Coming Week: Visions of Santa

"We expect a big jump in consumer confidence now that the effects of Katrina and higher gas prices are further behind us," says Mark Vitner, economist at Wachovia. "Higher confidence will lead to a better-than-expected holiday shopping season as well."

The bulk of the economic releases arrive on Thursday, starting with initial jobless claims for the week ended Dec. 24 before the bell. Initial jobless claims measure the number of filings for state jobless benefits.

Chicago PMI for December will be released on Thursday. Economists surveyed are looking for a reading of 60, down from 61.7 in November.

Existing-home sales also will be released Thursday. Economists expect a sales decline to an annual rate of 7 million units in November from 7.09 million in October. The market will be closely watching the number after Friday's report that new-home sales for November tumbled a steeper-than-expected 11.3% from the prior month.

"The continued flattening of the yield curve in the face of the slowing housing market is very interesting, and it may present a bigger problem for Bernanke's Fed than he expects," says Randy Diamond, sales trader at Miller Tabak.

"That said, I expect the markets to trend higher next week on light volume as traders and investors cast their eyes to 2006," he adds.