Investors reeling from a roller-coaster ride face a shortened trading week that is expected to see light trade and modest portfolio adjustments ahead of the New Year.
But analysts do not rule out a modest year-end rally to brighten up the mood in the US amid the financial turmoil.
“Right now, most traders are straining to see if Santa Claus shows up on Wall Street, as he normally does just ahead of Christmas, bringing a modest year-end rally,” DA Davidson & Co chief market strategist Frederic Dickson said.
“Looking ahead to next week, trading activity should lighten up as many on Wall Street begin to take extended year-end holiday vacations,” he said, citing possible cessation of selling pressure from year-end tax-loss selling and hedge fund redemptions.
“The professionals are deserting the ship today and they will leave instructions with their seconds in command not to take any big positions on either side,” Raymond James Equities strategist Jeff Stau said on Friday.
The market may react to updated numbers on the dwindling housing market and third-quarter GDP growth to be released by the government the coming week, Dickson said.
The market could also get a year-end boost if the US Treasury takes action to bring down home mortgage rates as expected.
“Stocks could head higher over the few remaining days of 2008 if the Treasury unveils a so-called Home Recovery Plan to lower mortgage rates and the Fed pegs the 10-year Treasury bond yield at 2 percent to facilitate this plan,” Ed Yardeni of Yardeni Research said.
“Then again, there have been so many rescue plans and liquidity facilities coming out of Washington over the past year that investors have become totally jaded about them,” he said.
In the week to Friday, the Dow Jones Industrial Average fell 0.59 percent to 8,579.11 following a 2.19 percent drop in the prior week.
The tech-studded NASDAQ rose 1.53 percent to 1,564.32, while the broad-market Standard and Poor’s 500 was up 0.93 percent to 887.88.
The market opened the week with a mild drop on Monday, but the next day saw a massive rally on the back of an interest rate cut to nearly zero by the US Federal Reserve.
But the gains were virtually wiped out the next two days, largely as a result of a plunge in oil prices that hurt Exxon Mobil and other energy firms and a lowering by Standard and Poor’s of industrial giant General Electric’s credit outlook to negative.
Despite an early rally on Friday sparked by a US$13.4 billion government rescue of General Motors and Chrysler, share prices eased at the end of trading week on concerns that the deal could unravel.
Al Goldman at Wachovia Securities said the rally “ran out of fuel quickly as the market took a second look at the plan.”
He said the market pulled back after the United Auto Workers union “served notice it will fight to change terms which it says unfairly single out workers.”