December 5, 2010, TheBull.com.au
Wall Street enters a typically quiet pre-holidays week following a tumultuous week that ended with strong gains despite grave concerns about the eurozone and mixed US economic data.
Fears that Europe’s sovereign debt could further weigh on the sluggish global recovery are likely to dominate next week’s trade.
"All eyes are on the eurozone now. That situation has the ability to push US investors significantly in one direction or another," said Dan Greenhaus, chief economic strategist at Miller Tabak.
In the week to Friday, the Dow Jones Industrial Average rose 2.62 per cent to 11,382.09.
The broader S&P 500 index added 2.97 per cent to 1,224.71 points, while the technology-rich Nasdaq composite index rose 2.24 per cent to 2,591.46 points, its highest point in nearly three years.
The trading week opened with global markets nose-diving after Ireland adopted a massive international bailout plan, sparking deep concerns that other debt-burdened eurozone states, mainly Spain and Portugal, would also require aid.
The Wall Street gloom however turned into cheer on Wednesday and again on Thursday as encouraging employment data and retail sales boosted hopes that the US economic recovery was well underway.
On Friday, dismal Labor Department data showing a tiny rise in hiring, with the unemployment rate rising 0.2 points to 9.8, dented some of the confidence but failed to pull down stocks.
"A disappointing November jobs report portrayed the US labour market as barely advancing, but we are skeptical that the picture is accurate," said analysts Aaron Smith and Ryan Sweet of Moody’s Analytics.
Another source of optimism were overall very strong results from retailers and department stores following the Thanksgiving weekend, which unofficially kicks off the holiday shopping season.
"The retailer (shares) are up 33 per cent over the past three months. That’s a tremendous move and it shows the consumer is really there," said Cantor Fitzgerald analyst Marc Pado.
Next week is historically marked by light trade as investors take a step back ahead of the Christmas holiday. And with few major economic indicators set, apart from October trade figures on Friday, stocks are likely to move cautiously.
"In the second week of December the market tends to pull back, partly because you come off the Thanksgiving weekend with a lot of important data, then you get a breather before the mad push in the third week of December for those final purchases," said Pado.
The dollar was set to remain a key player in the market, as its rise against the euro earlier this week in the wake of the eurozone’s woes weakened many US manufacturers, for whom a weak dollar means more business for their exports.
The strong economic data in the latter part of the week softened the dollar, with the euro changing hands for $US1.3417 late Friday.
"If the European situation can calm down, then dollar weakness will reassert itself until the end of the year and you are likely to see the stock markets continue to trade upwards," said Greenhaus.