Sunday January 3, 2:14 pm Eastern Time
WALL ST WEEKAHEAD - Happy New Year... maybe
By Daniel Bases
NEW YORK, Jan 3 (Reuters) - As parties are over and decorations start to come down, Wall Street begins 1999 facing a new currency, an impeachment trial, and earnings projections that appear headed toward the ground.
On Monday European financial markets will begin trading in the new euro currency. Analysts, however, are not anticipating too much disruption for U.S. equity markets.
''It's a very big deal, but also well anticipated, so I don't think it is having a very big impact on the U.S. (equity) markets,'' said Charles Blood, director of financial markets and economic analysis at Brown Brothers Harriman.
On Dec. 31, the European Commission locked the currency rates for the 11 nations that will call the euro their own. The euro went into effect on Friday, Jan. 1.
Wall Street, will however, have to digest a full plate of economic data, the most important of which will be the December unemployment report on Jan. 8, expected to show an increase in the jobless rate to 4.5 percent from 4.4 percent in November.
''I think the reports will continue to show a split in the U.S. economy, where manufacturing will be sluggish and the service sector of the economy will be strong, keeping the large-cap stocks in the leadership,'' said Blood. ''But this time, the small-cap stocks will also participate.''
Investors will also keep watch for the Jan. 4 National Association of Purchasing Management Index reading on the manufacturing sector's health in December. The report is expected to show a slower contraction of the sector.
While the mixed reports may create some confusion over the direction of the economy, one market strategist doesn't think the news will prompt any action by the Federal Reserve.
''The unemployment report is key, but given the Fed's latest move toward a neutral stance, I don't expect any weakness in the reports to prompt them to lower rates,'' said Barry Hyman, senior market strategist at Ehrenkrantz King Nussbaum.
Hyman is predicting a sluggish first week in the markets because large-cap stocks don't have momentum to the upside.
''The technical data shows weakness, and that we could be in a corrective phase, despite the rise in the Dow,'' he said.
The blue-chip index was up 1,273.18 points or 16.1 percent in 1998, but on Dec. 31 the Dow Industrials lost 93.21 points or 1 percent at 9,181.43. For the week it lost 36.56 points.
The Standard & Poor's 500-stock index lost 2.70 points or 0.22 percent at 1,229.23. For the week, it fell 3.12 points. But for the year, it climbed 258.96 points or 26.7 percent.
The Nasdaq composite index climbed 25.74 points, or 1.19 percent at 2,192.69 on Thursday. For the week it was up 29.67 points. For the year, up 622.35 points or 39.6 percent.
While the large-cap stocks have been the leaders in a narrowly focused rally from the Oct. 8 lows, small-cap stocks were left behind, ending 1998 in the negative column.
The Russell 2000, a proxy for small caps, rallied on Thursday, gaining 10.06 points or 2.44 percent at 421.97. However for the year, the index was down 15.05 points or 3.4 percent.
''I'm willing to to out on a limb and say 1999 will be the year of small-cap stocks. They have good earnings growth, lack of overseas exposure, and low price to earnings multiples,'' said James Awad, president of Awad Asset Management. ''We'll go from a momentum market to a thinking man's market.''
On the minds of all Americans will be the start of President Bill Clinton's impeachment trial in the Senate.
''The plans, a censure or a trial, will become more clarified by then, we'll have a better idea if this will be done expeditiously or drag on,'' said Thomas Gallagher, political analyst with Lehman Brothers.
''I don't think the market cares much about a censure, but if it drags on they are going to want to know if we are in a crisis or not,'' he added.
In the midst of political uncertainty, corporate earnings reports begin flowing at week's end, and estimates continue to be knocked lower, according to one analyst.
Last week, ''analysts continued their downward revisions of fourth-quarter 1998 estimates. Expectations now stand at 2.4 percent growth,'' for the quarter over the same period last year for S&P 500 companies, said Charles Hill, director of research at First Call, which tracks profit forecasts.
Morgan Stanley Dean Witter & Co. (NYSE:MWD - news) and Lehman Brothers (NYSE:LEH - news) are expected to report earnings on Jan. 7. However, Hill sees the wide range of estimates as evidence of an uncertain outlook for the brokerage sector.
''As for this week and the next two, be prepared for a spate of further negative pre-announcements and significant downward revisions in fourth quarter 1998 estimates,'' he cautioned.
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