NEW YORK (CNN/Money) -
Thanksgiving is waddling its way toward us, and if history is any guide, that should stuff some cheer into a Wall Street that needs it badly.
The Thanksgiving week is typically good for the stock market. The Wednesday before and the Friday after the big feast have put together gains in the Dow Jones industrial average for 41 of the last 50 years. Often enough, that marks the beginning of a rally that takes the market into the end of year.
The making of such a move may be in the works this time around, thinks Credit Suisse Asset Management managing director Stanley Nabi. He believes that the pressure that the market has faced during November is due not just to rekindled worries over global security, but to aggressive investors who have been busy taking profits on a good year.
In the weeks to come, Nabi expects that investors will begin to realize that fourth-quarter earnings, like third-quarter earnings, will be far better than the market currently expects.
A number of factors, beyond the still-improving economy, are converging to improve the outlook. First off, oil prices have not, as analysts keep on expecting, come down yet, and that means it will be another stellar quarter for big energy concerns. Second, interest rates have not surged higher, as many market participants worried they would just a short time ago, and this should boost results at multinationals whose margins should get additional help from the weak dollar.
"All of these things are going to converge, forcing strategists to raise estimates for this year and next year," Nabi said. "That will make valuations look more reasonable."
Wall Street has been focusing squarely on the dollar, and that is not likely to change in the coming week. (Click here for a lineup of the week's events.)
Washington's row with Beijing over trade has highlighted China's huge position in U.S. Treasurys, built up as a result of its pegging of its currency, the yuan, to the dollar. Some investors worry that in retaliation China might shift out of Treasurys. That could provoke a big slide in the dollar, particularly because the United States' big current account deficit (the gap in the United States' trade in goods and services with the rest of the world) means that foreigners need to keep on buying dollars just to keep the greenback steady.
A more likely scenario is that China will eventually move to revalue the yuan -- not because it is acquiescing to U.S. demands, but because it is trying to slow down an economy that's running too hot. That revaluation will not be as good as many Washington-types seem to think, reckons Julius Baer head of U.S. equities Brett Gallagher.
"Revaluing the yuan by 30 percent is not going to save one single job in the United States," said Gallagher. "It's not going to change anything except for the fact that they aren't going to need to hold as many U.S. currency reserves."
Because he thinks the dollar has further to fall, Gallagher has been sifting through the historical data to try to figure out which market sectors will be worth owning and which ones you should avoid.
"I can't stand the dollar," said Gallagher. "There's nothing that's going to save it and it's going to get worse."
The big buys on dollar weakness appear to be basic materials and industrial machinery companies. This makes sense. Global demand for commodities means that they tend to rise in price when the dollar falls -- a plus for basic materials. Machinery is a big export item. The dollar falls, and companies like Caterpillar get a lot more competitive versus their overseas counterparts.
The worst place to be during a dollar decline is financials, perhaps because rates tend to rise when the dollar drops. Auto companies are another sore spot.
Gallagher has already begun to adjust his portfolio for continued dollar weakness, and he thinks he may adjust it even more -- putting big bets on the materials sector while shunning financials like the plague.
Key events in the week ahead
- Tuesday we get a second look at how hot the economy got in the third quarter. Economists expect third-quarter gross domestic product growth will be revised upward from the initially reported 7.2 percent annual rate, and 8 percent growth is not out of the question.
- The Conference Board releases its monthly reading on consumer confidence Tuesday. Economists polled by Briefing.com expect the Consumer Confidence Index to rise to 82.8 in November from 81.1 in October.
- October existing home sales, also slated for release on Tuesday, are expected to come in at an annualized 6.5 million, down from September's 6.69 million.
- Wednesday's report on income and spending is expected to show that personal income rose by 0.3 percent in October, keeping up with September's pace. Spending is forecast to come in flat after dropping 0.3 percent in September.
- October durable-goods orders, also due out Wednesday, are expected to post a 0.5 percent gain, against a 1.1 percent jump in September.
- Wednesday, the University of Michigan releases the final take on its consumer sentiment index for November.
- October new home sales, out Wednesday, are expected to come in at an annual rate of 1.133 million, down from 1.145 million.
- Economists expect the Chicago Purchasing Managers Index, due out Wednesday, will lift to 56 for November after coming in at 55 in October. Any number above 50 signifies manufacturing growth.
- The Beige Book, an anecdotal look at the economy put together by regional Federal Reserve banks, comes out Wednesday afternoon.
- The stock and bond markets are closed Thursday for Thanksgiving.
- It's a shortened day for stocks and bonds the Friday following Thanksgiving, typically the day with the lowest trading volume of the year.