TORONTO - Stock markets could be in for a relatively stable week as investors look to the inauguration of president-elect Barrack Obama and the details of a massive government stimulus package.

"I think also the markets now will be watching to see if there is any further improvement on the credit market front and general signs that perhaps the deepest part of the downturn is behind us," said Doug Porter, deputy chief economist at BMO Capital Markets.

"That's not to say we're going to be looking for growth any time soon but at least the economy won't fall as quickly as it did in the fourth quarter -- I think that's what the market will be looking for."

Stock markets in Toronto and New York ended the first full week of 2009 trading lower, after initially racking up some early gains, as retail and employment data indicated that the U.S. recession could be longer and deeper than was thought -- and that even discount retailers won't get off lightly.

Sentiment further darkened after Friday's news that the American economy shed just over half a million jobs last month. That news was actually tempered with some relief, as many traders were worries that job cuts would come in at around 800,000.

The news was also grim in Canada where almost 35,000 jobs were lost during December.

"On the one side, we can say they were really no worse than expected but that doesn't take away from the fact that the expectations were horrendous," said Porter.

"And I think the job numbers on both sides of the border just pound home the degree of distress in the North American economy in the fourth quarter and unfortunately it now looks like Canada is only a step or two behind the U.S."

But market losses in the wake of the jobs news was relatively muted compared with how the market has treated bad news as recently as a month ago.

"Some of it goes back to the fact that the markets had already priced in a truly awful outcome for the global economy by November and so, to some extent, the markets are inured to the wave of bad economic news," said Porter.

"And that's kind of classic behaviour by the equity market during a downturn to respond very negatively, even violently, early in the downturn and the grind out with no clear direction during the middle stages of the downturn until it begins to sniff out a recovery."

As far as the Toronto market is concerned, it's hard to see what will reignite the early new year rally that saw the main index run ahead just over five per cent or 500 points in the first six sessions of the year.

Beyond the grim retail news from the U.S. and dismal jobs data in Canada and the U.S., the energy sector has retraced about two thirds of its gain from that early runup as oil surged 20 per cent to about US$50, partly on concerns related to Israel's attack on Gaza.

But concerns about demand trumped geopolitical concerns and by the end of last week oil was back around US$40 a barrel.

The base metals sector lost about half the 39 per cent runup from early '09 trading.

"I think that there was a little bit of a false dawn in the opening days of the year on hopes that the global economy might turn the corner a little bit sooner than previously hoped," added Porter.

"But I think commodity markets are going to struggle for the first half of this year as investors come to grips with just how widespread and deep the global downturn is. I find it very tough to be optimistic on commodities over the next six to 12 months."