NEW YORK - Investors head into a holiday-shortened week with optimism that recent moves to prop up the ailing auto industry and slash interest rates might trigger a year-end rally.
Like the deep discounts luring holiday shoppers to the malls, the steep drop in stocks over the past year has made many blue chip shares more attractively priced. And big institutional investors might use the last seven trading days of the year to snap up some bargains.
The downturn that began in October 2007 spread through the entire market in the past year and damped widespread demand for all but the safest investments, particularly government bonds.
With the benchmark Standard & Poor’s 500 index down 40 percent in 2008, investors are hopeful about a rally in the past month and wondering what to expect next year.
Even if investors stream into the market, it still might not be enough to save what is expected to be one of Wall Street’s worst years on record. Volume is expected to be light in a week shortened by the Christmas holiday and an early close on Christmas Eve.
“Only the folks that need to trade are going to trade this week,” said Axel Merk, portfolio manager at Merk Funds. Decreased volumes, he said, can mean added volatility.
With little in the way of corporate news expected this week, investors will turn their attention to economic reports. Data slated includes a report on new-home and existing-home sales for November, the government’s third-quarter gross domestic product report and a reading on consumer sentiment for December.
And Wall Street might also be attracting buyers if 2008 follows the tradition of a Santa Claus rally. The market has participated in the year-end rally seven out of the last eight years.