NEW YORK – U.S. stocks could face a challenge next week to bounce back from Friday's post-Thanksgiving drop unless there's some tempering of the dollar's weakness that sparked the sell-off.
Early signs of how the U.S. holiday shopping season is shaping up also will drive the week's activity, as will a full agenda of economic data. Investors will review readings on economic growth, inflation, consumer confidence and manufacturing activity, among other data. The week will wrap up with the latest sales figures from the struggling U.S. auto sector.
"We may be entering a period of trouble for stocks and a sharp drop in the dollar may provide more excuses to sell," said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York.
U.S. stocks fell Friday, retreating from highs reached earlier in the week, on concern that U.S. shares became less attractive to foreigners after a steep drop in the U.S. dollar.
On Friday, the Dow Jones industrial average fell 46.78 points, or 0.38 percent, to end at 12,280.17. The Standard & Poor's 500 Index slipped 5.14 points, or 0.37 percent, to finish at 1,400.95. The Nasdaq Composite Index dropped 5.72 points, or 0.23 percent, to close at 2,460.26.
For the week, the Dow slipped 0.51 percent and the S&P 500 inched down just 0.02 percent. But the Nasdaq gained 0.59 percent.
The dollar sank against the euro on Friday, propelling Europe's single currency up to around $1.31 for the first time since April 2005.
The Sound of Shopping
Still, Wall Street hopes that the stampede of Americans to the malls over the long Thanksgiving Day holiday weekend will translate into strong sales. If enough people buy gifts instead of just browse, some retailers' shares may extend Friday's gains into next week.
The Friday after Thanksgiving is known as "Black Friday" because it is the first day of the Christmas shopping season. In years past, this was the day when retailers rang up enough sales to shift from red ink into "the black" by turning a profit for the year.
The Thanksgiving weekend accounts for 9 percent to 10 percent of holiday sales, according to data compiled by the Telsey Group, an independent research firm. The Standard & Poor's retail group expects a 4.5 percent increase in holiday retail sales for the traditional November-through-December period.
"Stocks will need help next week and strong retail sales may support some names," said Metz of Oppenheimer.
Shares of Federated Department Stores Inc. (FD), which operates Macy's and Bloomingdale's, rose 0.1 percent, or 4 cents, to close at $43.11 Friday on the New York Stock Exchange.
Preppy clothing retailer J. Crew Group (JCG) turned in one of the best performances in the retail sector on Friday, when its shares shot up 6.8 percent, or $2.76, to $43.28 on the NYSE. Brown Shoe Co. (BWS), operator of the Famous Footwear chain, climbed 1.6 percent, or 72 cents, to $46.46.
GameStop Inc. (GME), the largest U.S. video game retailer, had a good day. Its "Class A" shares jumped 2.4 percent, or $1.31, to $56.65 on the NYSE. Consumer electronics retailer Circuit City Stores Inc. (CC) gained 0.1 percent, or 2 cents, to $24.25, while specialty apparel retailer Gap Inc. (GPS) rose 0.3 percent, or 5 cents, to $19.30.
A Numbers Blitz
Reports on durable goods orders and existing home sales for October plus consumer confidence for November will come out Tuesday, kicking off next week's heavy calendar of economic data.
Durable goods orders probably fell 4.6 percent in October after an 8.3 percent jump in September, according to economists polled by Reuters. Excluding transportation, durable goods orders are expected to rise 0.2 percent in October, following September's gain of 0.5 percent.
The pace of existing home sales is expected to slip to 6.15 million units on an annualized basis in October from 6.18 million in September, according to the Reuters poll.
Economists see the Conference Board's consumer confidence index edging up to 106.0 in November from October's 105.4.
On Wednesday, more numbers will fly. The U.S. government will report its preliminary third-quarter GDP figures, which include an inflation gauge called the core PCE index, widely followed by the Federal Reserve's policy-makers.
The preliminary GDP figures, which will be the government's second look at third-quarter gross domestic product, may be revised to an annual gain of 1.8 percent, up from 1.6 percent reported previously. The reading on core personal consumption expenditure prices, or the core PCE prices index, is expected to be a gain of 2.3 percent in the third quarter, matching the rate previously reported. The core reading excludes food and energy prices. The GDP release is due Wednesday at 8:30 a.m.
Some analysts said a positive reading on GDP figures may give investors a reason to buy stocks next week.
"As long as we can avoid a recession in the first part of next year, we think stocks will have modest gains," said Benjamin Halliburton, managing director of Tradition Capital Management in Summit, New Jersey.
New home sales for October are due Wednesday, with the Reuters poll calling for a dip to an annual pace of 1.044 million units from September's 1.075 million.
The government also will release a monthly reading on the core PCE price index Thursday as part of the October data on personal income and personal consumption. Economists polled by Reuters expect the core PCE price index to rise 0.1 percent
in October, after a 0.2 percent gain in September. Personal income is forecast up 0.5 percent and personal consumption is seen up 0.1 percent in October, matching September's gains.
Factory Bells and Car Lots
Some reports on regional economic conditions, such as the Fed's Beige Book, the New York NAPM and the Chicago PMI also are on tap next week. The Beige Book will be released Wednesday. Thursday is the due date for November data from the New York National Association of Purchasing Management and the Chicago Purchasing Managers' Index. Economists see the Chicago PMI at 54.0 in November, compared with October's 53.5.
The Institute for Supply Management, or the ISM, manufacturing index for November will come out Friday, along with October figures for construction spending. The Reuters poll forecasts: ISM's November manufacturing index at 51.5 versus 51.2 in October, with October construction spending seen down 0.3 percent, matching September's drop.
November domestic car and truck sales will be released Friday, wrapping up the week's torrent of data. Economists see domestic car sales at a pace of 5.30 million units in November, up from October's rate of 5.10 million. They peg domestic truck sales at a pace of 7.30 million units, up from October's rate of 7.20 million.
"There are definitely some warning signs on the horizon" for the economy and stocks, said Hans Olsen, chief investment officer of Bingham Legg Advisers in Boston.
"But I think if we look short-term, we still have lots of reasons to be optimistic."