The Coming Week: New Year, Old Issues

The market is likely to enter the new year without a lot of momentum, experts say, given a weak economic outlook and heightening political tensions in North Korea and Iraq.

In the coming week, scheduled economic data will include existing-home sales, the consumer confidence index and monthly auto sales, as well as Midwest and national manufacturing indices.

Stocks finished lower last week, amid some of the weakest trading volumes of the year and flare-ups overseas. The Dow Jones Industrial Average fell 207 points, or 2.4%, to 8303.8, while the Nasdaq dropped 15 points, or 1.1%, to 1348. The S&P 500 lost 20 points, or 2.3%, to 875.4.

On Friday, North Korea said it would expel United Nations inspectors from a nuclear plant capable of producing plutonium, raising more anxiety in an already skittish market. Two weeks earlier, North Korea said it was restarting a reactor to produce electricity after the U.S. cut off oil shipments to the country.

"The situations in North Korea and Iraq are likely to hang over the market in the next month," said Jay Meagrow, vice president of trading at McDonald. "It has already put a damper on things."

For the year, the Dow is down 18%, the Nasdaq is off 32%, and the S&P 500 is behind 24%.

Historically, January has been one of the stronger months of the year. "Psychologically, people are turning over a new leaf," said Jeff Hirsch, head of the Hirsch Organization, which publishes the Stock Trader's Almanac. However, few market experts are expecting much of a boost this year.

For one thing, evidence of an economic recovery continues to be scant. The most recent durable goods orders report, an important gauge of business investment spending, was far worse than expected. Meanwhile, retail sales growth in November and December was by some measures the lowest it has been since 1970.

"We are still muddling through," said Jay Feldman, an economist at Credit Suisse First Boston. "For next year, the real question is whether or not consumption growth will be strong enough to increase job demand. Until that happens, the market will continue to question the staying power of the recovery."

Next week, the market will get more data on the housing market, a pillar of strength for the economy. New-home sales rose to record levels in November, the government said last week, as low mortgage rates encouraged buying. On Monday, existing-home sales for November are forecast to come in at an annualized rate of 5.7 million, according to Briefing.com, down slightly from a robust 5.8 million in October.

Elsewhere, the consumer confidence index is predicted to increase modestly to 86 in December, from 84.1 in November. However, the Chicago Purchasing Managers Index is expected to weaken to 52.8 in December, from 54.3 in November, putting it just above expansionary levels.

"The manufacturing outlook is still weak," said Kenneth Kim, an economist at Stone & McCarthy Research Associates. "As long as the geopolitical situation is unresolved, energy prices will continue to move sharply higher. This will put manufacturers in a bind, since they will have no pricing power."

On Friday, the Institute for Supply Management's manufacturing index is expected to have a more or less flat reading of 50.2 in December, compared with 49.2 in November. Meanwhile, auto sales are estimated to rise to 5.8 million in November from depressed levels of 5.6 million in October.

Among the few companies scheduled to report earnings during the holiday week are Burlington Coat Factory ( BCF), Gilat Satellite Networks ( GILTF) and Walgreen ( WAG).

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