NEW YORK >> Despite a tepid week on Wall Street, many analysts believe investors are poised to close 2002 with a feel-good rally. Still, gains may be short-lived if economic data and earnings outlooks in January point to a weaker-than expected recovery. Analysts see holiday rally
but warn it may not lastStocks have historically performed the best
in December, with most of the gains
occurring at the end of the yearBy Hope Yen
Associated PressWall Street ended a second week of declines on light volume yesterday, raising fears that the market lacked strength to stage a holiday rally -- particularly after blue chips posted eight weeks of gains in October and November.
But analysts say there's no reason to doubt a month-end surge. Few companies issue outlook warnings around the holidays and investors are looking to put year-end bonuses and dividends to work.
"The calendar says we usually get a holiday rally. And one reason we do is because every year at the end of the quarter, no news is coming out," Chuck Hill, director of research at Thomson First Call.
"Most people tend to be optimists and the fact that you're not hearing bad things gets people excited about what to expect next year," he said.
This past week, investors remained cautious, sending stocks lower despite the best retail sales figures in three months and a jump in consumer sentiment. A brokerage downgrade of IBM and a dour outlook from Kimberly-Clark, meanwhile, dampened enthusiasm.
That tone may well change in the coming weeks. December historically is the strongest time of year for stocks, with most gains coming at month's end.
Indeed, a study by Ned Davis Research in Venice, Fla., found that the last seven trading days in December showed the biggest average gain for the S&P 500 compared to the rest of the month.
Still, while many investors may jump in on prospects that 2003 will be the start of a bull market, analysts caution against too much optimism, given the uncertain economic outlook for the coming year.
"If we get a Santa Claus rally at the end of December, that probably wouldn't tell you anything about next year," said Sam Burns, analyst at Ned Davis.
That's because investors will likely be bombarded with data in early January from companies who choose to release their profit warnings after the holidays. Analysts also will begin setting estimates for the first quarter, which many worry may be particularly slow.
"You go from famine to feast where there's a lot of catchup stuff in the first week and to a fair degree the second week of January," Hill said.
Other uncertainties remain. A few economic reports, including those on personal income, durable goods and consumer confidence, are due out at the end of December. Particularly surprising news could rattle the market, they said.
In addition, a heightening of tensions with Iraq might pressure stocks, while growing prospects of a significant tax cut from a Republican-controlled Congress could quickly lift spirits, they said.
"January is going to be a very significant month in terms of setting expectations for '03," said Brian Bush, director of equity research at Stephens Inc.
"People are looking for any sign of a rebound in retail spending and capital goods spending," he said. "If we don't see any kind of encouragement, I think the market can be vulnerable to a pullback."
For the week, the Dow Jones industrials fell 212.06, or 2.5 percent, to close at 8,433.71.
The Nasdaq composite index had a weekly loss of 60.02, or 4.2 percent, to 1,362.42, and the S&P had a weekly loss of 22.75, or 2.5 percent, to 889.48. For the week, the Russell 2000 index, which tracks smaller company stocks, lost 8.74, or 2.2 percent, to 387.98.
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