Challenges await market next week
Saturday December 14, 3:44 am ET
By Steve Gelsi
NEW YORK (CBS.MW) -- Geopolitical woes, corporate earnings and a slew of economic data await the stock market next week as the year starts wrapping up amid hopes of a possible lift.
Weapons talk with North Korea, coup talk in Venezuela, war with Iraq and Iran's possible nuclear weapons program all continued to roil investors as the Dow shed 2.3 percent on the week.
Next week marks the last full week in the stock market before two holiday-shortened weeks, and 2002 will likely wrap up as the third down year in a row.
If the Dow stays near its Friday close of 8,433 through the next three weeks, it'll be the lowest year-end level for the index since the 1997 close of 7908.
"People are already closing the books on the year," said Bryan Piskorowski, market commentator at Prudential Financial. "The volume has really died down."
The Dow gave up 212 points this week as it fell to 8,433 from 8,645.
The key index has shed 5.3 percent in the past two weeks in a cooling off period. Prior to that, the Dow turned in eight consecutive weeks of gains for the first time in more than four years.
The Nasdaq also dropped for the week, giving up 4.2 percent.
Earnings picture
Bryan Piskorowski, market commentator at Prudential Financial said the Street will keep an eye on the flow of corporate profits next week with reports expected from Micron Technology, (NYSE:MU - News) , Best Buy (NYSE:BBY - News) , and some of the major investment banks including Goldman Sachs (NYSE:GS - News) , Morgan Stanley (NYSE:MWD - News) and Lehman Brothers (NYSE:LEH - News) .
FedEx (NYSE:FDX - News) , Nike (NYSE:NKE - News) and General Mills (NYSE:GIS - News) are also on deck.
Economic data is also plentiful, with key updates on November housing starts, November leading indicators, GDP, and industrial production.
"It's a decent economic calendar -- there's a lot of little stuff, but it tends to add up," Piskorowski said.
Outlook
The 2003 Stock Trading Almanac charts a so-called "January effect," which generates a lift in the overall market as the calendar year changes, but adds that the trend has a tendency to start around mid-December. The Almanac notes small-cap strength often starts in mid-December.
So far any evidence of an upturn in late December appears to be vague at best, however.
The almanac's quote of the day for Monday, Dec. 16, comes from film star Edward G. Robinson. "Live beyond your means, then you're forced to work hard, you have to succeed."
Legg Mason's Jonathan Murray said the market has seen good monetary stimulus in the last eight weeks.
"Wall Street is interested in tax policy coming out of Washington," he said, adding that a reduction in income taxes on dividends would benefit stocks.
While the Dow Jones Industrial Average has been down two weeks now after a two-month runup, volume has been light. "It's a good sign. The sell-off has been a breather," he said.
Friday losses
Stocks sagged Friday as fresh data on producer prices and consumer sentiment failed to provide a lift, and jitters about the geopolitical environment persisted.
The Dow Jones Industrial Average (CBOT:^DJI - News) crossed into triple-digit losses later in the session. The index shed 104.55, or 1.2 percent, to close at 8,433.85.
The Nasdaq Composite (NasdaqSC:^IXIC - News) trimmed 36 points, or 2.6 percent, to 1362. The S&P 500 (CBOE:^SPX - News) shed 12, or 1.3 percent, to 889.
Stoking the stock losses were several key moves outside of equities market on Friday.
The dollar stumbled near three-year lows against the euro on big clouds of dust kicked up in the geopolitical arena.
Crude prices climbed 6 percent for the week and petroleum-product prices posted double-digit percentage gains as OPEC's pledge to rein in overproduction and Venezuela's continuing general strike lured buyers to the commodities. See Futures Movers.
Consumer sentiment
Consumer sentiment improved in early December, according to the University of Michigan survey. The school's index of consumer sentiment rose to 87 in December, from 84.2 in November. That's the highest since August's 87.6.
Consumers, one of the only bright spots in the economy, have said they're worried about jobs, their portfolio and war.
Wholesale prices, PPI
Meanwhile, prices at the wholesale level fell an unexpected 0.4 percent in November due to plunging prices for cars and oil, the Labor Department said.
