day after Thanksgiving, traditionally one of the biggest shopping days of the year.
Investors will be watching reports from the nation's biggest stores, along with economic data such as November's payroll report, to determine how deeply the nation's economic downturn has cut into spending. A more complete sales picture of how the Thanksgiving weekend fared won't be known until Thursday, when the nation's retailers report November same-store sales, considered a key indicator of retailer's health.
"It looks like we may have talked ourselves into an overly gloomy outlook for this year's holiday sales," said Peter Cohan of Peter Cohan & Associates. "Many of those who fear they'll lose their jobs may decide to enjoy the holidays while they still can. Next year might not be as good."
Volume at the New York Stock Exchange and Nasdaq are expected to return to normal levels with traders returning to work after the holiday. Some give-back is expected after last week's big run, but investors might also build on those gains if they're able to get a positive reading on consumer spending and get past any negative economic reports.
Wall Street will also be skittish about financial stocks. Though last week's $20 billion government-backed rescue of Citigroup Inc. helped encourage buying in the sector, any sign that another major bank or financial company is in trouble would quickly unnerve investors.
Stocks ended a holiday-shortened week with some of the steepest gains in 75 years. Major indexes have locked in some big advances, including 16.9 percent for the Dow Jones industrial average and 19.1 percent for the Standard & Poor's 500 index, since the rally began Nov. 21.
It was the first time the Dow rose for five consecutive sessions since July 2007, and the biggest five-session percentage gain since Aug. 8, 1932. For the S&P 500, it was the first five-day string of gains since July 2007, and the largest five-day percentage gain since March 16, 1933.
"Stocks were overdue for a bounce," said Stephen Leeb, president of New York-based Leeb Capital Management. "Increasing evidence that the federal government will do whatever is necessary to stave off deflation and depression have helped fuel the advance, which started with news of Tim Geithner's nomination as the next Treasury Secretary and continued with the rescue of Citigroup."
The rally helped to offset the devastating performance of major indexes in October, a month where $1 trillion of shareholder wealth was wiped out of the Dow Jones Wilshire 5000 composite index. That reflects the value of nearly all U.S. stocks.
Analysts expect the early part of this week will be dominated by retail sales reports, especially any data that zeroes in on how much Americans spent in the first days of the holiday shopping season.
The reason that sales data is so crucial to Wall Street is because consumer spending accounts for more than two-thirds of the U.S. economy. Even modest spending over the Thanksgiving weekend — anything that does not fall far below already dour forecasts — could give the markets a boost.
According to preliminary figures released by RCT ShopperTrak, a research firm that tracks total retail sales at more than 50,000 outlets, sales rose 3 percent to $10.6 billion on Black Friday.
The trade group is expected to release data for the combined Friday and Saturday period on Monday. However, ShopperTrak's co-founder Bill Martin said he wasn't sure if the momentum was sustained through the weekend.
Its not just holiday sales data that will be on the minds of investors. There's still a number of key economic reports due to be released this week that Wall Street will use to glean any evidence of how deep the recession might be.
The Labor Department will release its report on non-farm payrolls on Friday, an important indicator to determining the economy's health. Economists polled by Thomson Reuters expect another 316,000 jobs were lost during November, which would be the largest decline since May 1980. There was a drop of 240,000 jobs in October.
The government will report weekly jobless claims on Thursday for a fresher glimpse into how many Americans are working.
Wall Street will also pore over a report on Monday from the Institute for Supply Management on manufacturing in November. The group will also release its index of non-manufacturing activity on Wednesday.
The Fed will release its monthly beige book, an assessment of business conditions in different regions of the country. The report for November could add to investors' angst if it reads anything like the previous month's report, where policymakers found that the economy continued to slow as financial and credit market problems took a turn for the worse.
The central bank's report on Oct. 15 supported the market's belief that difficulties in obtaining loans have choked growth in wide swaths of the economy. Given last week's big rally, many investors will be trying to determine if the market — which is a forward-looking gauge of the economy — might have hit or be close to finding a bottom.
Year to date, the Dow is down 33.4 percent, while the S&P 500 is off 39 percent and the Nasdaq is down 42.1 percent.
"If there was ever a year we'd like to forget from a financial standpoint, it's this one," Leeb said. "But we've made progress from the depths of the financial crisis in September, when it seemed that putting cash under a mattress seemed like the best plan."