Bulls May Carry Gains Into 2002

NEW YORK – Expect stocks to rise this week as investors add winners to lackluster 2001 portfolios, and buying carries into the new year with hopes 2002 will see an end to the U.S. recession.

"It is likely we will see a strong close to the year, and in early January, you typically see money reallocated to the stock market," said Peter Coolidge, senior equity trader at Brean Murray & Co., New York.

"So if you don't have any geopolitical events to upset the apple cart, you should see a continuation of the bullish sentiment," Coolidge added.

U.S. markets are open on New Year's Eve, but will be closed on Tuesday, Jan. 1, in observance of New Year's Day. Trade resumes on Wednesday.

The week "is going to be busy," predicted Brian Pears, head equity trader at Victory Capital Management, of Cleveland, Ohio. "At the end of the year, a lot of accounts need to do once-a-year sort of trading. Some of that is done for tax purposes, and some of it is window dressing. My guess is you will probably see a strong week."

With window dressing, professional investors drop losers from their holdings and add winners. The result is a better-looking portfolio when the pros inform clients of their year-end positions.

Five Days to Watch

Investors also will be keenly interested in the first five trading days of the year. If this period finishes in the black, history says the odds are overwhelming that the year, too, will end positively.

Over the past 52 years, according to the Stock Trader's Almanac, the broad stock market has climbed in 32 years, and dropped in 18. Of the winning years, 28 had a positive five-day kickoff. Of the 18 losing years, nine had declines over the first five trading days.

The week also will bring the likely confirmation that 2001 was the worst year for the broad market since 1974. While still subject to Monday's trading action, the Standard & Poor's 500 is on track to close down about 12 percent. In 1974, the S&P 500 fell nearly 30 percent.

The Dow Jones industrial average is set to have a 2001 drop of about 6 percent, nearly matching the 2000 drop of 6.2 percent.

Last week, shortened to 3.5 trading days due to Christmas, the Dow Jones industrial average rose 1 percent, the Nasdaq composite added about 2 percent and the broad Standard & Poor's 500 index climbed about 1.4 percent.

Earnings, ISM and Jobs

On the earnings calendar, only two companies in the S&P 500 are due to report quarterly results — drug retailer Walgreen Co., on Thursday and hospital company Tenet Healthcare Corp. on Friday.

Of companies outside the S&P 500, alcoholic beverage company Constellation Brands Inc. will report earnings on Thursday. Constellation has far outperformed the broad market, up more than 40 percent in 2001.

The economic-data calendar holds several major announcements, including readings on manufacturing activity and unemployment.

For the first time, Wall Street will get the re-christened Institute for Supply Management index for December in data set for release on Wednesday. The ISM, the old National Association of Purchasing Management index, measures manufacturing activity. The gauge is expected to come in at 45.6. Any number below 50 indicates a contraction of activity. The previous reading was 44.5.

"NAPM is the most important" data point for next week, said Edgar Peters, chief investment officer of PanAgora Asset Management, which oversees $12.5 billion in Boston. "It'll give us some indication of whether there's a pickup going on in manufacturing, which has been in a slump the longest [of other sectors]. We'll have to see some recovery there before we see a real sustainable recovery overall. Stocks will trade on it somewhat."

On Thursday, Detroit's Big Three and other auto makers will report December car and truck sales.

Friday brings the December jobs report, released at 8:30 a.m. EST (1330 GMT). Non-farm payrolls are expected to decline 139,000 from the previous decline of 331,000. The unemployment rate is predicted to rise to 5.8 percent from 5.7 percent in November.