And the core producer price index -- which removes the volatility of food and energy prices -- dropped 0.3 percent in November
Economists had expected the PPI and the core to be flat on the month. The producer price index for finished goods had jumped 1.1 percent in October.
Pundits were mixed on the news.
Ian Shepherdson, of High Frequency Economics, said that core intermediate prices and the prices of finished goods would continue to rise, and that "deflation talk will disappear -- though serious inflation is not in the cards."
Ed Peters, chief investment officer at PanAgora Asset Management, was more bearish. The PPI data reinforced an "uneasy feeling" about deflation, he said.
"While the economy has recovered, we still have a profits recession. That will not end until pricing power returns," Peters said.
Inventories
Inventories at U.S. businesses expanded 0.2 percent in October, the Commerce Department reported Friday, as sales rose 0.4 percent.
A closely watched measure of how fast merchandise is moving from the warehouse out the door, the inventory-to-sales ratio remained within the historically low range seen over the past several months.
Gold stays strong
On the New York Mercantile Exchange, gold for February delivery traded at $333 an ounce, up 90 cents. Earlier in the session, the contract topped $336, a level not seen since spot gold touched $339 in October of 1999. See Metal Stocks.
Analysts are attributing much of the rise in gold in recent days to the decline in the dollar.
DJIA
The Dow began the day 107 points below its start of 8,645.77 for the week.
TrimTabs estimates that all equity funds had inflows of $4.8 billion over the week ending Wednesday, Dec. 11, compared with outflows of $3.4 billion during the prior week. But the flow doesn't appear to be helping U.S. equities post any gains. Bond funds had inflows of $2.0 billion, for the second consecutive week.
Dollar falls
The euro rose to a nearly three-year high against the dollar Friday to $1.0215 in New York as the European Union agreed on financial terms to add 10 new countries in 2004.
CBS MarketWatch economist Irwin Kellner said the dollar's fair-weather friends appear to be moving on. See Kellner.
"The fear is that if a dollar fall becomes consensus opinion, the ensuing exodus of foreign capital from U.S. markets -- particularly bonds -- could batter the real economy through spikes in interest rates," HSBC Securities said in a research note to clients.
Bridgewater Associates ranks the U.S. dead last in asset attractiveness, based on interest rates and expected earnings growth rates, among the world's most developed economies.
"The U.S. needs 80 percent of the world's available capital just to keep the dollar stable," said Bridgewater Associates in a note to clients. "The relative attractiveness of U.S. capital has deteriorated to the point where it is extremely unlikely the U.S. will be able to maintain the market share of world capital it needs to break even."
"Foreigners now own huge stakes across all major U.S. asset classes, and any shifts in these holdings will ripple through U.S. markets," Bridgewater said.
Nasdaq 100 changes
The Nasdaq 100 Index is undergoing a shake-up, with 15 stocks being named as new component issues that make up the market's top non-financial firms, based on market value.
None of the new members of the index, a leading indicator for technology stocks, represent high technology, which has long served as the powerhouse of Nasdaq.
The issues to be added including Expeditors International of Washington (NasdaqNM:EXPD - News) , Ross Stores (NasdaqNM:ROST - News) , Dentsply International Inc. (NasdaqNM:XRAY - News) , Lamar Advertising (NasdaqNM:LAMR - News) , Whole Foods Market (NasdaqNM:WFMI - News) , First Health Group (NasdaqNM:FHCC - News) , PetsMart (NasdaqNM:PETM - News) , Pixar (NasdaqNM:PIXR - News) , Fastenal (NasdaqNM:FAST - News) , American Power Conversion (NasdaqNM:APCC - News) , C.H. Robinson Worldwide (NasdaqNM:CHRW - News) , Patterson-UTI Energy (NasdaqNM:PTEN - News) Gentex (NasdaqNM:GNTX - News) , Henry Schein (NasdaqNM:HSIC - News) and Ryanair Holdings (NasdaqNM:RYAAY - News) .
The changes go into effect Dec. 23. .
The Nasdaq 100 comprises the largest cap nonfinancial names among the roughly 4,000 firms listed on the exchange.
Separately, Patterson Dental (NasdaqNM:PDCO - News) , a Minneapolis-based distributor of dental supplies, will join the Nasdaq 100 starting on Monday, Dec. 16. It'll replace Gemstar-TV Guide.
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