Market Insider: The Week Ahead
CNBC Executive News Editor
A last minute buying spree on Wall Street could give the stock market a surprise bounce before the end of the year.
"I think we're in for a real ramp up," says Jim Cramer. Cramer said the last trading sessions of the year should be positive for stocks, and the lack of news in the usually quiet week for business will help.
"Everybody who has bad news shuts up until January, and everybody who has good news shouts it loud and clear," said Cramer. "I think it's a good moment for the bulls."
Cramer has a great gut when it comes to trading, and we talked to him right before the market tumult began in the summer. On July 20, he warned at a prescient moment that it would be a good time to take profits, and he was right. He still says stay away from financials (except Goldman Sachs), and topping his Christmas week shopping list are agricultural stocks. He also likes defense plays, oil-related stocks and tech.
"Tech is great and has seen no slowdown," said Cramer. He point to the runup in Research in Motion this week, as well as other tech stocks that have been flying. The S&P tech sector this week gained 1.5 percent and the Nasdaq, home to many big tech names, gained 2.1 percent for the week.
Think about tech this way: Cramer says when people head to Best Buy and shop for electronics, they are boosting not only the electronics retailer but a whole group of names, like National Semiconductor, Corning and Intel. "I feel like people are underestimating the demand for electronics," he said.
Cramer predicted a 14,500 Dow for this year end, and he says the poor performance of the Dow's financial components -- AIG, American Express, J.P. Morgan and Citigroup -- hurt his forecast. He cautions he's not yet ready to make a prediction for next year and on Friday, he said he wants to see what the next seven days bring.
He does not foresee a recession in 2008, and says the Fed will take enough action to avert it. "If we can find enough sugar daddies to save our financial institutions, we'll be OK," he said.
The battered Wall Street firms have turned to foreign sovereign funds to help with their capital needs following huge subprime-related writedowns. Merrill Lynch is the latest Wall Street firm to be linked with a sovereign wealth fund. It could receive $5 billion from a Singapore fund. Morgan Stanley this past week said it was getting $5 billion from a Chinese fund, and an Abu Dhabi fund is investing in Citigroup.
We'll check back with Cramer for his 2008 forecast right after the New Year.
The Dow ended the week at 13,451, up 7.92 percent for the year after Friday's 1.55 percent gain. The S&P jumped 24 points on Friday and is up 4.66 percent for the year at 1484. The Nasdaq is up 11.46 percent year-to-date.
Starting this past Thursday, Market Insider surveyed readers to see what they thought about the year-end and whether they thought the S&P would move much higher, stay the same or turn negative for the year.
Of more than 2,700 surveyed in our non-scientific poll, 43 percent stand with Cramer and say the S&P could have a "surprisingly better gain" by year end. Another 39 percent think the S&P will stay around where it is, and then there's 17 percent who think the index could turn negative for the year. When we started the poll, the S&P was up 2.95 percent for the year. Sure looks like the Santa rally is on!
Scotsman Capital managing director Vince Farrell, who is a CNBC contributor, says Friday was the start of a classic Christmas rally, one that starts just before Christmas and ends a few days after the New Year.
"I believe energy will continue to be a market leader," Farrell wrote to us in a note. World inventories are low and demand is high and the stocks are trading as if oil were in the $55 to $60 per barrel range.
"Beware of this market rally, but enjoy it for a few days, and do not sell energy stocks," he says.
Recession? Former Fed Chairman Alan Greenspan says there's a 50 percent chance of a recession, and Pimco's chief investment officer Bill Gross says we're already in one.
Maybe so, but there certainly was more optimism around Friday, after the personal spending numbers were reported for November.
"I suspect with very strong November spending that people will be revising up their (fourth) quarterly growth forecast from recession levels of zero to one percent -- to moderate growth levels in the one to two percent range," said CNBC's senior economic correspondent Steve Liesman.
"When you're looking for a recession, it rarely comes," he said.
Personal spending rose 1.1 percent last month, the biggest gain in two years, said the Commerce Department. University of Michigan consumer sentiment turned up in late December from the middle of the month, but it was down for the third month in a row. Consumer sentiment was at 75.5 in late December, down from 76.1 in November.
Mark Zandi, chief economist at Moody's Economy.com, said he believes the economy is at a crossroads, not clearly headed into a recession.
"We're right on the edge. It could go either way," he said. Zandi said the economy did show strength in November but that it could be soft again in December. "If it goes up and down for the next few months and starts growing, this won't be labeled a recession," he said.
"The difference between a soft economy and a recession is the crisis of confidence. People panic and give up hope and pull back, and that's a very tenuous kind of line. I think the data suggests that we are right at that line. The University of Michigan survey is consistent with data in other recessions," he said.
Economists will be watching to see whether retailers have their own late Santa rally this weekend. You can be sure the markets will be watching for signs of what the consumer is doing when the early results are in.
Most holiday sales will be rung up by Christmas Day, but analysts also expect a burst of shopping Wednesday as shoppers head for the post holiday sales, armed with their gift cards.
"We're going to see a big surge. I think it's going to be bigger this weekend than it was least year only because we're up against an extra long selling season," said Patricia Edwards of Wentworth, Hauser and Violich on "The Call" Friday.
"I think everybody thought Santa Clause wasn't coming this year, and maybe he's on a little bit of a diet but he's still a little bit jolly," said Edwards.
"I think it's going to be a little bit above what we saw last year, maybe around two percent (increase)."
In other economic news, housing data is a highlight this week. The S&P/Case-Shiller monthly home price index is released Wednesday at 9am ET, while new home sales are reported at 10am ET Friday. The Richmond Fed survey is released Wednesday at 10am. On Thursday, jobless claims and durable goods are reported. New York purchasing managers data reported Friday at 9am ET and Chicago purchasing managers are released that day at 9:45am ET.
Oil was bubbling up again on Friday, gaining 2.5 percent to $93.31 per barrel. For the week, it was up 1.9 percent.
Joseph Terranova, director of trading at MBF Clearing, said one of the big concerns affecting oil has been worries the U.S. economy is slowing.
He said oil rose higher on the bounce in stocks Friday. "The real Santa Claus rally may be in the oil market this year," he said. "The market was given a green light to gather some upward momentum through the end of the year."
I will be away for the holiday until next Thursday. Happy holidays to all!
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