Closing Market Report

Star-Bulletin news services

Wall Street’s holiday
celebration may be put
to test in December

Retail sales, an Iraq deadline and fourth-quarter
earnings outlooks may pressure stocks

By Hope Yen
Associated Press

NEW YORK >> As investors cheer eight weeks of blue-chip gains, analysts are cautioning against uncorking the champagne just yet. That's because upcoming data in early December could well make or break the market's stunning year-end rally.

A reason for celebration is strong: The Dow Jones industrials capped their strongest two-month gain in 15 years this past week and the market's eight-week winning streak is the longest since March 1998. Plus, December is traditionally Wall Street's best month.

Still, analysts say a flurry of factors in the coming weeks, such as retail sales, a Dec. 8 deadline for Iraq to comply with U.N. inspection demands and fourth-quarter earnings outlooks, could significantly test the market's goodwill.

"This month has done fabulously. The last eight weeks has been up, up and away," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc. "The only negative is that we came awful far, awful fast."

Goldman predicts that Wall Street may see some declines in the next two weeks as investors step back and assess the coming data, including retailers' results from "Black Friday," the day after Thanksgiving, which is the busiest shopping day of the year.

"Investors need a timeout," he said.

The market's three main gauges posted their second straight month of gains yesterday, largely on a series of recent data pointing to stronger growth, including gains in consumer spending and manufacturing activity in the Midwest.

The buying was so strong that on Wednesday, the Dow surged 255 points, the best ever for the day before Thanksgiving, surprising many analysts who expected more cautious buying before the holiday.

Some analysts believe the market can go higher in December, with gains of 5 percent or more. They say many money managers are jumping in for fear of missing out on the recent rally. Investors also are hopeful that the new Republican-controlled Congress will pass business-friendly initiatives.

But a flurry of earnings warnings could quickly dampen the enthusiasm. Now that recent data shows a strengthening economic recovery, investors want to see clear improvement in corporate profits as well, said Richard A. Dickson, senior market strategist at Lowry's Research Reports. "If earnings still continue to show softness, all bets are off as far as the market can go," he said.

Some of that will be seen in retailers' reports on Black Friday, known to make or break companies' annual performance. The day is particularly important this year because the Christmas shopping season is six days shorter due to the lateness of Thanksgiving.

Reports due out in the coming week on manufacturing and employment also will pressure the markets, while many companies concerned about war are delaying business investments until at least Dec. 8, the deadline for Iraq to disclose its nuclear, chemical and biological programs.

"A lot of things early on in December, such as Black Friday and earnings announcements, will probably set the tone," said Chris Wolfe, equity market strategist for J.P. Morgan Private Bank.

"If we get past this gauntlet of information, the potential for gains will be pretty high," he said.

For the week, the Dow rose 91.25, or 1 percent, to close at 8,896.09. The Nasdaq composite index had a weekly gain of 10.04, or 0.7 percent, to 1,478.78, and the Standard & Poor's 500 index rose 5.76, or 0.6 percent, to 936.31. The Russell 2000 index had a weekly gain of 6.36, or 1.6 percent, to 406.36.

The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,846.71, up 63.58 from last week. A year ago, the index was 10,544.79.

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