Market Overview

The Week Ahead: Holidays to Limit Trading Activity

The last full week of December is likely to contain limited trading activity. Nearly all Western markets will be closed on Tuesday for the Christmas holiday, while many will be closed on Monday in observance of Christmas Eve.

There will be trading in the U.S. early Monday morning, but markets will close at 1:00 pm ET.

Trading will resume in the U.S. on Wednesday, but other markets will remain closed. The U.K., France and Canada will observe Boxing Day, while German markets will remain closed for St. Stephen's Day.

In terms of stocks, there will be no major earnings releases, so individual stock catalysts could be limited. Speculation on sales the weekend before Christmas might have some effect on retail stocks.

NBG retail analyst Brian Sozzi said that, in his opinion, this holiday shopping season might ultimately prove to be reminiscent of 2008.

“I'm seeing a lot of discounting,” Sozzi said. “And it looks unplanned. I think the sales surge will be there, but when you look at recent consumer confidence numbers, I think there's evidence of great economic concern.”

Overall, Sozzi said he was bearish on all retailers, and expected sales to prove disappointing.

On the economics front, next week will bring reports on housing, the job market and manufacturing.

The Richmond Fed Manufacturing Index will be released on Wednesday, and will shed some light on the state of manufacturing. Thursday will bring data on initial jobless claims, as well as new home sales and consumer confidence. Friday will bring the Chicago PMI and data on pending home sales.

However, the most significant factor likely to affect the market next week will be speculation about the U.S. fiscal cliff -- a package of legally mandated tax increases and spending cuts set to go into effect at the beginning of 2013.

The U.S. stock market tumbled on Friday, after House Speaker John Boehner cancelled the vote on his “Plan B,” knowing that he lacked the votes from strong fiscal conservatives to get the measure passed.

Housing stocks and financials were particularly hard hit, as both industries could have much to lose in the event that the fiscal cliff goes unresolved.

Shares of Bank of America (NYSE: BAC) fell over two percent on Friday, while Wells Fargo (NYSE: WFC) tumbled 1.63 percent.

JPMorgan analysts continue to like the financials, although they admit that political uncertainty might keep share prices depressed.

They write, “Given political and economic uncertainty, we see no catalyst for the sector near term, although reasonable fiscal cliff resolution could spark a rally. We expect bank stocks that have other earnings drivers to outperform -- Bank of America and Suntrust both have...greater cost efficiency opportunities than peers.”

Bank of America itself doesn't anticipate a fiscal cliff miracle, noting, “No cliffmas miracle...we expect a deal only at the last minute, with lots of decisions delayed into the New Year and austerity of roughly 2% of GDP.”

In a recent appearance on CNBC, famed investor Warren Buffett said he believed that Congress would allow the country to go over the fiscal cliff and stay there until sometime in January.

Perhaps Buffett will be correct. However, if Congress is going to prove him wrong, they have few days left with which to do it.

Key Events

Monday

  • Markets closed in Japan, Italy, Norway, Switzerland, Germany, Brazil, Indonesia
  • Markets close early in the U.K., Hong Kong, the U.S., Australia, France, Spain

Tuesday

  • Markets closed in the U.S., South Africa, India, Brazil, Singapore, Australia, Hong Kong, Italy, Norway, Switzerland, the U.K., Germany, France, Spain, Canada, Mexico, Indonesia, South Korea

Wednesday

  • Markets Closed in South Africa, Italy, Norway, Switzerland, the U.K., Germany, France, Hong Kong, Spain, Canada, Australia
  • Richmond Manufacturing Index (Prior 9); S&P/CaseShiller Home Price Index (Expected 145.93)

Thursday

  • Initial Jobless Claims (Expected 360k); Consumer Confidence (Expected 70); New Home Sales (Expected 380k); Japanese Unemployment Rate (Expected 4.2 percent); Japanese Industrial Production (Expected -0.5 percent)

Friday

  • Chicago PMI (Expected 51); Pending Home Sales MoM (Expected 1 percent); French GDP QoQ (Prior 0.2 percent)

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