Coming Week: Ready for Takeoff

Even with less-than-remarkable growth in the job market, Dudack predicts the S&P will run up to 1450 this year (which would yield an overall return of about 13%, not including dividends), and 2006 will be a year of unwinding fears about energy prices and inflation in the stock market.

"A lackluster job market means the Fed will have to be a lot more careful about how much they can raise rates before hurting the economy," she says.

The Fed has now raised the target for its overnight lending rate for 13 months in a row, bringing it to 4.25% after years of record-low rates. After the data hit, fed funds futures put the odds of another quarter-point hike to 90% for January and 50% for March, according to Miller Tabak. The odds for a hike after that went from next-to-nothing to nothing.

Meanwhile, there are other factors in the inflation game outside the jobs market. Oil prices have persisted at the once unthinkable $60-a-barrel level, and they were a major factor in pushing up the headline number on the government's consumer price index last year.

After crude hit $70 in the wake of Hurricane Katrina, the energy market began to show signs that it had hit its threshold. Oil companies unveiled plans to step up spending on exploration and development, and consumers showed more inclinations toward fuel economy than they did in recent years. Some observers believe such factors will bring about the eventual downfall of crude prices in 2006.

Others aren't so sure.

"Oil prices are the fly in the ointment these days as far as the economy is concerned, and until things calm down politically around the world, it's tough to say where they'll be headed," Rhodes says.

Gas prices have been a drag on consumers, probably playing a role in disappointing holiday sales results at Wal-Mart(WMT Quote). This coming Friday, the market will get a look at broader retail results for December. The government is expected to report that sales rose 0.8% for the month, up from 0.3% recorded for November.