NEW YORK – Stocks may float higher next week as investors' expectations for an economic rebound next year keep feeding a steady run-up on Wall Street.
"Psychology is now on the mend and it's going to be easier for the market to go up than down," said Al Kugel, senior investment strategist at Stein Roe & Farnham, which is part of the $70 billion Liberty Funds Group. "We will have profit-taking bouts, but I think the trend is up and probably will continue for the rest of the year."
Headway in the war in Afghanistan and hopes for an economic bounce in 2002 have driven the market higher in the face of dwindling corporate profits and a looming recession. Investors are betting the Federal Reserve's string of interest-rate cuts and government plans for a fat stimulus package will nurse the economy back to health.
The technology-packed Nasdaq Composite Index has surged almost 34 percent, the broad Standard & Poor's 500 index is up more than 19 percent and the blue-chip Dow Jones industrial average has jumped almost 21 percent since hitting Sept. 21 lows in the wake of the attacks on the World Trade Center and the Pentagon.
"This is not the time to be bearish. If anything, the economy has demonstrated in the last few weeks its resiliency," said Stanley Nabi, managing director of Credit Suisse Asset Management, which oversees about $100 billion.
The market's resilience may be tested next week by data on consumer confidence, durable goods and third-quarter economic growth. Even if the numbers disappoint, investors are expected to keep their sights on the prospect for recovery next year.
GDP Grabs Spotlight
Wall Street is turning its attention back to the economy as worries over the war in Afghanistan take a back seat. The Northern Alliance has made spectacular gains on the back of a U.S. bombing campaign to punish the Taliban for harboring Usama bin Laden, the suspected mastermind of the Sept. 11 attacks on the United States, and destroy his Al Qaeda network.
"The thing that is working in the market's favor right now is that it seems to be investors aren't worried about Afghanistan anymore," said John Forelli, senior vice president at Independence Investment LLC, which oversees $20 billion. "Now, in a sense, all we have to worry about is the economic recovery, and I think people are pretty confident that is going to happen over the next six months."
The government will release its "preliminary" estimate of third-quarter Gross Domestic Product (GDP), the broadest measure of the nation's economic health, on Friday. GDP is expected to contract 0.9 percent, according to a Reuters poll of economists, versus a contraction of just 0.4 percent shown by the advance or early reading released in late October.
A recession is loosely defined as at least two straight quarters of falling GDP. Most economists expect the economic contraction to last at least to the end of the year. If it does, the third quarter would mark the start of the first U.S. recession in 10 years.
"People are speculating as to whether [the recession] started back in March or whether it started on Sept. 11 or whether we wouldn't have one at all, were it not for the terrorist attacks," Kugel said. "I don't think very many people think it is going to last terribly long or terribly deep."
The Conference Board will release its reading on consumer confidence on Tuesday. Confidence is expected to edge up to 87.9 in November from 85.5 in October.
Orders for costly U.S. durable goods, set for release on Thursday, are expected to rise 2.1 percent in October, according to a Reuters poll of economists. Orders fell a steep 8.5 percent in September as the Sept. 11 attacks took a huge toll on an already weak economy.
Earnings Trickle In, Nokia Talks
While most companies have already posted quarterly earnings, a few corporate scorecards from businesses like retailer Kmart Corp., medical device maker Medtronic Inc., tax preparer H&R Block Inc. and software maker Novell Inc. are expected to trickle in next week. Investors will also keep an eye on any comments from retailers that could hint at the health of holiday sales.
Nokia, the world's top maker of mobile phones, is holding a meeting on Tuesday in a bid to reassure investors and analysts that its move into software and programming businesses can pay off. Its chief executive is expected to deliver an upbeat message that builds on a spate of recent product and strategy announcements.
If next week's corporate news points to weak results, however, investors are expected to hold their ground.
"I think everybody is prepared for bad news," Nabi said. "Even those companies coming out saying, 'Oops, we are going to miss the fourth quarter we gave you only a month ago' -- their stocks aren't going down, they are resisting the decline. This is one signal that tells you we all know the fourth quarter is going to be miserable."