With precious little economic or earnings news to distract equity investors, the holiday spirit could live on next week, in keeping with tradition.

Over the past 53 years, stocks have rallied an average of 1.5% in the last five trading days of the year and the first two in January, according to the Stock Traders Almanac. Traders and portfolio managers often buy in late December, ahead of an expected bounce in January, when Christmas bonuses are put to work and investors contribute to 401(k) plans and other retirement accounts.

"Santa Claus tends to come to Wall Street nearly every year, bringing a short, sweet respectable rally," the Almanac notes. "Santa's failure to show however tends to precede bear markets, or times stocks could be purchased later in the year at much lower prices."

Last week, the Dow rose to a three-and-a-half-year high, and the S&P 500 moved above the 1200 level for the first time since August 2001, as oil prices declined and health care stocks like Pfizer ( PFE) stabilized after plunging the week before.

Paul Desmond, president of Lowry Research, thinks the momentum is strong enough to carry stocks higher next week and through the first half of January.

"As different indexes have broken out to new highs, a lot of institutional investors that have been sitting on the sidelines have been forced back into equities," he said. "There's a strong tendency to realign portfolios before the end of the year, and we think there's going to be strong upward pressure."

While Desmond is bullish heading into 2005, he does expect some pullback in mid-January when fourth-quarter earnings and preannouncements are released.

Although there are no corporate earnings of note due out next week, a few economic releases are on tap, including a report on consumer confidence for December. Although sentiment readings aren't always closely correlated with consumer spending, traders will look at the data for some insight into the holiday shopping season, which has been underwhelming so far.

Analysts expect the Conference Board's index, due Tuesday, to have risen to 93.5 from a prior reading of 90.5.

Dave Briggs, head trader at Federated Investors, said next week's jobless claims and the Conference Board's Help Wanted Index could also provide some direction ahead of the all-important employment report for December in the following week.

The Help Wanted Index, which is due for release on Thursday, can be a good harbinger of the national jobs report with a lag of two or three months. It is expected to hold steady at 37. The Chicago purchasing managers index, a regional manufacturing report, is also slated for release on Thursday and will be examined for clues about the national report due out Jan. 3.

Briggs said he thinks stocks can "waft upwards" next week but cautioned that investors will have to choose stocks carefully in 2005 to make any money.

"It's not going to be a smooth ride; there's definitely going to be at least one serious correction next year," he said.

A sharp pullback in the dollar and significant increase in energy prices or interest rates could potentially unhinge the market, Briggs said, adding that he is looking for a correction in February.

Most analysts are calling for small gains in the year ahead, though they disagree about which half of the year will be more constructive.

Morgan Stanley analyst Henry McVey said returns are likely to be capped in the last six months of the year, as inflation and interest rates move up in response to the weak dollar. "A falling dollar is good for growth near term, but nothing in macro comes free," he said.

Still, Bear Stearns strategist Francois Trahan is looking for a "cyclical bear phase" in the first half of the year and a move higher later on.

"Midway through 2005, once the Fed has completed its tightening cycle or the market begins to see the light at the end of the tunnel, we would expect to see the start of an impressive second-half rally," he said.

With New Year's Day falling on a Saturday this year, the stock market will be open for business as usual on Friday, though the bond market will close early at 2 p.m. EST.

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