Investors might be more cheery in holiday week

L.A. Times Archives

Dec. 22, 2008 12 AM PT

ASSOCIATED PRESS

Investors might head into a holiday-shortened week with optimism that recent moves to prop up the ailing auto industry and slash interest rates might trigger a year-end rally.

Like the deep discounts luring holiday shoppers to the malls, the steep drop in stocks over the last year has made many blue chip shares more attractively priced. And big institutional investors might use the last seven trading days of the year to snap up some bargains.

The downturn that began in October 2007 spread through the entire market in the last year and damped widespread demand for all but the safest investments, particularly government bonds.

With the benchmark Standard & Poor’s 500 index down 40% in 2008, investors hope for a rally in the last month and wonder what to expect next year.

Even if investors stream into the market, it still might not be enough to save what is expected to be one of Wall Street’s worst years on record. Volume is expected to be light in a week shortened by the Christmas holiday and an early close on Christmas Eve.

“Only the folks that need to trade are going to trade this week,” said Axel Merk, portfolio manager at Merk Funds. Decreased volumes, he said, can mean added volatility.

With little in the way of corporate news expected this week, investors will turn their attention to economic reports. Data slated include a report on new home and existing home sales for November, the government’s third-quarter gross domestic product report and a reading on consumer sentiment for December.

Investors also will look for any signs about how retailers are faring in the last sprint before Christmas.

At flagship department stores and main street shops, consumers were greeted last weekend with hefty markdowns, extended hours -- in some places, around-the-clock shopping -- and even extra-cheery customer service as merchants tried to woo shoppers during the final holiday countdown.

And Wall Street might also be attracting buyers if 2008 follows the tradition of a Santa Claus rally. The market has participated in the year-end rally seven out of the last eight years.

“Santa Claus tends to come to Wall Street nearly every year, bringing a short, sweet, respectable rally within the last five days of the year and the first two in January,” according to Jeffrey Hirsch and Yale Hirsch, the authors of the Stock Trader’s Almanac. “This has been good for an average 1.4% gain since 1969.”

There was some indication Friday that investors were feeling a bit more optimistic. Stocks finished a bumpy session mostly higher, as investors were encouraged by the government’s pledge to lend as much as $17.4 billion to U.S. automakers.

For the week, the Dow ended down 0.6%, while the S&P; 500 finished up 0.9% and the Nasdaq up 1.5%. All the indexes are still down more than 35% for the year.

Besides the auto bailout, sentiment also has grown a bit more cheery in the last few trading sessions after the Federal Reserve cut the benchmark fed funds rate to as low as zero.

Investors are looking for any signs that the government is being proactive about reviving the battered U.S. economy to avoid a protracted recession.

There’s also some enthusiasm that the worst of the bear market may be over. The S&P; 500 already has bounced 20% higher from its lows in November.--

At a glance

TODAY

Weekly report on Treasury auction is released.

Quarterly financial results from Walgreen Co.

TUESDAY

Commerce Department releases report on gross domestic product for the third quarter and November data on sales of new homes.

The National Assn. of Realtors reports on existing home sales for November.

WEDNESDAY

Report on weekly jobless claims are released.

Commerce Department reports on personal income for November and on durable goods for November.