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NEW YORK (Reuters) - Santa came early for Wall Street this year by delivering a 22 percent return for 2009, and with just a handful of trading days to go, stock investors aren't expecting to find much more under the tree.
While it may be slow going in the markets, investors will be eager to see if shoppers turn out in full force for the year-end buying rush.
Investors will pay attention to a final reading of third-quarter gross domestic product, but with the market already factoring in an economic recovery, the GDP data could evoke a muted response. Reports on existing home sales and new home sales also will be worth noting, due to the central role that the housing sector's collapse played in last year's financial crisis.
With the holiday shopping season also wrapping up this week in the countdown to Christmas Day on Friday, this week's major economic indicators will include consumer sentiment, personal spending and the latest weekly claims. On Thursday, the New York Stock Exchange trading floor will close early in observance of Christmas Eve.
Developments on the geopolitical front will also be on the radar and could hurt stocks if tensions between Iraq and Iran escalate over an oilfield dispute.
Markets historically enjoy a short, sweet "Santa Claus rally" in the final days of December and the beginning of January. But the S&P 500 racked up a gain of 63 percent from March's 12-year closing low, investors question what catalyst could drive the market significantly higher.
"I thought there might be one more push higher, but it now looks like investors are willing to let the market consolidate its gains this year, and are happy to lock in the profits that they've established," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
The Standard & Poor's 500 .SPX has drifted in a range between 1,085 and 1,119 since the beginning of November as market players became more concerned with preserving 2009's gains rather than taking risky bets. The S&P 500 is up 22.1 percent for the year.
The inverse correlation between the U.S. dollar and stocks has deteriorated this month, as the greenback's rebound has only limited the stock market's gains.
Year-end window dressing -- when fund managers sell underperformers in favor of gainers to spruce up portfolios -- could lift stocks that have done well this year.
Volatility could also increase next week as fewer participants make it easier to push the market around. Indeed, the market has generally climbed on light volume this year, but most analysts expect stocks to grind sideways.
"You will probably see some modest window dressing going on, so in my opinion, you could see higher-quality stocks do a bit better," said Haag Sherman, co-founder and chief investment officer of Salient Partners, an investment firm in Houston.
"But I don't think there's going to be any material movements between now and year-end."
On Tuesday, the gross domestic product report is expected to show the U.S. economy expanded at an annual rate of 2.8 percent in the third quarter, in line with the previous reading.
Existing home sales for November also will be released on Tuesday, with economists forecasting sales will rise to a seasonally adjusted annual pace of 6.25 million units from 6.10 million in October.
On Wednesday, new home sales for November are expected to edge up to a seasonally adjusted annual rate of 440,000 units from 430,000 in October.
Most importantly for the market's outlook, investors will gauge the success of the holiday shopping season following "Super Saturday" weekend. Retailers are hoping to see a surge of shoppers over the last weekend before Christmas, but experts doubt whether it will be enough to push sales much above last year's dismal tally.
Last year was the first time holiday shopping fell during this decade, according to the International Council of Shopping Centers as shoppers fretted about the financial crisis and growing unemployment. Spending has remained anemic this year and the lack of consumer participation remains one of the biggest headwinds to the burgeoning economic recovery.
"Last year was a train wreck. It was the arctic winter of retail," said Lawrence Creatura, equity market strategist and portfolio manager at Federated Clover Capital Advisors in Rochester, New York.
"Surpassing that is not a high hurdle, and the fact that we're going to just limp past that level this year is conspicuous."
A snapshot of how retailers fared over the weekend will come from anecdotal evidence on how busy stores were, as well as from sales and traffic data from ShopperTrak, a private firm that monitors such statistics.
Further insight into the strength of consumers' purchasing power and their inclination to spend will come from a final reading of December consumer sentiment on Wednesday. Economists are expecting a reading of 73.5, compared with a previous reading of 67.4, according to a Reuters poll.
The November personal income report on the same day is expected to show a rise of 0.5 percent, up from a gain of 0.2 percent the previous month. But consumption is expected to ease, rising 0.6 percent, compared with the previous month's 0.7 percent gain.
Rounding out the week's data on Thursday will be initial claims for jobless benefits, which are expected to fall to 470,000 from 480,000 the week before. For more details on economic indicators, see
Durable goods orders for November also will be released on Thursday. The forecast calls for a 0.5 percent gain in November, compared with a 0.6 percent drop in October.
A handful of earnings will also be on tap, including results from Walgreen Co WAG.N, ConAgra Foods Inc (CAG.N) and Micron Technology Inc MU.N.
A potential headwind for markets could be any increase in tensions between Iraq and Iran. On Friday, Iraq demanded that Iran immediately withdraw its soldiers from a disputed oilfield on the two countries' border, but Iran denied any incursion. [ID:nLDE5BH1BI]
While the U.S. stock market was unaffected on Friday, an escalation in hostility between Iraq and Iran could push investors out of stocks and into safe-haven assets such as the U.S. dollar or Treasury bonds.
"Any acceleration of aggression, or potential disruption in the supply of oil would have a more meaningful impact on investor sentiment," Creatura said.
On Friday, U.S. crude oil futures settled at $73.36 a barrel, up 71 cents, or almost 1 percent, with Middle Eastern tensions supporting oil prices.
(The Wall St Week Ahead column runs every Friday. Questions or comments on this column can be e-mailed to email@example.com)
Reporting by Leah Schnurr; Additional reporting by Ellis Mnyandu; Editing by Jan Paschal