Wall Street Week Ahead: As Fed taper debate goes on, retail vies for attention

NEW YORK Fri Nov 15, 2013 5:41pm EST

Traders work on the floor of the New York Stock Exchange, November 15, 2013. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange, November 15, 2013.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - The guessing game about when the Federal Reserve will start to cut its stimulus will enter a new round next week as stock investors dissect minutes from the last central bank meeting, while retail sales and clues about the consumer will also vie for attention.

The sales data will be watched for signals ahead of a holiday shopping season that is not expected to be particularly robust. Results from several top retailers including Home Depot (HD.N) and Best Buy (BBY.N), which is among the S&P 500's top percentage gainers this year, also are due next week.

But the question of when the Fed will slow its bond buys has been one of the biggest influences on the market lately.

Investors have been bracing for anything that could reverse at the last minute the market's year-long rally, which saw the Dow and S&P 500 hit record highs again this week. The S&P 500 is up 26 percent this year and registered a sixth week of gains on Friday.

Fed Vice Chair Janet Yellen, at her confirmation hearing to succeed Chairman Ben Bernanke, suggested any change to the Fed's accommodative policies was not imminent. That lifted stocks, since investors had speculated the Fed could reduce its bond-buying as early as December after robust data on U.S. payrolls and economic growth.

As part of its quantitative easing, adopted more than four years ago, the Fed has been buying Treasuries and other bonds to keep interest rates low and promote growth.

Continued stimulus and ultra-low interest rates have been a big part of the market's advance this year. While any change in that support is expected to be small at first, speculation over its start has caused much market turmoil.

"I'd be looking at those minutes for evidence that they're considering reducing the threshold for raising rates, and I would view that as a hint that they're considering restarting the tapering process," said Barry Knapp, managing director of equity research at Barclays Capital in New York.

The minutes released Wednesday will be from the Fed's October 29-30 meeting. Stocks fell after that Fed announcement, which removed a phrase expressing worries about credit conditions. Some investors interpreted that as a sign the Fed could begin tapering earlier than expected.

Knapp said at this point he doesn't see any tapering by the Fed until next year, but, he said, "We're marching toward an inevitable start to this process."

Retail sales data for October, also due Wednesday, could keep investors on edge given last month's partial U.S. government shutdown, which could affect the coming holiday shopping season.

An earnings report from Macy's (M.N) this week "was big," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago. "What people were worried about was the holiday. And now people are saying, 'Well, maybe the holiday is going to be OK.'"

Besides Home Depot and Best Buy, results are also expected next week from retailer J.C. Penney (JCP.N), which is seen posting a loss, and from Lowe's Cos (LOW.N).

Companies like J.C. Penney aside, consumer discretionary shares have led S&P 500 gains this year and are among the priciest in the index. The sector has a forward price-to-earnings ratio of about 18 while the P/E for the S&P 500 is 15, according to Thomson Reuters StarMine data.

Next week also brings data on consumer and wholesale inflation.

KEY LEVELS AHEAD

If the rally goes on, indexes could soon be bumping up against some significant levels, at least psychologically: the Dow is nearing 16,000, while the S&P is just below 1,800 and the Nasdaq a little shy of 4,000.

Analysts say, barring a big surprise from the Fed or the U.S. government, indexes look likely to stay on their upward trend for now.

In addition, some investors could be on the sidelines waiting for an opportunity to come into the market, said Todd Salamone, director of research at Schaeffer's Investment Research. Some gains could come as a result of short-covering.

"Those playing on the short side of the market ... are experiencing serious pain. And therefore, when they're in a losing position, those are candidates for short-covering."

(Reporting by Caroline Valetkevitch, additional reporting by Luke Swiderski; Editing by Nick Zieminski)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (3)
Afrodo wrote:
Today, is only Nov. 15. 1/2 of the month is still with us.
~ I know it’s a gamble, but I will not cover my shorts, from experience.
_______________
Today, record numbers for the averages.
~Of all three major markets, of all the stocks traded, 7.2% made new yearly highs.(These are not bets on a good economy; these are bets away from a bad economy). Congrats to those bulls who took profits. The price of the dollar tells me that there was more shorts covering today than yesterday.
~ Good luck to the new bettors next week.

Nov 15, 2013 7:44pm EST  --  Report as abuse
Afrodo wrote:
At this point, nobody talks about, what tools does the Fed have, to fight higher unemployment rate, l i k e, after the Holidays, if*, retail disappoints,or, milder winter brings down crude & gold;
USA Trade balance got worse; what if there is USA$ devaluation?

Nov 17, 2013 12:54pm EST  --  Report as abuse
james. wrote:
The above article in its title and content communicates the false notion that QE3 Tapering is still under consideration, as if the Nov 14 Yellen testimony at her Congressional Hearings for FRB Chairperson never took place ! Facts are facts ! Namely, the first week that Yellen becomes FRB Chairperson she will implement her “Optimal Control” policy as follows: Yellen will reduce the FRB Discount Rate & Fed Funds Rate so as to stimulate U.S. Jobs growth, reduce unemployment, and simultaneously allow the U.S. Inflation Rate to rise somewhat above 2% . Of course, Yellen’s “Optimal Control” policy implementation will have the side-effect of accelerating the profound and long-term decline in DXY (the U. S. Dollar Index), and thus increase the prices of Gold, Silver, and Platinum to pre-crash levels seen in 2011 and 2012, and then finally advance those prices to all-time new highs in 2014; reasonable Price Objectives for Jan 2014 in Gold, Silver, and Platinum are $1650, $34, and $1950 per ounce, respectively, where Platinum price rise will also be aided by the SA labor strife and Drought. “Look to it ! ” , as honest Abe Lincoln was fond of saying 12:15 pm PST.! Nov 17, 2013 at

Nov 17, 2013 3:17pm EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.