Data, Calendar Boost Stocks

Relief for recession fear-mongers came with the Institute for Supply Management's survey of the services sector, which read 58.9 for November. The number beat estimates for a 55.5 reading and offset Friday's weaker-than-expected ISM manufacturing survey, which showed contraction in that sector.

The ISM services numbers were comforting because investors can now say that "not surprisingly," the manufacturing parts of the U.S. economy are weak, while the services are strong, says Sonders. With services comprising 80% of the economy, the overall outlook gets brighter.

Several economists downplayed last week's manufacturing report while the bond market rallied and stocks sold off. Many expected that the service sector would reflect continued strength in the overall U.S. economy and no need for Fed rate cuts.

"This good news supports our view that real GDP growth will be stronger in the fourth quarter than in the third, and the U.S. economy will enter 2007 with solid momentum," writes Brian Wesbury, chief economist at First Trust Advisors.

Relief for inflation-mongers came as second- and third-quarter unit labor costs were revised sharply down, bringing what were touted as 25-year high readings of 5.3% year-over-year wage inflation back down to 2.9%, according to Briefing.com.

The labor-cost revision was at the expense of lower compensation growth, and amid a downward revision to third-quarter productivity. But the markets embraced the net effect as good news, as it gives the Federal Reserve cover to ratchet down its anti-inflation rhetoric, which has focused largely on wage pressures.