US stocks finished a volatile five sessions more or less flat for the week and the year after a puzzling jobs report, and observers expect more of the same in the first week of fourth-quarter earnings season.
The turn of the year is usually a time for steady gains on broad indexes; since Dec 18, however, the Dow Jones Industrial Average has seen two of the biggest point gains in the current bull market, including a 323-point gain last Thursday, and some of the heftiest losses, such as a 331-point drop last Monday.
"Until crude oil can find three weeks of price normality, we're going to continue to see this craziness," said Joe Kinahan, chief derivatives strategist at TD Ameritrade. The earnings season will help investors sort through the net effect of two jarring changes in the economic landscape: oil's descent and the dollar's ascent.
Analysts expect the demise of oil prices in the last three months to hurt earnings for not just oil companies but a range of heavy industrial companies that serve them.
During the week, the euro also neared the level where it debuted against the dollar in 1999, around US$1.17. Should the value fall much further, the prospect of "parity" - one dollar for one euro - will arise, potentially turning trade relations between the two most productive regions of the world on their head.
At US$1.17 to the euro, US exports to Europe are already about 20 per cent more expensive than they were during the summer, while profits repatriated to the US are worth less.
"With many of the multinationals that rely on much of their sales coming from overseas, people are starting to look at multinationals and saying even if they have good earnings reports, the CEOs may put a damper on it with the outlook," said Mr Kinahan, of TD Ameritrade.
Still, trepidation about the effects of oil and the dollar has lowered expectations, meaning that positive surprises are possible. Wall Street analysts have forecast an aggregate 4 per cent growth rate for Standard & Poor's 500 companies in the fourth quarter, according to a tally by researchers at Thomson Reuters. That's short of the gross domestic product growth rate.
Foreign exchange and oil have a modest impact on the bottom line of the first multinational company to report: aluminium maker Alcoa.
But the aluminium giant is still one to watch this earnings season as it has a bird's eye view of the jet and auto markets - both of which are substantially affected by oil prices.
Alcoa shares have risen by more than half in the last 12 months as its customers at aerospace companies such as Boeing saw brisk demand, and as auto makers shifted to lighter aluminium from the traditional steel.
Albeit to a lesser extent than many other metals companies, Alcoa also sells wares to oil fields. Every well drilled using hydraulic fracturing techniques requires tonnes of steel or alloy piping to drill through the layers of rock. Steel makers were among the strongest stocks last year as they fed the voracious appetite of drillers. Recently, US Steel said it would have to lay off more than 600 workers in an Ohio plant that produced the tubular steel used as drill casing.
On Tuesday, the Commerce Department reports December retail sales, and economists expect a slight decrease from robust November levels. For US retailers, a stronger dollar and lower oil prices should be positive as most of their wares are imported. But traditional retailers are struggling to draw customers off their smart phones and into their stores.
And even as the US economy added more than 250,000 jobs and the unemployment rate declined to 5.6 per cent, the average wage reportedly dropped in December. While the drop in the price of petrol puts more money in people's pockets, surveys show that consumers are conscious of the temporary nature, according to analysts at brokerage Morgan Stanley.