NEW YORK (CNN/Money) -
As with all Americans, Wall Streeters will spend the first half of the week ahead with half an eye on the clock, counting down the minutes to Thanksgiving. But before they sit before that groaning table and set about getting as tryptophan-addled as possible, there will be work to do.
Stocks have come a long way since those fear-filled days of early October. The Dow Jones industrial average has made it to higher ground for seven weeks in a row -- its longest winning streak since early 1998 -- and traders are wondering if it can make it eight.
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Don't count it out. For one thing, Thanksgiving is traditionally good for the market: Together the Wednesday session before the holiday, and the shortened Friday session after it, have been positive for 41 of the past 50 years. And beyond the week's typical well-fed cheer, a raft of economic reports could give further succor to bulls. (Click here for a line-up of key events in the coming week.)
Pilgrim's progress
No, it's not as if the economy is off its sickbed just yet, but it does seem to be back to eating solid foods again. Weekly jobless numbers indicate stabilization in the job market. The weekly ABC News/Money Magazine consumer confidence poll has shown steady improvement from eight-year lows hit in October.
Retail sales, though not spectacular, aren't pointing to the sort of unmitigated shopping-season disaster that people were worrying about just a month back. And then there's the magic of stocks' big rally, which has probably got company managements thinking a little less dourly.
That creeping improvement should show up in some of the big economic reports coming up in the week ahead. The consumer confidence index for November, due out Tuesday, probably moved higher off of October's low levels. Wednesday's durable goods and Chicago-area purchasing managers' reports also look like they should improve.
"Things are going to look a little better," said Bill Dudley, head of U.S. economic research at Goldman Sachs. "Your going to see an economy that's soft, but not collapsing."
Still, Dudley cautions not to get too carried away by the improvement in the numbers. Many of the excesses of the bubble era still need working off, and it may not be until the second half of next year that the economy will be ready to walk out of the infirmary. Until then it will continue to give investors the occasional scare.
Through the woods?
Wall Street's optimists don't seem too worried about the economy just now, of course. The Dow Jones industrial average has tacked on 21 percent since hitting its nadir early in October, the S&P 500 has risen 20 percent, and the tech-stuffed Nasdaq is 31 percent higher.
The biggest gains have been in stocks that nobody would touch just a couple of months ago, like Corning, Network Appliance and Sprint PCS. Investors are betting, apparently, that survival won't be as much of a problem as they once thought.
"People think the worst is over in a lot of these things," said Jim Volk, director of institutional trading at D.A. Davidson. "It's given them courage to come back in."
The problem? Exactly the same thing happened in the fourth quarter last year, when investors ploughed money into stocks in the mistaken belief that the economy was on the road to health. Then, as now, it was the stocks of companies whose performance is most dependent on the economy, and whose outlooks were dodgiest, that saw the biggest gains.
"It's just one more wave of wild speculation that's going to end the same way the others have," said Bill Fleckenstein, a short seller who heads up the hedge fund Fleckenstein Capital. "To try to conclude that the bear market is over is the height of lunacy."
Fleckenstein thinks that more than anything, the rally is about fund managers playing a game of catch-up before the year ends. Because they are not judged on absolute terms, but how they have done relative to some benchmark, like the S&P 500, they are taking out excessive risk in hopes of coming out ahead.
"Everybody believes it's OK to lose money, but they can't let the market go up faster than their portfolio," he said. "They buy the most aggressive names they can and they don't care. It's just devolved into a game of three-card monte."
But if Fleckenstein is right, we could see funds continuing to throw money at the market right up until the end of the year.
Key events in the week ahead
It looks like housing activity held firm in October: Economists polled by Briefing.com expect existing home sales, due out Monday, came in at 5.35 million versus the previous month's 5.4 million. New home sales, due out Tuesday, are expected to come in at 980,000 versus September's 1.02 million.
The Commerce Department puts out its second look at third-quarter gross domestic product Tuesday. Recently released inventory data suggest it will be better than 3.5 percent growth clocked in the first reading.
The Consumer Confidence Index looks like it gained back some ground this month, with economists expecting a jump 83 from 79.4.
October personal income and spending could be the one challenging economic report in the coming week. Expectations are that income came in flat while spending grew by just 0.2 percent.
The University of Michigan's final look at consumer sentiment comes out Wednesday. Economists forecast that the sentiment index stood at 85.
Thanks to a rebound in transportation orders, durable goods orders for October, due out Wednesday, probably showed a pop. Economists expect a gain of 3 percent, reversing much of September's decline.
The most closely watched economic release of the week will likely the November Chicago Purchasing Managers' report, due out Wednesday. Expectations are that it improved slightly, rising to 47.5 from last month's 45.9.
Markets are closed Thursday for Thanksgiving. Pass the turducken.
Friday, when the market closes early, is typically the lowest-volume day of the year. Hard-nosed investors will be less interested in what's happening on the floor of the Exchange than in how fast people are forking over their cash at the malls.
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