Stocks seen rising in January; first week of ‘08 has lots of reports set

Dec.30, 2007 in Market Outlook

Monday’s the last call for ‘07 bulls and bears. First few trading days of ‘08 may serve as a springboard for a positive January, strategist says.

SAN FRANCISCO (MarketWatch) - U.S. stocks are likely to advance in the first week of 2008 as investors pick through equities that have been battered in recent weeks and as they get confirmation from the latest jobs report that the economy hasn’t tipped into recession, said strategists.

Monday will be the last chance for investors to make their final stock plays before the books close on 2007 before the New Year’s Day holiday on Tuesday.

The major indexes will end the year higher but overall advances will be subdued as investors were forced to battle a credit crisis spurred by turmoil in the U.S. subprime-mortgage market; a deepened downturn in the housing industry; a near 60% gush in crude-oil prices to close to $100 a barrel; and weaker retail sales as consumers reined in their spending.

But the first few trading days of the New Year could serve as a springboard for a positive January, said Brian Gendreau, investment strategist at ING Investment Management.

“I wouldn’t be surprised to see some gains once people come back and take a fresh look at 2008, and some investors get ahead of what may be a rebound,” in economic and earnings growth next year, he said. “The question is: do you act now or do wait until you see more tangible signs of a reversal? Some people are going to elect to pull the trigger and get in ahead of the gains.”

The first trading week of 2008 may be short, but the list of expected economic reports isn’t. Existing home sales data are due Monday, followed by figures about the manufacturing and services sectors, and nonfarm payrolls report for December which will arrive Friday. Minutes from the Federal Reserve’s meeting in December will come Wednesday.

But Friday’s job report could help smooth out the “topsy-turvy” market, he said, if it comes in as anticipated by the market and shows that the labor market is strong enough to stave off a recession but not so vigorous as to cut expectations for another interest-rate cut in January.

“The biggest risk is if we had a surprisingly strong report with wage growth, which I don’t’ see happening,” said Rotblut.

Economists surveyed by MarketWatch expect the Labor Department to report growth of 78,000 jobs in December, compared with the 94,000 positions created in November. The jobless rate is forecast to tick up to 4.8% from 4.7%. Hourly average earnings, a gauge of inflationary pressure, are expected at 0.3%, down from 0.5%.

On Friday, federal funds futures priced in 98% chance that the central bank will ease the benchmark interest rate by a quarter-point to 4%, according to Action Economics, after the Commerce Department said sales of new U.S. homes fell by a worse-than-expected 9% in November to a seasonally adjusted annual rate of 647,000.

The market will get another housing update on Monday, with the National Association of Realtors’ report on existing home sales in November. Economists expect to see some improvement on that front, with sales to rise to 5 million homes from 4.97 million sold in October.

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