NEW YORK – Investors will keep one eye on the turkey and another on a mound of economic data during a sluggish Thanksgiving week that will determine whether the blue-chip Dow churns out its eighth winning week.
Market watchers are split over whether momentum from the Dow's stunning 21 percent rally from a 5-year low in early October will sweep over into next week. But they tend to agree that any gains or losses will be meager during the holiday-shortened week.
The stock market will be shut Thursday to celebrate the Thanksgiving Day holiday and will close early at 1 p.m. EDT on Friday. Trading floors will empty out toward the end of the week, leading to light volume on a lackadaisical Wall Street.
"Once you get to around noon on the Wednesday before Thanksgiving, the desks are emptying because everyone wants to get that jump on the ride to grandmother's house," said Paul Cherney, a market analyst at S&P Marketscope. "The Friday after Thanksgiving has historically either the smallest total trading volume for the year or the second smallest."
The Dow has surged as a rush of better-than-expected earnings reports boosted investor sentiment, but concerns linger over the health of the U.S. economy and the threat of war with Iraq. Investors are growing more hesitant to funnel money into the market after its sizzling run-up, analysts say.
"We had a very steep recovery that took some of the most depressed stocks, particularly the small stocks in technology with no earnings, and caused them to recover quite sharply," said Stanley Nabi, managing director at Credit Suisse Asset Management, which manages about $55 billion in North America. "They are going to have to consolidate."
Economic reports will pour in next week, offering investors more clues on the health of the nation's economy. Data this week showed a drop in weekly jobless claims and signs of life in manufacturing, boosting the market and raising expectations for the economic data next week.
"In order for this rally to continue, it really requires further movement on the economy," said John Davidson, president and chief executive officer at PartnerRe Asset Management, which oversees about $5 billion. Something that shows "the economy really is stronger than expected — that really is key. Next week, there may or may not be detractors."
Week Stuffed With Economic Data
With the earnings calendar quiet next week, readings on the growth of the economy, consumer spending, consumer confidence, durable goods and weekly jobless claims will grab the attention of the traders left to man the desk during the holiday week.
Gross domestic product (GDP), which measures the value of goods and services produced within U.S. borders, is expected to be revised up to a 3.8 percent annualized growth rate for the third quarter from a previous rate of 3.1 percent. The GDP report is due Tuesday.
Advance figures on GDP showed third-quarter growth rebounded from the anemic 1.3 percent pace of the second quarter. Much of the growth came from brisk spending on new cars and trucks as automakers offered a variety of incentives, leading analysts to caution that fourth-quarter GDP may fall below its third-quarter pace.
Investors will scrutinize a report on new home sales in October, also due Tuesday. New home sales are expected to edge down to 992,000 in October from 1,021,000 in September. Cheap borrowing, coupled with the perception that homes are a stable and profitable investment compared with stocks, have sustained a thriving housing market, even as much of the economy sputters.
Tuesday, the Conference Board will release its read on consumer confidence for November. Consumer confidence is expected to rise to 85.2 in November from 79.4 in October, when it hit its lowest level since 1993.
Analysts track consumer confidence for clues on consumer spending, which drives about two-thirds of the U.S. economy and has remained fairly robust throughout the economy's downturn.
"The burden of the economy remains on consumers' shoulders," Cherney said.
A report on October consumer spending, or personal consumption, is set for Wednesday. Consumer spending, one of the main drivers of economic growth, was expected to have risen 0.2 percent last month after falling 0.4 percent in September.
Personal income is forecast to gain 0.2 percent in October, not as robust as September's 0.4 percent rise, according to economists polled by Reuters.
"This report is the most significant in my opinion," Nabi said. "Consumer spending is about two thirds of the economy, so we have to worry about that."
Weekly jobless claims, due Wednesday, are expected to land at 382,000 for the week of Nov. 23, up from 376,000 in the previous week. This week investors applauded a surprising drop in weekly jobless claims that fueled hopes the labor market is stabilizing.
Orders for durable goods, also due Wednesday, are expected to rise 2 percent in October from a decline of 4.9 percent in September. Durable goods — costly manufactured items intended to last three years or more — were hit last month on weak demand for transport equipment and declines in many other sectors.
The market will get yet another pulse-taking on consumer sentiment Wednesday — when the closely watched University of Michigan survey is released. The final November reading is expected to be 85.5, up from 80.6 in the previous report.