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First full trading week of 2004 seen solid

Investors are gearing up for gains in the first full trading week of 2004 as Alcoa kicks off what is widely expected to be a strong earnings season.
/ Source: Reuters

Investors are gearing up for gains in the first full trading week of 2004 as Alcoa Inc. kicks off what is widely expected to be a strong earnings season.

Adding to the post-holiday glow: The December jobs report, due on Friday, is likely to point to steady improvement in the labor market.

“The week ahead is going to be solid,” said Stanley Nabi, managing director at Credit Suisse Asset Management, which manages about $312 billion.

Investors will return to Wall Street in full force this week after two weeks of holidays and half sessions that thinned out trading volumes. Many will be eager to put their extra cash to work at the start of the new year after 2003 marked an end to a brutal three-year bear market in stocks.

For 2003, the blue-chip Dow Jones industrial average rose 25.3 percent, ending at 10,453.92. The broad Standard & Poor’s 500 index advanced 26.4 percent, closing on Dec. 31, 2003, at 1,111.92. The tech-laced Nasdaq Composite Index climbed 50 percent, finishing 2003 at 2,003.37.

In the latest week, when the markets were closed Thursday for New Year’s Day, stocks gained. The Dow rose 0.83 percent and the S&P 500 shot up 1.15 percent, while the Nasdaq jumped 1.70 percent.

“There is no cause for prices to sell off and go into any sort of decline, but valuations are probably going to make the upside a difficult row to hoe,” said Paul Cherney, a market analyst at Standard & Poor’s MarketScope.

Cherney said solid earnings could help alleviate some valuation concerns. Hopes for the fourth-quarter earnings season are high after a mild “confessional period,” in which companies warn that earnings will miss analysts’ expectations.

The unemployment report for December will grab the lion’s share of attention on Wall Street this week. The report is expected to show another month of rising payrolls and and may help encourage buyers to get a head start on the stock market in 2004.

“If it feels like cash is going to be put to work, it’s going to be ‘catch as catch can’ where people feel that they don’t want to be behind the eight ball at the beginning of the year,” said John O’Donoghue, managing director of listed trading at Credit Suisse First Boston.

Earnings usher in 2004
Aluminum heavyweight and Dow component Alcoa marks the start of the quarterly earnings period when it releases its results on Thursday.

Analysts expect that S&P 500 companies will post earnings growth of 22.2 percent in the fourth quarter versus the same year-ago period, according to Thomson First Call. That marks the best period of earnings growth since the first quarter of 2000, according to the research firm.

Roughly 350 Standard & Poor’s 500 companies have offered Wall Street a glimpse of their upcoming fourth-quarter earnings, with about 1.3 negative pre-announcements for every positive pre-announcement. That beats out the average ratio over the past nine years of roughly 2.5 negative pre-announcements for each positive forecast, according to First Call.

Investors also will eye December same-store sales reports from retailers on Thursday for hints on how their quarterly earnings will fare on the heels of the crucial holiday shopping season.

Jobs take the spotlight
Optimism is growing over this week’s monthly jobs report after Friday’s ISM data, which showed stunning improvement at factories across the country. The Institute for Supply Management reported the biggest upswing in U.S. manufacturing in 20 years. The ISM’s employment index rose above 50, signaling the creation of manufacturing jobs, for the second month in a row.

Economists polled by Reuters expect to see U.S. non-farm payrolls rise by 130,000 in December, up again after November’s increase of 57,000, while the unemployment rate should hold steady at 5.9 percent.

“From this point on, one of the key sources of concern, which is the employment picture, is going to brighten and that will remove the last major impediment to optimism,” Nabi said.

Tuesday ushers in a string of figures, including the ISM’s December reading on service-sector activity and November factory orders.

Weekly jobless claims, due on Thursday, are expected to rise to 350,000 after dropping to 339,000 in the week ended Dec. 27 to the lowest level since January 2001.