NEW YORK – For the stock market, getting the stalled Santa Claus rally back on track next week will depend on the Federal Reserve's call on interest rates, retail sales and resurgent energy prices.
Another quarter-point rate increase is expected at Tuesday's Fed meeting.
But investors are hoping the Fed will change its statement and indicate its long streak of rate increases will end soon.
"Everybody's kind of set on the fact that we're going to see an increase. It's kind of baked into the cake. The language is going to be key, and investors are expecting we're near the end of this cycle," said Christopher D. Johnson, director of quantitative analysis at Schaeffer's Investment Research.
Anthony Chan, managing director and senior economist, at JPMorgan Asset Management, said, "If the Fed says it sees more upside inflation risk, that would be devastating to the market."
Crude oil prices, meanwhile, ended the week below $60 a barrel, after rising above $61 on Friday. Forecasts that extremely cold weather could linger for another two weeks in the U.S. Northeast, the world's largest heating oil market, reignited fears about the impact of higher energy costs on consumers and corporations.
January crude oil futures fell $1.27 to settle at $59.39 a barrel on Friday on the New York Mercantile Exchange.
NYMEX January natural gas futures tumbled 68.2 cents to close at $14.312 per million British thermal units on Friday following a two-day spike of 11 percent.
This week, the blue-chip Dow average dipped into negative territory for the year. But strategists polled by Reuters still expect the Dow to end the year with a gain of about 2 percent.
The S&P 500, meanwhile, is nearly where strategists expect it to finish the year.
All three major indexes ended the week lower, with the Nasdaq snapping a 7-week streak of gains, its longest weekly winning streak in nearly six years. The Dow ended down 0.91 percent for the week, while the S&P 500 slipped 0.45 percent, and the Nasdaq dropped 0.73 percent.
"This week, what we experienced was a catch-up because the Santa Claus rally came in earnest, almost a towering force, and it had to take a breather," Chan said, adding that "it gives the market a firmer footing from which to make a much deeper move next week as it starts to chew on some fundamental data."
Wall Street is likely to be in a holding pattern until the announcement from Tuesday's Fed meeting.
Stock investors big and small are hoping the Federal Open Market Committee will give them a gift -- in the form of some change in wording or a new phrase or two that will signal that rate increases will end sometime early next year.
Since June 30, 2004, the central bank has raised interest rates 12 consecutive times. That campaign of credit tightening has pushed the benchmark federal funds rate up to 4.00 percent from a historic low of 1.00 percent.
Another quarter-percentage-point rate increase -- No. 13 -- is expected at the FOMC's Tuesday meeting, which happens to be Dec. 13.
A Reuters poll published Thursday found that a majority -- 11 out of 20 economists polled -- expected to read at least some changes in the language of the Fed statement issued at the end of the Dec. 13 Fed meeting, while a few expect no change until January or March.
The coming week will bring a holiday menu brimming with data, with November retail sales on Tuesday and the November U.S. consumer price index on Thursday.
Economists in a Reuters poll expect that retail sales rose 0.5 percent in November, after October's 0.1 percent decline.
The strong Thanksgiving week helped November sales, though reports were mixed on sales over the Black Friday weekend in the three days after the holiday.
But November's retail sales data will be just a dress rehearsal for future reports on holiday spending.
"Everyone's waiting to see what that final weekend before Christmas brings," said Marc Pado, U.S. market strategist for Cantor Fitzgerald & Co.
CPI, the widely tracked gauge of inflation at the consumer or retail pricing level, is forecast to have dropped 0.4 percent in November after rising 0.2 percent in October, according to a Reuters poll. Excluding food and energy costs, the core CPI for November is likely to have risen 0.2 percent rate, matching October's increase.
Data from the Fed on industrial production and capacity utilization for November will be released on Thursday, while the U.S. international trade deficit for October will be reported on Wednesday.
Still, the market could find it tough to push forward next week, despite the economic indicators and other news, Pado said.
"We're in this sort of mid-December slump, and what the big funds will be doing is getting rid of positions that did not perform," Pado said.
"Then there's window dressing, which is when the funds try to dress up their portfolios at the end of the year by buying the stocks that look good."
Among the sectors that analysts have said could see gains are financial services, energy and technology.
"The financials really kicked in a couple of months ago," said Tim Heekin, director of trading at Thomas Weisel Partners, a San Francisco investment bank, and the sector "will be strong, along with tech and energy right through the end of the year."