Markets will take in a heavy helping of economic reports in the shortened Thanksgiving holiday week, but the main course remains the dollar.
In the past week, the dollar gained some traction as stocks were mixed and Treasurys saw a rush of buyers. Commodities finished the week mostly higher. Economic headlines in the week ahead include important real estate data, durable goods, revisions to third quarter GDP and weekly jobless claims. There are also $119 billion in Treasury notes and billions more in bills up for auction in the first three days of the week.
"With Thanksgiving, people are showing a little bit of indifference toward the market...It's indicative that there's not going to be a lot of movement over the next couple of days," said Patrick Kernan, who trades S&P 500 options at the Chicago Board Options Exchange.
Markets are closed Thanksgiving and Friday is a shortened trading day.
"I don't think people are looking for a big leg up after this, at least into the end of the year. I certainly don't see us being above 1150 before the end of this year," he said. "I would say between 1025 and 1100 at the end of the year."
In the past week, traders say comments from Fed Chairman Ben Bernanke Monday reaffirmed the view that the Fed sees a slow economic recovery and that it has no plans any time soon to reverse its current policies. That supports the view that risk assets, like stocks and commodities, can continue higher and the dollar should stay weak. Bernanke though, in an unusual move, also said the Fed is monitoring the dollar closely, and the greenback has showed signs of strengthening since then.
"I think the forex people are watching the stock market, and the stock market is watching the dollar," said Marc Chandler, chief currency strategist at Brown Brothers Harriman. He said the dollar is in a range between $1.48 to $1.51 against the Euro and there's every indication it will stay in that range next week. On Friday, the dollar moved higher against the euro, pound sterling and Australian dollar, but edged lower against the yen.
Fed watchers will be paying special attention to Tuesday's release of minutes from the Fed's last meeting for more detail on what could prompt the Fed to move.
"The Federal Reserve gave three conditions for continuing its commitment on rates — unemployment, inflation and inflation expectations. So, we're interested to what extent inflation expectations might overrule the first two conditions," said Tony Crescenzi, senior market strategist at Pimco.
Also of interest will be durable goods orders Wednesday. "Two figures in the past week showed some moderation in the gains for factory activity, which had been unusually strong. So perhaps the market is going to focus heavily on factory data to weigh if there's a stall underway," Crescenzi said.
He said companies are still wafting for the pickup in final demand, now that inventories have been worked down. "That part hasn't kicked in yet so durable goods is more in focus," he said
Weekly jobless claims, reported Wednesday this week, will also be important. Claims in the past week were 505,000 and traders are hoping for a number below 500,000. "They're hovering at the 500,000 mark, and the dividing line between job growth and job loss is the area between 450,000 and 475,000," Crescenzi said.
Stuart Freeman, chief market strategist with Wells Fargo Advisors, said the weekly jobless claims number could be the big event of the week.
Existing homes data is reported Monday; the S&P /Case Shiller home price index is Tuesday, and new home sales are reported Wednesday. A second look at third quarter GDP is Tuesday, and consumer confidence and consumer sentiment are Tuesday and Wednesday. Personal income is also Wednesday.
"To me, the most important number right now is that claims number. The GDP is looking back at the third quarter. It would be great to see some strong home numbers but the housing market is still relatively tepid. Sales have picked up but foreclosures have picked up. I'm not expecting any major positive surprises on housing this time of year," Freeman said.
Market talk this past week turned to the idea that the economy could be in for a double dip, after some disappointing economic reports. Freeman said the data mix is not surprising. "The things that are traditionally leading indicators are staying positive. The things that are traditionally lagging indicators, don't look so good. There's always something you can point to," he said. "...What we're seeing for a recovery is not unusual."
Freeman said his target for year end on the S&P 500 is 1015.
"I think we're probably going to see somewhat choppy trading through the end of the year. I think the fourth quarter will be a slower quarter than the third quarter. Maybe a 2.5 percent quarter. You're going to have people question whether we can continue to grow," said Freeman.
Freeman said some investors may choose to sit out through the end of the year, resting on big gains. "We won't get another material catalyst probably until we get into the new year," he said. He also sees the possibility of a correction.
"We do still think we'll be higher later next year, but we wouldn't be surprised if it's kind of sloppy trading for awhile here, after the 60 percent move we've had. We have almost gotten back 50 percent of what we lost," said Freeman.
"It's not unusual to give back 20 percent of your gains after a move like this," he said.
The Treasury auctions billions in notes and bills in the coming week. On Monday, there are $45 billion in 2-years. In the past week, a surge of buying has driven the yield on the 2-year to levels last seen during the peak of the financial crisis. There has also been a flurry of buying in bills, some duration's of which saw yields near zero and even negative on the shortest maturities.
Traders say the activity has to more to do with investors looking for a safe spot to park capital over the year end, as opposed to the panicked flight to safety seen last year. On Tuesday, $42 billion of 5-year notes will be auctioned and on Wednesday, $32 billion of 7-years.
Crescenzi said the activity in the 2-year also has to do with a carry trade by investors, who use money borrowed at a zero rate, and rolled it into slightly higher yielding 2-years. "People are playing the carry trade and the roll down trade," he said.
He said the Treasury auctions should go smoothly. "It probably only matters when there's a bear market, and this isn't a bear market. There's plenty of appetite for Treasurys," he said.
What Else to Watch
Hewlett Packard is the last Dow component to report earnings for the most recent quarter. It releases results after the bell on Monday.