NEW YORK A week packed with data awaits investors eager for fresh clues on when the Federal Reserve will start to trim its stimulus program, as traditionally bullish December kicks off with the S&P 500 poised to mark its best year since 1998.
Traders will also sweep through sales data from retailers after the long Thanksgiving weekend, which kick-starts the holiday shopping season. Vice President Joe Biden's trip to Asia will increase the focus on a standoff pitting China against Japan, South Korea and the United States over air routes over the East China Sea.
Employment numbers will be the highlight as traders second-guess what the data will mean for the Fed and its announced intention to gradually reduce its $85 billion in monthly asset purchases, which have lit a fire under the stock market this year.
The Fed has repeatedly said its stimulus remains data-dependent, leading traders to treat soft data as a bullish market catalyst that guarantees Fed stimulus.
"The whole market is trying to channel the Fed," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
She said volatility is to be expected as the reaction to data is more a "let's interpret how the Fed interprets it" rather than what it means for the economy.
Nonfarm payrolls for November on Friday will cap three days of jobs data that includes ADP's November report on private-sector payrolls on Wednesday and weekly U.S. jobless claims on Thursday.
Economists expect the U.S. economy to have created 185,000 jobs in November, down from 204,000 in October, according to a Reuters survey of economists.
Other major economic indicators due next week include the Institute for Supply Management's data on the U.S. manufacturing and services sectors, with the ISM's factory index expected on Monday and its services index due on Wednesday. Domestic car and truck sales are scheduled for release on Tuesday, followed by U.S. factory orders on Thursday and the preliminary reading for December on consumer sentiment from Thomson Reuters/University of Michigan on Friday.
November marked the third consecutive month of gains for the Dow Jones industrial average .DJI, the Standard & Poor's 500 .SPX and the Nasdaq Composite .IXIC. The S&P 500 ended slightly lower on Friday, but closed its eighth positive week in a row, its longest weekly stretch of gains since a nine-week run from November 2003 to January 2004.
The benchmark S&P 500 is up 26.62 percent so far this year, which would make its best yearly gain since it climbed 26.67 percent in 1998.
RETAILERS ON CENTER STAGE
Consumer views are a key data point as the most important shopping season of the year, when some retailers make nearly half of the year's profits, gets under way.
The National Retail Federation expects that up to 140 million shoppers hit U.S. stores over the Thanksgiving weekend, slightly more than the 139 million who turned out last year.
If reports start to show the numbers don't add up, retail stocks may feel some heat.
"The market seems to be focused on the consumer and on retail sales. They're going to dice up and analyze what sales figures have been for this weekend," said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.
He said there's special interest in this season because there are fewer shopping days and retailers are significantly reducing prices to attract shoppers.
This year's holiday shopping season in the United States is one of the shortest in years, with less than 30 days between Thanksgiving and Christmas.
Zaro said that however important sales and traffic numbers are, soft data should be treated carefully.
"I'm not sure it's a proxy for the overall market. There are areas of the economy doing quite well and areas of the market that are doing well beyond retailers, which are relatively mixed."
Regardless of how strong the numbers are, consumer stocks could be due for a slowdown. Retail stocks have underperformed the S&P 500 in the period from Thanksgiving to Christmas for the past three years, according to data from Bespoke Investment Group, an investment research firm in Harrison, New York.
Bespoke's data show that since 2000, the S&P 500 has averaged a gain of 1.7 percent during that key period, with positive returns in all but three years. Retail stocks have averaged a gain of just 0.8 percent in the same time frame, with positive returns during six of the 13 years.
A CHILL FROM CHINA?
During Biden's visit to China, Japan and South Korea next week, he will seek to ease growing tensions in the region. Last week, China established a new airspace defense zone over the East China Sea, including the islands at the heart of its dispute with Japan.
China scrambled jets on Friday in response to two U.S. spy planes and 10 Japanese aircraft, including F-15 fighters, entering its new air defense zone, state news agency Xinhua said.
"This is a little bit of a brush fire, and I'm hopeful it will de-escalate in a hurry," said Jim Russell, senior equity strategist for U.S. Bank Wealth Management, in Cincinnati.
"It's not the season to have a geopolitical distraction on what is already a shortened and highly promotional shopping season," he said.
(Wall St Week Ahead runs every Friday. Questions or comments on column can be emailed to: rodrigo.campos(at)thomsonreuters.com )
(Editing by Jan Paschal)