But the few trading days since Christmas Eve witnessed a strong rebound in global stock markets as investors brushed aside bleak economic data. This resulted in market participants scooping up beaten-down stocks and commodities, mending some of the bruising sustained earlier in 2008. The better spirit of equities was reflected in losses for some government bonds.

Despite a grim ISM report (see section "Economy" below), the S&P 500 Index jumped by 3.2% after the release of the data, propelling many stock market indices to almost 2-month highs. The MSCI World Index (+5.9%), MSCI Emerging Markets Index (+5.3%), Dow Jones Industrial Index (+6.1%), S&P 500 Index (+6.8%), Nasdaq Composite Index (+6.7%) and the Russell 2000 Index (+6.1%) all gained handsomely (albeit on thin volume) during the week straddling New Year’s Day.

December also marked the first monthly gain since August for the major US indices, with the Dow Jones and S&P 500 now up by 19.6% and 23.9% respectively since the lows of November 20, 2008.

The “storm” of 2008 has undoubtedly grown quieter in December, with the CBOE Volatility Index (VIX) having declined from 80.9 in November to 39.6 on Friday. Also, the average daily swing in the Dow Jones has fallen to 300 points, compared to 430 points in November and 590 points in October, according to Briefing.com.

Christmas Eve trading on Wednesday, December 24th marked the start of the Santa Claus Rally period, made up of the last 5 trading days of December and the first 2 of January. With 1 trading day to go on Monday, the combined gain for the S&P 500 Index for the first 6 days was 8.0%. The absence of a rally -- and one now seems highly unlikely -- has often been the harbinger of a sizeable correction or a bear market in the coming year. Hence the saying: “If Santa Claus should fail to call, bears may come to Broad & Wall.”

But risks remain plentiful and Bill King (The King Report) reminds us that “just as night follows day, international conflicts follow economic crises." Escalating violence in the Middle East and tensions between Russia and the Ukraine served as a reminder and caused a 22.9% spike in the price of West Texas Intermediate Crude on the week.

Next, a quick textual analysis of my week’s reading material (done between New Year’s celebrations). No surprises here with keywords such as “economy,” “financial,” “market,” “prices,” and “rates” featuring prominently.

Readers often ask me about Richard Russell’s (Dow Theory Letters) viewpoint on the stock market. Here's his latest take on matters: “It occurs to me that this is a good time to remember my old friend Marty Zweig's classic warnings: ‘Don't fight the tape, don't fight the Fed.'"

Well, if you're bearish on 2009, you are indeed fighting the Fed and probably the tape. Why do I say that? Because the Ben Bernanke Fed is going all out in its effort to turn the US economy around. Bernanke says the Fed will do whatever it takes to halt the current trend to deflation and bring back prosperity and mild inflation to the US:

“The stock market seems to have finally climbed aboard the Fed's bullish bandwagon. All of which brings us to a very dramatic and critical juncture. If the market heads higher in early January, I believe that money on the sidelines [$8.85 trillion – 74% of US market cap] could begin to turn optimistic and even bullish,” said the R-man.

From across the pond, David Fuller (Fullermoney) added:

“The crucial missing ingredient for stock markets to date has been confidence. Nevertheless that could change in January, given the high levels of cash held by most institutional investors. ... if stock market indices surprise the bearish consensus and start to break upwards rather than downwards from their trading ranges, institutional investors will be under increasing pressure to participate.”