Cash ready when mood improves

Wall Street will open for trading today at a two-month high, with investors more optimistic that the worst of the market’s rout might be over. But, analysts contend, the real test is still to come.

There will be no shortage of economic data and potential corporate news as traders get back to work after the holidays. The real hope is that the market can build upon Friday’s rally, when the Dow Jones industrial average snapped a four-week losing streak and closed above 9,000 for the first time since Nov. 5.

The last month has shown that the negative sentiment about corporate earnings and the credit markets has already been factored into the market. Analysts say the next few weeks will determine whether investors are comfortable enough to return to the market -- with their fears of missing out on a rally outweighing concerns of a renewed downturn.

“There’s now an estimated $8.9 trillion sitting on the sidelines in cash and money markets,” said Stephen Leeb, president of Leeb Capital Management. “High cash levels and low stock prices historically go hand in hand. The current level as a percentage of the stock market’s capitalization matches that at the market bottom in 1990.”

He said this liquidity “has yet to include the massive amount of money that will be created as a result of the Federal Reserve’s recent unprecedented actions to stimulate the economy and financial system.”

That also could help bolster markets in the coming months, though Leeb and other analysts do not discount that the market may retreat and retest lows of November.

This week, investors will be eyeing the Labor Department’s December unemployment report, due out Friday. Employers are expected to have cut 475,000 jobs from their payrolls, according to analysts polled by Thomson Reuters, below 533,000 jobs the previous month.

Meanwhile, the unemployment rate is expected to have risen to 7% from 6.7% in November.

The government also will release its weekly jobless claims report Thursday. Another increase is expected.

Other reports on tap this week include November construction spending, auto sales, a survey on the services sector, November factory orders and chain store sales.

The Federal Reserve this week will release the minutes from its mid-December policymaking meeting at which the central bank cut the federal funds rate to 0% to 0.25%, and indicated rates would remain at that level for the foreseeable future.

On Wednesday, the House Financial Services Committee meets to discuss how the next administration might make use of the remaining funds from the Troubled Assets Relief Program.

Today the panel will hold a hearing on Bernard Madoff, the investor who has been accused in a $50-billion Ponzi scheme.

In corporate news, technology stocks may also be in the spotlight with two big events planned, Macworld and the Consumer Electronics Show.

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At a glance

TODAY

Commerce Department releases construction spending report for November.

Treasury holds weekly briefing and auction.

House Financial Services Committee holds hearing on the Bernard Madoff scandal and the need for regulatory changes.

Major automakers report U.S. sales for December.

Macworld, the annual convention spotlighting Apple Inc. products, begins in San Francisco.

TUESDAY

Commerce Department releases report on factory orders for November.

National Assn. of Realtors releases pending home sales index.

Federal Reserve releases minutes from its mid-December meeting.

The Institute for Supply Management releases its non-manufacturing index for December.

WEDNESDAY

House Financial Services Committee holds hearing on priorities for the Obama administration in using the Wall Street rescue fund.

House Steering and Policy Committee, a panel of only Democrats, holds a hearing on economic recovery proposals.

Senate Environment and Public Works Committee holds a briefing on investing in green technology as a way to help the economy.

The Consumer Electronics Show, the annual trade display of new products, begins in Las Vegas.

Companies reporting quarterly financial results include Constellation Brands Inc., Monsanto Co. and Supervalu Inc.

THURSDAY

Labor Department releases report on weekly jobless claims.

Federal Reserve releases consumer credit report for November.

Mortgage company Freddie Mac releases weekly mortgage rates.

Retailers report December sales results.

FRIDAY

Labor Department releases unemployment data for December.

House Financial Services Committee holds hearing on oversight of loan originators.

Companies reporting quarterly financial results include KB Home.