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Wall Street optimistic about December

Wall Street hopes trading in the shortened Thanksgiving holiday week sparks a stock-market boom that lets investors do their own gobble-gobbling this week and into December, traditionally a strong month for stocks.
/ Source: The Associated Press

Thanksgiving has traditionally been the start of the holiday retail season, and investors on Wall Street hope trading in the shortened holiday week sparks a similar boom in the stock market.

There’s reason to be optimistic about December, both historically and this season in particular. Traditionally, December is a strong month for stocks, with the Dow Jones Industrials averaging a 1.7 percent gain and the Standard & Poor’s 500 index rising 1.6 percent on average since 1950.

More importantly, this December should be a strong month after nearly a year of uncertainty in equities, stemming from the threat of terrorism and the presidential elections. While Wall Street’s post-election euphoria finally fizzled last week, the fundamental health of the market remains strong — profits continue to grow, the market remains only slightly overvalued at the moment, and the economy is growing, albeit at a slower pace than in the past. Because of that, most analysts expect the market to resume its rise through the end of 2004 and into January.

Expected this week: Light volume
But to get there, the markets must slog through the week ahead. The shortened holiday trading week should be much like this summer, with light volume and little upside. But any unexpected news, good or bad, could have more of an exaggerated impact on stock prices.

Last week, falling oil prices and Federal Reserve Chairman Alan Greenspan’s warnings over the weak U.S. dollar and spiraling trade deficit sparked a 115-point loss for the Dow on Friday, pushing the major indexes to a loss for the week after three straight weeks of gains.

Concern over the U.S. trade and budget deficits has been a major factor in the dollar’s fall. Treasury Secretary John Snow on Sunday stressed to a Berlin gathering of finance officials from the Group of 20 countries that “the United States is dealing with its deficit.”

“I wanted them to understand that this administration is absolutely committed to fiscally responsible behavior,” he said.

The euro went into the weekend just below its all-time high of $1.3074. For the week, the Dow fell 0.78 percent, the S&P 500 shed 1.17 percent, and the Nasdaq lost 0.71 percent.

Watchable: Reports on home sales
Home sales are widely seen as strong indicators of both economic growth and consumer sentiment, and a pair of reports out in the week ahead will be widely watched on Wall Street. On Tuesday, the National Association of Realtors will announce existing home sales data for October. Wall Street is expecting 6.77 million homes sold, up slightly from 6.75 million in September.

New home sales will be the subject of a Commerce Department report on Wednesday. Analysts have forecast sales of 1.2 million homes for October, about the same as the previous month.

Two other reports are coming out this week. On Wednesday, the Commerce Department will release data on orders for durable goods — big-ticket purchases designed to last more than three years. Wall Street expects orders to rise by 0.5 percent in October, following a 0.2 percent hike in September.

And finally, the University of Michigan’s revised consumer sentiment index is due to be released Wednesday. The index is expected to rise to 96 for November, a slight gain over October’s 95.5 reading.

Earnings from Krispy Kreme, TiVo
With the bulk of third-quarter earnings already released, the stragglers issuing their quarterly reports in the week ahead include a number of underperforming companies — not entirely surprising, since investors’ attention may be focused more on the holiday than the markets.

Krispy Kreme Doughnuts Inc. has been down sharply this year, blaming the nation’s low-carb craze for a drop in sales of its sugary doughnuts. Federal inquiries into its accounting haven’t helped, either. Krispy Kreme closed Friday at $11.50, off 71.1 percent from its 2004 high of $39.74 on March 5. The company is expected to post profits of 13 cents per share, down from 23 cents per share a year ago, before Monday’s session.

Toys R Us is expected to lose 13 cents per share when it reports Monday morning, down from 18 cents per share a year ago. Investors will look hard to see whether the struggling toy retailer, under immense pressure from Wal-Mart Stores Inc., Target Corp. and other major retailers, can at least gain ground during the holiday season. Despite the company’s problems, Toys R Us is near its 52-week high of $20.45, closing Friday at $19.36.

After Monday’s session, TiVo Inc., maker of digital television recorders, will report its quarterly results, and is expected to post a loss of 45 cents per share, wider than the 11-cent loss from a year ago. TiVo’s share price has been bolstered on news that it will work with NetFlix Inc. to provide downloadable pay-per-view movies through its set-top boxes, but the stock is still down 50.2 percent from its high of $12.05 on March 5.

For the Thanksgiving holiday, bond markets will have a shortened session on Wednesday, while the equities markets will be open all day. All U.S. markets will be closed Thursday, and both the stock and bond markets will have a shortened session on Friday.