NEW YORK – Stock investors are looking for deal news and upbeat pre-earnings announcements to put Wall Street back into rally mode next week, the market's first full trading week of 2007.
But any bounce is set to be punctuated by a spurt in volatility as the week will also see more money managers returning from their New Year's vacations to shuffle portfolios for the months ahead.
Others may even choose to lock in profits after the stock market surge of 2006, possibly putting pressure on the broader market, which some analysts say is due for a correction.
However, "if there are any deals out there and companies with [positive] pre-earnings releases," the stock market should gain strength from that, said David Katz, chief investment officer at Matrix Asset Advisors in New York.
"Our sense is that 2007 should be an okay stock market year, up 10 or 11 percent, provided the economy continues to muddle its way through."
January performance often sets the stock market's trend for the year. The month has traditionally set the tone for each of the years since 1950, without exception, according to the Stock Trader's Almanac.
Wild Swing Into 2007
But in the shortened trading week after the New Year's break, stocks gyrated wildly as disappointing December retail sales and a profit warning from Motorola Inc. overshadowed signs that economic growth remained strong despite a slowing housing market.
A government report Friday that showed stronger-than-expected jobs growth raised fears of inflation and tempered expectations that the Federal Reserve could cut interest rates sometime soon.
As a result, both the S&P 500 and the Dow Jones industrial average started 2007 on the defensive.
In the three-session week, the Dow dropped 0.52 percent, while the S&P 500 lost 0.61 percent.
Only the Nasdaq managed to squeeze a slight gain for the week, rising 0.78 percent, as investors bet that technology companies such as chip maker Intel Corp. — among the 2006 laggards — would see profits improving through 2007.
U.S. stock exchanges were closed on Monday for New Year's Day and on Tuesday for the national day of mourning for former President Gerald Ford.
"The middle of January which we are approaching is usually a pretty sloppy period," said Harry Clark, president and CEO of Clark Capital Management Group in Philadelphia. "So I won't be surprised if it actually turns out to be an up-and-down or sideways week."
Setting the Tone
And if more companies use the upcoming week to warn on their outlooks, as world's No. 2 cell phone maker Motorola did Friday, stock gains could prove even more elusive, the analysts added.
"Take the tax-selling pressure off and that will help the indexes," said James D. Hardesty, president of Hardesty Capital Management, of Baltimore, with about $650 million of assets under management.
"And we have a lot of bonus money coming into the market. Gee, if just one little partner at Goldman Sachs puts his bonus money into the market, we'll have a pretty good rally."
Earnings and the Fed
Alcoa Inc. , a Dow component, is set to kick off the quarterly results reporting season for the fourth quarter Tuesday. But investors will pay attention more to what the aluminum producer says about the future as the company is among key economic bellwethers.
Its report would also take on added weight as several strategists have recommended cutting exposure to the materials and energy sectors amid falling prices for global commodities such as copper and oil.
As 2006 ended, the price of NYMEX crude oil was down 22 percent from its peak at $78.40 in July.
On Friday, New York Mercantile Exchange, February crude
rose 72 cents, or 1.3 percent, to settle at $56.31 a barrel, recouping some of the losses that took it down by as much as 10 percent earlier in the week.
But even with the decline, some strategists still see oil prices as a wildcard for stocks, along with the Federal Reserve and the U.S. housing market.
While there's a full slate of economic indicators for release next week, analysts expect the November trade balance on Wednesday and Friday's reports on December retail sales and import prices to garner more scrutiny and perhaps provide some direction for the market.
A Reuters poll of 59 economists forecast the U.S. international trade deficit at $59.9 billion, up from an October shortfall of $58.9 billion.
Meanwhile, December retail sales are expected to show an overall increase of 0.6 percent, versus a rise of 1.0 percent in November; excluding autos, they are forecast to have risen by 0.5 percent, compared with a 1.1 percent rise in the prior month.
The upcoming week will also feature speeches by at least two Federal Reserve officials. On Monday, Federal Reserve Vice Chairman Donald Kohn is scheduled to speak on the economic outlook at an event in Atlanta.
On Thursday, New York Federal Reserve Bank President Timothy Geithner speaks on "Developments in the Global Economy and Implications for the United States" at an event in New York.
Federal Reserve Board Governor Susan Schmidt Bies is on tap to deliver a speech on "Risk Management" at an event in Washington also on Thursday.