January may set tone for year > Next week marks start of 2003 trades
By Steve Gelsi, CBS.MarketWatch.com
Last Update: 4:36 AM ET Dec. 28, 2002
NEW YORK (CBS.MW) -- If next week brings further declines in equities, the bear market will likely continue for the rest of 2003, according to some stock market watchers.
As January kicks off in the coming days, several key factors will be stepping up to the plate by the end of the month, including a possible invasion of Iraq, tax issues, and the tone for the rest of the year.
Some even go so far as to say that if January is a down month, 2003 could end up being the fourth negative year in a row in the stock market.
"Every down January on the S&P 500 since 1950, without exception, preceded a new or extended bear market, or a flat market," the Stock Trader's Almanac said.
But odds are some positive moves will happen next week.
The second trading day of the year, which falls next Friday, is up at least 70 percent of the time for the S&P 500. The Dow has been up nine of the past 11 years on the same day.
January will also be a key month in the geopolitical arena.
The Bush administration, which has been moving toward a war with Iraq for months, will likely decide for sure if the U.S. military will invade the Persian Gulf country by the end of the month.
U.S. troops would more likely face combat in the heat of the summer if the decision take place any later.
In January, the Philadelphia Semiconductor Index (SOX: news, chart, profile) tends to gain 10.9 percent and the Amex Natural Gas Index (XNG: news, chart, profile) tends to lose 5.3 percent.
The Santa Claus rally that takes place this time of the year in the markets has yet to take hold.
The Dow Jones Industrial Average ($DJ: news, chart, profile) ended at 8,303, down 2.5 percent, or 209 points, below its week-ago close of 8,512.
The Nasdaq ($COMPQ: news, chart, profile) fell to 1,348, down about 15 points, or1.1 percent, from its level of 1,363 seven days ago.
The S&P 500 ($SPX: news, chart, profile) ended the week at 875, off 20 points, or 2.2 percent, from 895.
Markets usually see an average 1.7 percent gain in the S&P 500 since 1969 within the last five trading days of the year and the first two in January.
So far, markets have been down collectively since Monday, which marked the beginning of the last five trading days of the year. Markets will have to post big gains next week to keep the Santa Claus rally alive.
As the saying goes, "If Santa Claus should fail to call, bears may come to Broad & Wall," said Jeffrey A. Hirsch of the Stock Trader's Almanac.
Richard Williams, a market strategist and technical analyst for Summit Analytic Partners, sees bearish market conditions in the coming days.
"The pattern structure and interpretation that I am working with now suggests that the market should sell off pretty much straight through to Jan. 2 when it is more likely to stop for a few days to correct," he said. "My best bet today is that we bottom around Jan. 22 at the low end of the targets and then have a modest bounce before falling further in February and March."
Goldman Sachs economists Bill Dudley, Ed McKelvey, John Youngdahl and Jan Hatzius are forecasting a "lack of momentum" in 2003, with the Federal Reserve likely to raise interest rates later than expected.
"Our forecast calls for the first tightening in the fourth quarter of 2003, (but) we may have to push (it) back," they said.
Tax cuts are also weighing in on the market. Stocks could get a boost if income from dividends is excluded, but lately that appears less likely. Instead, the Bush administration may push for a 50 percent reduction on the personal income tax rate on dividend income.
Next week, economic data are expected on several fronts. The ISM Index on Thursday is expected to provide a glimpse at industrial strength. Existing home sales are due out on Monday, as well as the Chicago Purchasing Managers Index for December.
December consumer confidence numbers are expected on Tuesday.
Friday will yield the latest figures on construction spending in November, and December domestic vehicle sales. The unemployment report, which usually arrives on the first Friday of a month, will be put off a week till Jan. 10 because of the New Year's Day holiday Wednesday, when there will be no stock trading. Stock trading will end early Tuesday, at 1.p.m. Eastern.
Corporate earnings will be scarce next week with only one significant report from Walgreen's (WAG: news, chart, profile) on Monday.
Hard-hit NYSE stock Tenet Healthcare (THC: news, chart, profile) is on the calendar to report earnings on Thursday.
Friday
The Dow extended its losses into the triple-digit range Friday as soft retail sales, geopolitical woes and a lack of corporate news left stocks deflated in afternoon action.
The Dow Jones Industrial Average ($DJ: news, chart, profile) shed 128 points to 8303. The S&P 500 ($SPX: news, chart, profile) gave up 14 points to 875 and the Nasdaq ($COMPQ: news, chart, profile) lost 19 to 1348.
Options trader Bernie Schaeffer said the market year has already wrapped up, for the most part, with little focus on stocks.
"Many professional traders have packed up shop until after the new year," he said in a note to investors. "As such, expect light trading volume."
Geopolitical tensions grabbed Wall Street's attention as a lack of corporate news creates a holiday lull between Christmas and New Year's.
A report that North Korea plans to expel U.N. monitors at its nuclear facilities rattled nerves on Wall Street as well as looming war with Iraq.
Trading has been light all week, with the Big Board keeping well below typical billion-share-per day volume mark. Volume was a meager 751 million shares on the New York Stock Exchange vs. a usual tally of more than a billion.
What a difference, from say, three New Years' ago when the millennium bug, skyrocketing stock prices, and heavy volume faced investors as the bubble inflated.
This year is closing in a much less festive mood, as the bear market ravaged stocks and mutual funds for a third straight year of steep losses.
Prices are only going up in the commodities markets, where gold and oil take center stage amid a weakening dollar and a myriad of fresh political woes, from an oil strike in Venezuela and fresh news of suicide bomb blasts in Grozny, the capital of Chechnya.
Oil prices eased, but held onto a gain of $2 per barrel on the week. Gold prices fell slightly. See Futures Movers.
Better-than-expected data on U.S. home sales failed to provide any lift. Boosted by low mortgage rates, November new-home sales hit a record 1.07 million, or a gain of 5.7 percent, on the back of a 1.01 million sales rate in October, the Commerce Department reported. The latest number beat the forecast of 990,000 in a survey by CBS.MarketWatch.com.
Lockheed Martin (LMT: news, chart, profile) won a bid to make jets for Poland. The company will supply 48 F-16 fighters under the contract, which carries a value of nearly $3.5 billion. Shares rose 1.4 percent to close at $57.70.
A downbeat retailing report from Wal-Mart (WMT: news, chart, profile) continues to hang over the market the day after the No. 1 store chain in the world lowered its forecasts for the holiday season. Wal-Mart stock shed 60 cents to $49.16. See full story.
PepsiCo (PEP: news, chart, profile) lost an appeal of a lawsuit against rival Coca-Cola (KO: news, chart, profile) that claimed the bigger company abused its market power to maintain control over the fountain beverage market in movie theaters and restaurants. Pepsi stock gave up 74 cents to $41.67. Coke shares gave up 68 cents to $43.47.
Steve Gelsi is a reporter for CBS.MarketWatch.com in New York.
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