NEW YORK – In the final week of 2005, the U.S. stock market will be banking on last-minute investments in retirement accounts and other equity funds, with traders hoping the infusion will help the Dow end the year in positive territory.
If the blue chips can hang onto their meager year-to-date gains, it will mean a three-year winning streak for all three major stock indexes -- something that could set the stage for a bullish 2006.
"The last week of December and the first few weeks of January will be a clue to how the market will act next year," said Bernie Myszkowski, executive vice president and director of equity investments at ABN Amro Asset Management in Chicago.
Traders expect volume to be low, with many market players taking a week off between Christmas or Hanukkah and New Year's Day.
Corporate news will be thin since no major companies are scheduled to report earnings.
"The influence (on the stocks) will be that at the end of the year, there's lots of bonus money that goes toward profit-sharing plans and retirement and some of that money will go into the market," said Carl Birkelbach, founder and chief executive of Birkelbach Investment Securities in Chicago.
For the week, stocks were mixed. The blue-chip Dow Jones industrial average eked out a gain of just 0.07 percent, while the broader Standard & Poor's 500 Index rose 0.11 percent. But the technology-laced Nasdaq Composite Index finished the week down 0.14 percent.
For the year to date, the Dow is up only 100.26 points, or 0.93 percent. The S&P 500 is up 56.74 points, or 4.68 percent, for the year so far, while the Nasdaq is up 73.98 points, or 3.40 percent.
"I think we'll end higher (on the Dow). It's been a tough year with a lot of negative news -- the hurricanes, the war in Iraq, the strike in New York," said Victor Pugliese, managing director and head of New York equity trading at First Albany Corp. "People will be a little disappointed. But all in all, it wasn't terrible."
In the Dow's favor, analysts point out that corporations are sitting on excess cash and are likely to spend some of it next year replacing old equipment. This forecast, if it comes true, may help nudge the Dow average of 30 large-capitalization industrial shares climb safely into positive territory for the year.
In addition to watching to see whether the Dow finishes 2005 in the black, investors will stay tuned to see if the blue-chip average can cross the 11,000 milestone.
"There's all this money sitting out there, with individuals and corporations, plus from countries," Birkelbach said, referring to foreign governments looking for places to invest their piles of cash. "They're sitting there ready to buy into the market.
"But I would guess that the Dow will have to break above 11,000 in order for this whole thing to transpire," he added.
"I know it's only psychological. But that's what we humans are -- emotional."
Still, with so little news expected during the holiday lull, investors may have to wait until after New Year's to see the Dow take a crack at beating 11,000.
"It seems like we can't get through that number," Pugliese said. "Maybe we can on an intraday basis, but it doesn't seem like there's that much of a reason to hold."
Coming on the heels of Christmas, a weekly report on U.S. chain store revenue may get special attention. Independent firm Redbook Research will report sales for the week ending Dec. 24 on Wednesday.
"People are still concerned with Christmas sales. We get mixed reports," ABN Amro's Myszkowski said.
"We're not going to have all the final data on retail sales, but we'll have an indication of who did well."
The consumer confidence index for December also is set for release on Wednesday from the Conference Board, a private research group.
Thursday, December purchasing managers' data from New York and Chicago will give a glimpse of business growth in two major U.S. regions.
The National Association of Purchasing Management-New York, also known as NAPM-New York, is scheduled to release its December report at 9 a.m. EST . The NAPM-Chicago report, also known as the Chicago Purchasing Managers Index or Chicago PMI, is due an hour later.
Of the two reports, the market pays more attention to the Chicago PMI and looks at it as a preview of what to expect in the monthly Institute for Supply Management data. The ISM's December report on U.S. manufacturing activity will be released in the first week of January.
Thursday's round of data will include U.S. existing home sales for November.
The forecast calls for November sales of existing homes to have slowed slightly to a seasonally adjusted annual pace of 7.00 million units from 7.09 million units, according to economists polled by Reuters.