What's ahead for the stock market

Updated: 8:38 p.m. ET

For all the noise about the extension of the Bush tax cuts this week, stocks behaved in a stately way, rising quietly until, almost without warning, investors found themselves looking at a decent week.

In other words, they made a little money. The Dow Jones industrials ($INDU) gained 0.3%. The  Standard & Poor's 500 Index ($INX) rose 1.3%, and the Nasdaq Composite Index ($COMPX) was up 1.8%.

Next week may well be noisier. There are important economic reports and events coming up, including a Federal Reserve meeting and an important tax vote, plus earnings reports from the likes of Best Buy (BBY), Hovnanian (HOV), FedEx (FDX), General Mills (GIS), Oracle (ORCL) and Research In Motion (RIMM).

And this will be the last full week of trading before we get into the holiday season.

Trading volume will fall off rapidly the week of Dec. 20, with markets closed on Friday for Christmas Eve, and it will be low right up to Dec. 31, also a Friday. But the low volume will also leave the market vulnerable to more-than-the-usual volatility. So, your best bet is not to pay too much attention to the results of those two weeks.

Better to pay attention to what happens between now and New Year's. Here's why.

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The results between now and New Year's may hint at what may happen in 2011.

In 2007, the market fell back between Dec. 7 and Dec. 31, with the Dow down nearly 3% in that time frame and the S&P 500 off 2.4%. In 2008, the two indexes fell 33.8% and 38.5%, respectively.

In 2008, even as the financial crash was in full flower, the Dow, S&P 500 and the Nasdaq rose 1.7%, 2.7% and 2.4%, respectively, Dec. 12-31.

The 2009 market ended with the Dow up 18.8%, the S&P 500 up 23.5% and the Nasdaq up 43.4% for the year. And that was AFTER falling 25% or so between Jan. 1 and March 9.

It happens, of course, that the market has enjoyed a huge rally since bottoming in July. The Dow was down 7.1% for the year on July 2 and is up 9.4% now.

Momentum like that may carry into 2011. Plus, the third year of a presidential term is usually the best for stocks.

Markets for the week
			12/10/2010			12/3/2010			% chg.			YTD chg.
Dow industrials			11,410.32			11,382.09			0.25%			9.4%
S&P 500			1,240.40			1,224.71			1.3%			11.2%
Nasdaq			2,637.54			2,591.46			1.8%			16.2%
Russell 2000			776.83			756.42			2.7%			24.2%
Crude oil			$87.79			$89.19			-1.6%			10.6%
(per barrel)
U.S. Dollar Index			80.07			79.41			0.8%			2.4%
10-yr. Treasury			3.30%			3.02%			9.2%			-14.2%
Gold			$1,384.90			$1,406.20			-1.5%			26.3%
(per troy ounce)

What next week may bring
The week ahead will set up the year-end performance. There aren't a lot of earnings on tap, but they are revealing. Here are the earnings reports to watch:

Monday: Best Buy and Hovnanian. The electronics retailer raised its full-year guidance in September, and indications are that the holiday shopping season started strongly. The commentary on its fiscal-third quarter earnings will be key. The important piece of Hovnanian's report, which comes after the close, will be its new orders and cancellations.

Wednesday:  Joy Global (JOYG). This company will tell us what global demand for mining construction equipment is. In other words, Joy Global will offer a clear view of China's economic health. China is heavily investing in coal projects.

Thursday: FedEx, General Mills, Oracle, Research In Motion and office-furniture maker Steelcase (SCS).

FedEx also will help round out the picture of the holiday shopping season as well as the domestic and global economy. General Mills will tell us if food processors are facing inflationary pressures. Oracle, Research In Motion and Steelcase will give us a view of corporate spending.

Research In Motion has the most to prove. It needs to show that its BlackBerry line of phones has staying power against Apple's (AAPL) iPhone and phones that use Google's (GOOG) or Microsoft's (MSFT) operating systems. (Microsoft is the publisher of MSN Money.)

Even though Steelcase cut its fiscal-third-quarter​ guidance, Wall Street is hopeful about its prospects. Shares are up 56% since August.

The Fed, manufacturing, inflation and housing
The economic events start in a big way on Tuesday.

The big kahuna will be the Federal Reserve's decision on interest rates and monetary policy, due at 2:15 p.m. ET. The Fed has been highly criticized by China, Germany and other exporting countries because they fear the central bank's plan to buy in $600 billion in bonds by June will push the dollar lower, hurt their markets and cause inflation.

Republicans are terrified that the Fed is just being reckless.

What has happened since the Fed announced its plan in November is that the dollar has risen, as have interest rates. Gold is nearing record highs, silver is at 30-year highs, but crude oil has continued to be range-bound.

It is, however, so early in the plan's execution that one can't make a conclusion with any real statistics.

What the Fed will probably say is that it will complete the plan. It won't change interest rates. It will suggest that the economic recovery is proceeding, but joblessness remains a national crisis.

Also due next week:

Retail sales for November, due Tuesday from the Commerce Department. Nomura Securities see this report showing a solid 0.7% gain. Consumer confidence has picked up, and there is some evidence of life in the jobs market. Ford Motor (F) announced this week it is expanding a Louisville, Ky., plant.

Producer Price Index for November, due Tuesday from the Labor Department. This will help define the food inflation issue. The price of wheat is up 43% this year, largely because of a Russian drought. But droughts like that affect livestock feed prices and livestock prices overall.

Consumer Price Index for November, due Wednesday from the Labor Department. This report will also offer a sense of whether inflation is likely to be a serious problem. It may not have appeared much at the grocery shelves yet. Gasoline jumped 10.7% in October, according to AAA's Daily Fuel Gauge report, but only 1.6% in November.

Industrial production for November, due Wednesday from the Commerce Department. This is likely to be flat.

Empire Manufacturing Survey and Philadelphia Federal Reserve Bank's manufacturing index. Both for December. The first is due Wednesday from the New York Federal Reserve Bank; the latter comes Thursday. There is some worry with these. New York's October report was weak; Philadelphia's was stronger. The questions is: What's the trend?

Initial jobless claims, due Thursday from the Labor Department. The trend since summer has been for a slow but steady decline. Claims coming below 400,000 will be very bullish. 

Housing starts, due Thursday from the Commerce Department.  This should show improvement from a lousy report in October that was due entirely to a big decline in multifamily construction. Most economists see a modest gain as multifamily starts and permits rebound. Single-family construction will probably be flat and near record lows. Only a rebound in jobs and getting foreclosures sold will set up a real housing recovery.