The first week of January is a storied week on Wall Street, deemed so important that some say this week's results can forecast the gains or losses for an entire year.
But with no Santa rally and questions lingering over what the inverted yield curve means, investors may return from vacations today in a bearish mood, analysts said.
Many traders had hoped for a Santa Claus rally in the final week of the year. But it fizzled on December 23 before the old boy could even blow into town.
Instead, thin volume led to volatile movements in stock prices, while crude oil futures climbed back above $60 a barrel and the bond market began to behave as if the US economy faces trouble.
For the final week of 2005, all three major US stock indexes fell. The blue-chip Dow Jones industrial average finished last week down 1.52 per cent, while the broad Standard & Poor's 500 index slipped 1.61 per cent, and the tech-laced Nasdaq Composite Index fell 1.96 per cent.
"If Santa Claus should fail to call, bears may come to Broad and Wall," the Stock Trader's Almanac says, referring to the site of the New York Stock Exchange in lower Manhattan.
That adage suggests that if a Santa rally, which typically occurs in the last five days of the year and the first two days of January, does not materialise, stocks will fall in the coming year.
"The time to be bullish was back in mid-October, when you had a 26-session buying stampede," said Jeffrey Saut, chief investment strategist of Raymond James Financial Services, in St Petersburg, Florida. "Since then, I haven't seen a real easy way to make money" in the market.
The Dow ended 2005 lower, declining 0.61 per cent for its first yearly loss since 2002.
But both the S&P 500 and the Nasdaq rose for the third straight year. For 2005, the S&P 500 climbed three per cent, while the Nasdaq gained 1.37 per cent.
Still, a lot of money usually comes back into the market as a new year begins, with some on Wall Street and elsewhere looking for places to invest year-end bonuses. And that could make the difference as to how much steam stocks can pick up this week, according to Mr Saut of Raymond James.
"Typically at the beginning of the year, there is a tendency towards reinvestment dollars, which should at least give the market a hint of an upward rise," Mr Saut said.
Last week, the two-year US Treasury note's yield rose above the benchmark 10-year Treasury note's yield on Tuesday - inverting the yield curve for the first time in five years. At the close of Friday's abbreviated bond trading session, the yield on the 10-year note was 4.387 per cent - or one basis point below the two-year note's yield of 4.400 per cent.
Previous inversions have typically signalled a slowing economy or recession.
During this week, investors will likely be mulling over whether this time around, the inverted yield curve means the economy is headed for a slowdown or whether heavy foreign buying of US Treasury debt has distorted its meaning.
"There is this simplistic notion around that because the yield curve is inverted, therefore, economic growth is going to slow down, but... no consideration is given as to why the economy would slow down," said Charles Lieberman, chief investment officer of Advisers Capital Management LLC in Paramus, New Jersey.
This week will be data heavy, as reports about US manufacturing and services-sector activity, chain-store sales and the December employment situation are due.
But analysts said none of the news from those reports is likely to be good enough to push stocks meaningfully higher.
"I think we'll probably get a brighter picture on retail sales for Christmas, which could (inspire) people a little bit and help the short term," said Ned Riley, chief executive and chief investment officer of Riley Asset Management, in Boston.
Weekly store sales data is expected tomorrow, while US chain stores will report monthly sales results on Thursday.
The reports will tell investors how retailers did in the important holiday shopping season and help give a read on how confident consumers were in their spending.
Retailers typically do about one-fifth of their yearly business in the holiday season, according to the National Retail Federation. Domestic car and truck sales for December also are due tomorrow.
"People will be coming back from vacation and need to catch up with whatever's going on and they're going to be doing that right in front of the economic report on Friday, so none of that suggests that there should be any urgency to doing anything," Mr Lieberman said.
On the economic front, the Institute for Supply Management is due to report December manufacturing and non-manufacturing, or services-sector, activity this week.
Economists polled by Reuters expect the ISM's manufacturing index to slip to 57.5 in December from November's reading of 58.1. That report is due today. And although they expect a decline, economists said the index would still show that the manufacturing sector is expanding, albeit at a slower pace.
The ISM's non-manufacturing index, due on Thursday, is forecast to rise to 59.0 in December from 58.5 in November, the Reuters poll of economists showed.
The monthly jobs report from the US Department of Labour, another key measure of US economic health, is also on deck. Analysts polled by Reuters expect the economy added 200,000 jobs in December, down from November's 215,000 jobs. They believe the unemployment rate was unchanged at five per cent.
Investors also will comb through the minutes from the Federal Open Market Committee's December 13 meeting to look for clues about how much further the Federal Reserve would like to raise interest rates.
The FOMC's minutes, which will be released today, also will get a careful reading for any hints of what the committee is thinking before Ben Bernanke's arrival as Fed chairman.
Many economists are forecasting that the Fed will stop raising interest rates in March.