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Restarting the rally
After a 2-week pause, the stock advance could be revived next week. But that may depend on the Fed.
December 11, 2005: 7:43 AM EST
By Alexandra Twin, CNNMoney.com staff writer
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NEW YORK (CNNMoney.com) - After a roughly two-week pause, the stock market rally looks like it could potentially recharge in the week ahead, analysts argue -- although that may depend on how investors react to Tuesday's news from the Federal Reserve.

"Friday's advance was encouraging and I think we remain in good shape heading into the end of the year," said Ned Riley, chief investment strategist at Riley Asset Management. As to whether stocks will advance this week, "clearly, the FOMC meeting and the subsequent statement are a critical element."

The central bank is widely expected to boost the fed funds rate -- an overnight bank lending rate -- by a quarter-percentage point, to 4.25 percent, at the conclusion of its meeting Tuesday. It would mark the 13th consecutive rate hike since the central bank began its campaign in June 2004.

However, as is often the case, of greater interest is the accompanying statement. Some market watchers are hoping will hint that the Fed is set to pause, perhaps as soon as March, after Ben Bernanke is scheduled to take over from retiring chairman Alan Greenspan. (Full Story.)

"The surprise might be an additional move toward hinting that the process of gradual rate hikes is not infinite," said Paul Rabbit, president of Rabbit Capital Management.

"We saw from the November meeting minutes released last week that the policy makers seem to believe that a strategy should be put into place to prepare the markets for a pause or end," he added.

Bets that the Fed could pause soon partly fueled the November stock advance. Bets that a pause may not be so soon -- amid strong economic news in December -- played a role in the stock market's recent stalling. So what the bankers say next week could be pivotal.

In particular, market participants will probably continue to focus on whether or not the Fed continues to pledge to raise rates at a "measured pace," analysts say.

"If that word is not removed, the market could be disappointed," Riley said.

Big rally losing steam?

A fourth-quarter advance pushed the Nasdaq and the S&P 500 to 4-1/2 year highs and the Dow industrials to a level not far from 4-1/2 year highs. But the last few weeks have been murky, amid concerns about the Fed and interest rates and a rebound in energy prices.

Stocks managed to climb Friday, and analysts say that there are enough supportive factors in place to suggest further gains this year.

"I doubt the advance is done for the year," said Peter Brodie, director of investments at Bryn Mawr Trust Wealth Management. "There are a lot of seasonal characteristics that are in play and there is still a lot of liquidity."

"We had basically six good weeks, and two flat to lower, which is healthy," he added. "I'm concerned about January, but for the next few weeks, I think we'll see more gains."

In addition to the Fed meeting, the November retail sales report will be important amid ongoing concerns about the strength of the consumer heading into the all-important holiday shopping period.

Readings are also due on consumer prices, manufacturing and factory production as well as the trade balance. (For a preview, click here).

Earnings from Oracle and a number of brokerages are also on tap. (For a preview, click here).

Key economic news on tap

  • November retail sales, due Tuesday, are expected to have risen 0.4 percent, according to a consensus of economists surveyed by Briefing.com. Sales fell 0.1 percent last month. Sales excluding the often volatile auto component are seen climbing 0.1 percent after a 0.9 percent gain.
  • The October trade balance, due Wednesday, is forecast to have narrowed to $63 billion from $66.1 billion in September.
  • The NY Empire State index, a regional reading on manufacturing, is due Thursday. The index is expected to have fallen to 18.4 in December from 22.8 in November.
  • The November Consumer Price Index (CPI), on tap Thursday, is projected to have dipped 0.4 percent after rising 0.2 percent in October. The so-called "core" CPI, which excludes often volatile food and energy prices, is in line for a 0.2 percent increase, just as it did in the previous month.
  • November industrial production, also on Thursday's schedule, is seen growing by 0.5 percent, less than October's 0.9 percent advance after rising 0.9 percent in October. Capacity utilization is expected to expand to 79.8 percent from 79.5 percent in October, according to forecasts.
  • The Philadelphia Fed, a regional manufacturing report, is on the agenda for Friday, with economists looking for a bump up to 14 in December from 11.5 in November.

Some big earnings

  • On Tuesday, electronics retailer Best Buy (Research) is expected to report fiscal third-quarter earnings of 29 cents per share, according to a consensus of analysts surveyed by tracking firm First Call. Best Buy earned 30 cents in the prior year.
  • Brokerage Lehman Brothers (Research), also due Tuesday, is forecast to post fiscal fourth-quarter earnings of $2.60 per share versus $1.96 a year earlier.
  • Bear Stearns (Research) puts out its fiscal fourth-quarter results before Thursday's market open, and analysts aren't looking for any change from the $2.61 per share earned a year earlier.
  • Rival brokerage Goldman Sachs (Research) is also coming out with last-quarter results before the bell Thursday, but the results are seen surging to $3.27 per share from $2.36 to round off the prior year.
  • The picture that's expected to develop at software maker Adobe Systems (Research), due after the close Thursday, is for fiscal fourth-quarter profit to expand to 29 cents per share from 22 cents in the fourth quarter of fiscal 2004.
  • Oracle (Research) is also scheduled after Thursday's close. The business software leader is expected to have earned 19 cents per share in its second quarter, versus 16 cents in the year-earlier quarter.

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Read our special Fed Focus report.  Top of page

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