Will There Be a Year End Rally in the Stock Market?

Market experts continue to speculate about how the Dow Jones Industrial Average will perform in the remaining weeks of the year. Optimists believe that the stock market will rebound during the last two weeks of the year, while pessimists think the stock market will continue to spiral downward. And everyone hopes for a Santa Claus rally by the end of the year. So, how will the

perform over the next two weeks? In my opinion the market will remain range-bound and we will not see an end-of-year rally for the following reasons:

The European debt crisis has caused an overhang on the United States equity market for months now. Fears of a default on debts by heavily leveraged countries like Greece have managed to curb the euphoria in the U.S. markets. Earnings for United States companies have actually improved during the last quarter and the market has still had a difficult time turning higher. Fears of contagion from those that believe the problems in Greece will spread to the United States still exist. These fears won't disappear over the next few weeks.

Political gridlock is not always a bad thing, but over the past year it has pushed the market lower. The U.S. faces serious fiscal difficulties. The markets and investors need reassurance that Washington politicians will address the financial problems of the country and help to grow the economy. Unfortunately, it seems highly unlikely that any good news will come out of Washington this month. This is particularly troublesome considering the effects that a lapse in payroll tax reductions and a failure to extend benefits for the unemployed can have on a fragile economy.

The economy will have a difficult time finding its footing until the U.S. housing market rebounds. Although the number of foreclosure filings has dropped, this may be only temporary. Banks have slowed down their efforts to file foreclosure paperwork because of processing mistakes. The numbers of scheduled auctions are rising and a jump in filings is expected soon. If homeowners are still

and the number of foreclosures increases, the market will have a tough time going higher.

It seems likely that the next two weeks will be consistent with the performance of the market over the past month. Investors will remain cautious and it seems doubtful that there will be a flood of buyers at the end of the year. The best chance for any kind of rally in the market will come in 2012, when investors have a clearer picture of the macroeconomic outlook.