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Stocks set for a lightweight week

With another holiday-shortened week, stock moves and volume may be so quiet that it will seem like Wall Street is napping.
/ Source: Reuters

U.S. stocks are on track to ring out 2003 with their first gains in four years.

But with another holiday-shortened week, stock moves and volume may be so quiet that it will seem like Wall Street is napping.

Major market indexes are on track to rack up some impressive gains this year. And most analysts see few catalysts this week that could push stock prices significantly higher from current levels.

If anything, stocks are poised for a consolidation -- Wall Street parlance for a decline, said Rich Nash, chief market strategist at Victory Capital Management in Cleveland.

"We've been having a pretty nice rally most of the past week, and looking a bit overbought on a technical basis, so I think we might be due for some backing and filling," Nash said.

Volume is expected to be extremely light, during what has historically been a quiet week for the stock market. Both the New York Stock Exchange and the Nasdaq will be closed on Thursday, Jan. 1, for New Year's Day, and many investors will be taking off work for the entire week.

The dearth of players will add a dose of choppiness to an otherwise quiet market. Even so, stocks still could extend gains this week, predicted Peter Dunay, chief market and options strategist at brokerage Wall Street Access.

"This momentum we're seeing will probably carry into next year. There's no reason for the market to want to pull back in the near term," given the recent strength of economic indicators and corporate earnings, Dunay said.

Wall Street historically has a modest rally in the last five trading days of the year and the first two in January, according to the Stock Trader's Almanac. The so-called "Santa Claus rally" has been good for an average 1.7 percent gain since 1969, or 1.5 percent since 1950.

Stocks notched their third straight week of gains on Friday, with the blue-chip Dow gaining 0.45 percent, the broader Standard & Poor's 500 adding 0.66 percent, and the tech-laden Nasdaq up 1.13 percent.

So far this year, the Dow Jones industrial average is up almost 24 percent, while the broader S&P 500 has gained nearly 25 percent. The Nasdaq has climbed nearly 48 percent.

Mad cow concerns
Mad cow disease will again be in focus this week, as investors try to gauge the full impact of last week's discovery of the disease on the nation's $27 billion cattle industry.

On Friday, the U.S. Department of Agriculture said it had quarantined a second herd in Washington state as part of its investigation into the nation's first case of mad cow disease.

Early last week, the USDA quarantined a 4,000-animal herd at another farm where the infected cow lived before it was slaughtered on Dec. 9. The USDA is trying to trace where the diseased cow lived before it was killed, and said its investigation could take months.

Shares of major hamburger chains like McDonald's Corp. recovered slightly on Friday, after the mad cow news pounded them on Wednesday. But Tyson Foods Inc., the biggest U.S. processor of beef and chicken, extended losses.

Investors also will keep an eye out for earnings pre-announcements from corporate America. Many companies are expected to issue guidance for the quarter before the earnings season kicks off on Jan. 8, when Alcoa Inc. becomes the first Dow component to report results.

"Early January, you'll start seeing pre-announcements, which is going to be really key since the economy's been strong," Wall Street Access's Dunay said.

The third quarter was strong, and the general consensus is that the fourth quarter will be strong too."

No Standard & Poor's 500 companies are slated to report results this week.

Midwest, manufacturing data due
On the economic scene, most of the week's key data will fall on Tuesday, when reports on consumer confidence and business activity in the U.S. Midwest are released. The National Association of Purchasing Management-Chicago's business barometer is expected to slip to 62.2 in December from 64.1 in November.

Additionally, the Institute of Supply Management, or ISM, will report its monthly index of manufacturing activity on Friday. Economists have pegged the December reading at 61.0, down slightly from November's 62.8.

Market watchers expect the data will continue to show the economy is experiencing a strong rebound. But with many Wall Streeters on vacation, the reports may have little impact on the market.

"Everyone and anyone will take time off" this week, "so you may see some volatility kick in," Dunay said. "Since the market's been so strong recently, no one wants to beat it up, or is much in the mood to push it up, either."