NEW YORK (Reuters) - Investors could do their holiday shopping on Wall Street this week as bargain-basement prices for stocks and optimism over efforts to fight the year-long recession may prompt a year-end rally.
But not even a Santa Claus rally to end the year can rescue 2008 from going into the books as the worst for stocks since the Great Depression, thanks to the body blow delivered by the housing market slump, credit crisis and, finally, recession.
With just seven trading days left, the benchmark S&P 500 index is down 39.5 percent for the year, on pace perhaps to match Wall Street's second-worst year ever, 1937, when the S&P also plummeted nearly 39 percent. Should no rally develop next week, 2008 could well challenge 1931 -- when the S&P crashed 46 percent -- for the mantle of Wall Street's worst-ever year.
That said, the slump in stocks has left them relatively cheap. And analysts are now more optimistic that unconventional recession-fighting efforts such as the Federal Reserve's big interest-rate cuts may soon gain traction.
"You're getting a lot of people picking through the wreckage of this year and doing some selective buying," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.
"There are some good bargains out there and there is a fair amount of buying in the marketplace."
This week, market watchers will look at fresh data on the housing market for any sign that the sector is getting closer to a bottom.
HUNTING FOR HOLIDAY BARGAINS
Volume is expected to be light in a week shortened by the Christmas holiday and an early close on Christmas Eve.
The buying spirit tends to visit Wall Street nearly every year, "bringing a short, sweet, respectable rally within the last five days of the year and the first two in January," according to the Stock Trader's Almanac.
Santa's appearance on Wall Street has been good for an average 1.5 percent gain since 1969, according to the Almanac, while the absence of such a rally tends to precede times when stocks can be bought at much lower prices.
As of Friday's close, the broad S&P 500 was off about 40 percent from where it started the year, and was down about 44 percent from the all-time high it reached in October 2007.
But the S&P has recovered about 20 percent since hitting an 11-year intraday low in late November, prompting some to speculate that the worst may be over.
"A lot of people are wondering whether they'll get a Santa Claus rally," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
"Clearly, this is not a normal year, but just the fact that you have history on your side around the New Year's holidays can only be called a positive."
