Investors are gearing up for gains in the first full trading week of 2004 as Alcoa Inc. kicks off what is widely expected to be a strong earnings season.
Adding to the post-holiday glow: The December jobs report, due on Friday, is likely to point to steady improvement in the labor market.
"The week ahead is going to be solid," said Stanley Nabi, managing director at Credit Suisse Asset Management, which manages about $312 billion.
Investors will return to Wall Street in full force this week after two weeks of holidays and half sessions that thinned out trading volumes. Many will be eager to put their extra cash to work at the start of the new year after 2003 marked an end to a brutal three-year bear market.
For 2003, the blue-chip Dow Jones industrial average rose 25.3 per cent, ending at 10,453.92. The broad Standard & Poor's 500 index advanced 26.4 per cent, closing on December 31, 2003, at 1,111.92. The tech-laced Nasdaq Composite Index climbed 50 per cent, finishing 2003 at 2,003.37.
All three major stock indexes finished the week higher: The Dow rose 0.83 per cent and the S&P 500 shot up 1.15 per cent, while the Nasdaq jumped 1.7 per cent. Friday's close marked the end of 2004's first full trading session, with the Dow slipping 44.07 points to 10,409.85 and the S&P 500 dipping 3.44 points to 1,108.48. The Nasdaq advanced 3.31 points to finish Friday at 2,006.68.
"There is no cause for prices to sell off and go into any sort of decline, but valuations are probably going to make the upside a difficult row to hoe," said Paul Cherney, a market analyst at Standard & Poor's MarketScope.
Mr Cherney said solid earnings could help alleviate some valuation concerns. Hopes for the fourth-quarter earnings season are high after a mild "confessional period," in which companies warn that earnings will miss analysts' expectations.
The unemployment report for December will grab the lion's share of attention on Wall Street this week. The report is expected to show another month of rising payrolls and may help encourage buyers to get a head start on the stock market in 2004.
"If it feels like cash is going to be put to work, it's going to be 'catch as catch can' where people feel that they don't want to be behind the eight-ball at the beginning of the year," said John O'Donoghue, managing director of listed trading at Credit Suisse First Boston.
Aluminum heavyweight and Dow component Alcoa marks the start of the quarterly earnings period when it releases its results on Thursday.
Analysts expect that S&P 500 companies will post earnings growth of 22.2 per cent in the fourth quarter versus the same year-ago period, according to Thomson First Call. That marks the best period of earnings growth since the first quarter of 2000, according to the research firm.
Roughly 350 Standard & Poor's 500 companies have offered Wall Street a glimpse of their upcoming fourth-quarter earnings, with about 1.3 negative pre-announcements for every positive pre-announcement. That beats out the average ratio over the past nine years of roughly 2.5 negative pre-announcements for each positive forecast, according to First Call.
Investors also will be eyeing December same-store sales reports from retailers next Thursday for hints on how their quarterly earnings will fare on the heels of the crucial holiday shopping season.
Optimism is growing over next week's monthly jobs report after Friday's stunning improvement at factories across the country. The Institute for Supply Management reported the biggest upswing in US manufacturing in 20 years. The ISM's employment index rose above 50, signaling the creation of manufacturing jobs, for the second month in a row.
Economists polled by Reuters expect to see US non-farm payrolls rise by 130,000 in December, up again after November's increase of 57,000, while the unemployment rate should hold steady at 5.9 per cent.
"From this point on, one of the key sources of concern, which is the employment picture, is going to brighten and that will remove the last major impediment to optimism," Mr Nabi said.
Tomorrow ushers in a string of figures, including the ISM's December reading on service-sector activity and November factory orders.
Weekly jobless claims, due on Thursday, are expected to rise to 350,000 after dropping to 339,000 in the week ended December 27 to the lowest level since January 2001.