Innovation Update

Return to Article

Coming Week: Santa Baby

Gregg Greenberg

Though trading will be light in the coming week, Wall Street watchers are hoping that a Santa Claus rally will be comin' to town.

"While there is a growing uneasiness of late, I expect the markets to trend higher next week in a Santa Claus rally as traders and investors cast their eyes to 2007," says Randy Diamond, sales trader at Miller Tabak. "Good old St. Nick would not want to ruin a nice run by leaving a lump of coal for investors."

The so-called Santa Claus rally is a jump in the price of stocks that often occurs in late December. There are numerous explanations for this phenomenon, including bonus dollars being put to work, cheerfulness around Wall Street, and a general lack of sellers.

Last week, it was the Grinch, not Santa, who controlled the market. The Dow lost 102 points, or 0.8%, snapping a two-week win streak. The S&P 500 was lower by 16 points, or 1.1%, and the Nasdaq relinquished 56 points, or 2.3%, over the five sessions.

Stock and bond markets will be closed Monday for the Christmas holiday. One potential offshoot of a low-volume, holiday-shortened week on Wall Street is stock prices getting carried away in a burst of momentum trading.

Traders say investors might not want to read too much into a move should a small Santa Claus rally snowball into something larger.

"Less liquidity tends to exaggerate moves in either direction," says Larry Wachtel, senior market analyst at Wachovia. "The big question is whether there will be an event to get traders going in the first place."

Regardless if Santa helps boost the market, traders will have some monthly economic numbers to evaluate.

On Wednesday, new-home sales for November will be released. According to Thomson First Call, economists expect new homes to have sold at a rate of 1.02 million units on an annualized basis, up from slightly over 1 million in October.

Thursday's round of data will begin before the bell with initial jobless claims for the week ending Dec. 24.

Then, at 10 a.m. EST, the National Association of Realtors will release existing-home sales figures for November. Economists expect the sales to decline to an annualized rate of 6.15 million from 6.24 million the prior month.

December consumer confidence data is on tap as well. The consumer confidence index is expected to decline to 101.5 from 102.9 in November.

Friday's important number will be the Chicago PMI for December. Economists surveyed by Briefing.com are looking for a reading of 52.0, up from 49.9 in November.

The November reading was a surprise since it came in below 50. A reading below 50 indicates contraction, and the Chicago PMI previously had been above 50 each month since April 2003.

"The Chicago number was a shocker last time around, so the market will be waiting to see if it snaps back," says Wachovia's Wachtel.

Only three companies will report quarterly results in the holiday-shortened week. On Tuesday, American Pacific(APFC Quote) will announce its earnings, followed by Delta & Pine Land(DLP Quote) on Wednesday and Learning Tree (LTRE Quote) on Thursday.