The market week ahead: Rally on!
Major gauges hit 4-1/2 year highs last week on bets the Fed is nearly done. Does the run have legs?
NEW YORK (CNNMoney.com) - Bets that the Fed's rate hiking campaign will be ending soon fueled a boffo stock market rally last week. But can it continue in the week ahead? There are plenty of reasons to suggest that it will, analysts say. Beyond that, it's a bit more murky.
Among the positives: after a strong week, the market is in a good place technically; the first half of January is typically positive as new money flows into the market. And there's little in the way of earnings and economic news that's likely to force investors to revise bets on the Fed. Until the very end of the week, when reads on the consumer and inflation kick in. However, even those reports are likely to be taken with a grain of salt, as they precede more revelatory reports due in the weeks to come. Besides, the mood seems to have changed in the short term. "We're off to a very good start for the year," said Jim Dunigan, chief investment officer at PNC Advisors. "The concern is we could get too far ahead of ourselves here and see something like in December." He was referring to the fact that markets seemed to be on a roll in October and November of last year, before fizzling out in a ho-hum December. For the year, the Nasdaq and S&P 500 both ended up with gains of under 5 percent while the Dow fell into in the red for the first time since 2002. After a mucky December, investors seemed to dive back in during the first week of 2006. However, that is often the case this time of year. "You have to keep in mind that in January, you get a lot of new money coming into the market," said Ted Weisberg, NYSE floor trader at Seaport Securities. "But the trick is to get through the year, not just January." Banking on the Fed pausing
The Dow industrials, S&P 500 and the Nasdaq composite all pushed to fresh 4-1/2 year highs last week on bets that the Federal Reserve tightening cycle will soon end. The bets were based around the early-week release of the minutes from the December Fed policy meeting, and the good, but not as good as expected December payrolls report Friday. However, Fed funds futures didn't budge. In addition, the Fed minutes were really not all that definitive, said Ken Tower, chief market strategist at CyberTrader, yet the market interpreted them that way. "The rally we've seen suggests people are saying, 'forget the flat yield curve, the economy is going to be fine, the Fed will stop raising rates,'" Tower said. "And that's awfully optimistic." "It's a little frightening that the sentiment is so positive," Tower added, noting that such a skepticism-free environment can precede a big selloff. "But I think you have to take it at face value and say the bulls have more to do." In terms of what investors are likely to focus on next week, Tower cites the December retail sales report, due Friday, and the Producer Price index (PPI), also due Friday. The week ahead also brings a smattering of fourth-quarter earnings, with Alcoa the first Dow component to report, as is traditional. S&P 500 earnings are expected to have grown 13.4 percent in the fourth quarter versus a year ago, according to tracking firm Thomson Financial. Key events in the week ahead
|
|