Next week brings November's employment report, a critical bit of data in a week likely to be dominated by readings on the U.S. economy and the developing debt crisis in Europe.
The November jobs report, released Friday, tops a full calendar of U.S. economic data in the coming week.
Investors will also be gauging the outcome of early holiday shopping to see if it shows the expected evidence that consumers are feeling slightly better about the economy and are willing to spend a bit more. Consumer confidence, auto sales and monthly chain store sales may also support the story of a more confident consumer.
The anticipated bailout agreement for Ireland over the weekend will be important for markets, as will efforts by European officials to calm concerns about the financial condition of Spain and Portugal. The sweeping U.S. insider trading investigation, as well as the military tensions on the Korean peninsula, are also on the markets' watch list.
Stocks were volatile in the past week with the Dow losing 1 percent for the week to 11,092 and the S&P 500 down 0.9 percent to 1189. The Nasdaq, however, rose 0.7 percent to 2534 on gains in technology shares. The dollar index gained about 2.4 percent in the past week , and the euro lost more than 3.1 percent against the dollar . Treasurys were also mixed, with the 10-year yield finishing at 2.863 percent.
"The range (in the S&P 500) is starting to tighten and there's going to be some resolution next week. The question is are these strong tech stocks going to power us higher into the New Year, or are traders finally not going to want the overnight risk that seems to be on the table every night," said Scott Redler, of T3Live.com.
"For two weeks, the market's been trying to figure out whether the move from 1227 to 1173 is enough of a correction," he said.
Deutsche Bank chief U.S. equities strategist Binky Chadha said he maintains his view that the S&P could reach 1275 by year end, and he expects stronger U.S. economic news to drive it. He said just as the market had declined on weaker than expected numbers in the summer, it should now see a catalyst from upside surprises in the data.
He also does not expect the European sovereign situation to block the stock market's ascent. "My view is they'll cause a lot of headline risk. They'll cause angst," he said, adding ultimately there is low risk to U.S. equities.
European sovereign debt was under pressure in the past week, and the cost of insuring the weakest of the peripheral sovereign debt climbed to record levels. A push by Germany to have private investors share the burden in restructurings added to the concerns.
"I think we've gone from a situation where there was confidence that the funding would be available for Ireland to one where, if the political rhetoric continues on this issue of burden sharing, and the private markets have concerns about the longer term value of existing and certainly future debt of the periphery, they've created a whole new level of uncertainty. That's very hard to undo," said Robert Sinche, head of global foreign exchange strategy at RBS.
Focus Swings to Politics
The dollar gained in the past week in part on a flight-to-quality trade, triggered by uncertainties after North Korea's artillery attack on a South Korean island. It also gained strength on concerns about the euro zone. As the dollar rose, risk assets, like commodities, sold off. Gold and oil gained on the week, but copper, silver and palladium ended lower.
"In our view, the fall of the euro in the last week or so is a catch up move in the rate to reflect the stresses that have been around. So, it's not terribly surprising, although we don't see the catalyst for another move lower," said Sinche. "...I don't think we're going to see major developments in the dollar (in the next week). It will be choppy."
On Tuesday, the focus could swing back to U.S. politics. Congressional leaders are expected to meet with President Obama, and tax cuts and budget cuts are among the topics expected to be on the table. Markets have been hoping for a compromise from Democrats that would allow all Bush tax cuts to be extended before they expire at year end.
"We've seen some of the worst of the European policy dilemmas as Congress is back in session next week, and it's not clear they're going to distinguish themselves in a positive way either. In a sense, the U.S. has benefited from a lack of political commentary," said Sinche.
Chadha also noted that Washington has gone "silent" since the mid-term election.
"The question is if the Administration and Congress are going to move collectively toward the center. My view is that is likely to happen. I'm not sure that the different constituencies really have much choice in the matter," he said.
In the coming week, there is important data on manufacturing and housing, in addition to jobs data and the consumer-oriented reports.
The deficit commission also votes on its controversial proposals to cut the federal deficit Wednesday. Fed Chairman Ben Bernanke speaks Tuesday to a group of business leaders on the economy at 3 p.m. in Columbus, Ohio.
"Obviously jobs is going to be the key," said Sharon Stark, chief market strategist at Sterne Agee and Leach. "I would look for more like 175,000 (non farm payrolls) with stronger growth on the private sector side." In October, the economy created 151,000 jobs, much more than expected.
Stark says an improvement in corporate spending should help. "What I call more cap ex, as opposed to software and equipment. I think companies are making more capital expenditures and that will push the labor market higher," Stark said. "It's progress but it's not anything to get real excited about. We're still going to need more stimulus in the form of either fiscal programs. QE2 (quantitative easing) needs to stay in place, as long as possible so we can lift these housing numbers."
Housing data expected in the week ahead includes S&P/Case-Shiller home prices Tuesday, and pending home sales on Thursday. Other data Tuesday includes Chicago purchasing managers, and consumer confidence. The ADP private sector employment report; productivity and costs; ISM manufacturing; construction spending and the Fed's beige book are Wednesday.
Monthly auto sales are released Wednesday, and chain stores report monthly sales Thursday. Thursday's data also includes weekly jobless claims. Besides the employment report Friday, ISM non-manufacturing and factory orders are released.
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