Stocks may cruise a bit higher this week as investors celebrate the holidays with renewed faith in the US economy and corporate profits.
But Santa Claus could have a tough time delivering big gains after the rally on Wall Street this year.
This year marked the end of the brutal three-year bear market that wiped out trillions of dollars of investors' wealth. Signs of an economic recovery drove the tech-heavy Nasdaq composite up a stunning 46 per cent, while pushing both the blue-chip Dow Jones industrials and the broad Standard & Poor's 500 up more than 23 per cent so far this year.
"It's clear the economy is really rebounding, but the issue is how much of the recovering economy is already reflected in stock prices," said John Davidson, president and chief executive officer at PartnerRe Asset Management.
Trading volume will likely be paltry this week as the nation's workforce tacks on a few extra days to their holiday time. The US stock market will shut early at 1800 GMT on Wednesday for Christmas Eve, close on Christmas Day on Thursday, and shut early again at 1800 GMT on Friday.
"Traditionally, it's a quieter week," said Evan Olsen, head of equity trading at Stephens Inc.
Santa Claus tends to visit Wall Street almost every year, bringing a short but respectable rally in the last five trading days of the year and the first two in January, according to the Stock Trader's Almanac. The so-called "Santa Claus rally" has been good for an average 1.7 per cent gain since 1969, or 1.5 per cent since 1950.
The Dow Jones industrials have risen the day before Christmas in eight of the last 12 years and advanced the day after Christmas in 10 of the past 12 years, according to the Stock Trader's Almanac.
"We should have modest strength into the end of the year," said Paul Cherney, a market analyst at Standard & Poor's Marketscope. "The balancing act is justifying additional purchases when we know that valuations are high."
Analysts will be looking for any news from US retailers, for whom the previous week and last weekend can make or break them for December.
The nation's economy may take a back seat to the holidays, but the reports will still grab attention as investors look for more proof of an improving economy to justify further gains.
Tomorrow, Wall Street will get the final reading on gross domestic product, or GDP, for the third quarter. Analysts polled by Reuters expect the final number to be the same as the previous reading - an 8.2 per cent annual growth rate. That marked the strongest quarterly advance in 19 and a half years.
Personal income and spending data, a report on durable goods, a final reading on December consumer sentiment from the University of Michigan, and a report on new home sales will round out the holiday-shortened short week.