NEW YORK – U.S. stocks could edge higher next week on hopes for strong holiday spending after retailers' October sales were healthier than expected.
Crude oil prices at $60 a barrel, though, could spoil the mood on Wall Street.
Some market strategists see stocks struggling for direction, with most earnings reports out of the way and little on the economic agenda likely to move the market next week.
"It's going to come down to how sales are pre-Christmas, what we hear from the retail sector," said Marc Pado, a market strategist for Cantor Fitzgerald & Co. (search) "I would expect next week, while remaining positive, to have not as robust a move as we saw this week."
With the Fed's November rate increase behind them, investors may be able to relax a bit, strategists said. On Tuesday, the Federal Reserve's (search) policy-makers raised the fed funds rate for the 12th consecutive time, bringing the benchmark rate up to 4 percent, and hinted more rate increases could come.
U.S. retail chains reported stronger-than-expected October sales on Thursday, indicating that the holiday shopping period will be robust and boosting the Standard & Poor's (search) retail index by 1 percent during the day.
"I believe we're in rally mode, and that between now and the end of the year is when we'll make most of our gains," said Joseph S. Kalinowski, president and chief investment officer at JSK Capital Partners in Southampton, New York.
For the week, the Dow Jones industrial average ended up 1.2 percent, while the Standard & Poor's 500 Index gained 1.8 percent and the Nasdaq Composite Index climbed 3.8 percent.
The Nasdaq logged its largest weekly percentage gain since August 2004.
Still, stubbornly high oil prices ahead of the U.S. winter have scared investors that consumers will cut back on holiday purchases because of increased costs to heat their homes and businesses. U.S. crude oil futures ended at $60.58 on Friday.
"There was a lot of hope that we would see a break in oil," said Stephen Massocca, head of trading and president of Pacific Growth Equities, a San Francisco-based investment bank.
Interest-rate-sensitive shares such as homebuilders fell on Friday after the government reported that hourly wages rose 0.5 percent in October — the strongest pace of growth since February 2003. Analysts said the number could be seen by the Fed's policy-makers as increasing the threat of inflation.
At Friday's close, the Dow Jones U.S. Home Construction Index was down 0.4 percent.
Trade Gap, Consumer Sentiment on Tap
Next week's economic calendar is light, with most of the action on Thursday, when the U.S. international trade deficit, import prices and the University of Michigan consumer sentiment survey are due.
Economists surveyed by Reuters predict that the U.S. trade deficit widened to $61 billion in September from $59.03 billion in August.
"Without earnings, without any Federal Reserve noise, without economic indicators that really move the needle, you're into more of a technical impact next week," said Bill Sutherland, director of equity research at Boenning & Scattergood.
"People may be looking at things being a little bit overbought, especially after the rally we've had in Nasdaq this week."
The pace may slow on Friday, which is Veterans Day.
Companies reporting results next week include El Paso Corp. (EP), one of North America's biggest independent natural gas producers; Cisco Systems (CSCO), the world's largest maker of Internet equipment; Dell Inc. (DELL), the world's No. 1 personal computer maker, and News Corp. (NWS.A), whose holdings include the New York Post and Fox Broadcasting Co.
Ready to Rally?
But analysts said the end of the year is usually strong for stocks, and this one is showing signs of following that trend.
They said economic indicators and corporate earnings have largely been better than expected and investors could look to those as signs to buy.
"Based on [Federal Reserve Chairman Alan] Greenspan's comments, the economy is growing," Kalinowski said. "We've got a sharp eye on inflation, but things are progressing along."
Friday's U.S. employment report showed a smaller-than-expected number of new jobs were created in October. But it followed mostly stronger economic reports in the past few weeks, including Monday's report from the Commerce Department showing U.S. consumer spending rose 0.5 percent in September.
The Philadelphia Stock Exchange semiconductor index ended the week about 6 percent higher.
"November has had a lot better tone to it than usual," said Evan Olsen, head of equity trading at Stephens Inc. in Little Rock, Arkansas. "We're seeing money rotating into the growth stocks. If I had to guess, I think people are pretty positive on the market."