The bullish mood that usually hits Wall Street around the holidays seems to be muted by more than a little nervousness this year.
After two straight years of rapidly rising stock prices, nobody is complaining that the market has been stingy.But because of that very prosperity, and a couple of brief but nasty selloffs in recent days, many analysts are skeptical that the market is going to deliver a nice, tidy "year-end rally" this winter.
"The stock market is a mean and contrary beast and, with its nasty disposition, seems to like to ambush investors at awkward, unlikely times," Barton Biggs, global strategist at Morgan Stanley & Co., recently wrote to the firm's clients.
"What better period for an embarrassing decline than the Dec. 20-early January period? Santa Claus takes the stock market down the chimney with him."
There is both statistical and anecdotal evidence to support the traditional view that December is a good time to be invested in the market.
"The 1 1/2-month period starting with two days before Thanksgiving and ending with the fourth trading day in January has impressively accounted for 40 percent of the market's entire price return over the last 70 years," says Norman Fosback, editor of the advisory letter Market Logic in Deerfield Beach, Fla.
Many studies have been devoted in recent years to the so-called January effect, a tendency for small stocks in particular to perform well as a new year begins.
One apparent force behind such patterns is the bounce that seems to occur for out-of-favor stocks once the pressure of year-end tax selling lets up.
As the perceived January effect has gained more attention and investors have sought to profit from it, some analysts say it has crept forward on the calendar to December - and perhaps even to November this time around. The market averages took a big jump in November before lapsing into a more erratic pattern lately.
In any case, some observers say, other influences could easily surprise any trader who is counting on an automatic replay of past yearend market action.
The past two years have marked the 10th set of strong back-to-back years in the stock market during the 20th century, says Yale Hirsch in his Ground Floor investment letter, based in Old Tappan, N.J.
"In the years following the nine other big two-year gains, the market lost an average of 10 percent," Hirsch observes. "Only three years showed gains, and those were small. The outcome can vary, but the market never goes straight up indefinitely."
Furthermore, he says, "post-election years tend to see corrections. So even aside from the fact that stock prices are very high in relation to earnings, dividends and book value, there are reasons for caution."
On top of all that, anybody with an itch to take a flyer now in stocks probably has a few second thoughts after recent comments from Alan Greenspan, chairman of the Federal Reserve, about the problems that "irrational exuberance" in financial markets can pose.
"Mr. Greenspan is jawboning," says Edward Yardeni, chief economist at Deutsche Morgan Grenfell Inc. in New York. "His remarks were obviously intended as a warning to speculators.
"Don't play chicken with the Fed," Yardeni advises. At the same time, however, he says Greenspan's cop-on-the-beat stance is "very bullish in the long run."
It can be interpreted, after all, as strong evidence that the Fed is determined to avoid a boom-bust cycle in financial assets, so as to prevent a similar misadventure for the economy.
"The worst scenario," Yardeni says, "would be a stock market bubble that bursts and causes a recession, which might unleash a wave of deflation."