With Fed out of the way, what's next on Wall Street?

NEW YORK Sat Dec 21, 2013 6:02am EST

Traders work on the floor of the New York Stock Exchange shortly after the market opening December 19, 2013. REUTERS/Lucas Jackson

Traders work on the floor of the New York Stock Exchange shortly after the market opening December 19, 2013.

Credit: Reuters/Lucas Jackson

NEW YORK (Reuters) - With the U.S. Federal Reserve finally announcing it will start tapering its stimulus, removing a big uncertainty in the market, can Wall Street expect a stronger finish to the year? Not really.

The "Santa Claus rally" is a seasonal anomaly that describes a rise in stock prices in December, generally over the final week of trading prior to the new year.

The benchmark S&P 500's average gain during the last five days of December and the first two of January is about 1.5 percent since 1950, according to Stock Trader's Almanac. The equities market has gone up in December about 80 percent of the time for the past 20 years.

Although the S&P 500 is up just about 1 percent so far this month, the index is up about 27 percent for the year and is on track for its biggest gain since 1997.

"It's been a strong year, and I wouldn't be surprised if investors closed out their year today," said Doug Foreman, co-chief investment officer of Kayne Anderson Rudnick Investment Management.

"There isn't much room or news to move higher from here until next year."

Stocks rallied sharply this week, with the Dow and the S&P 500 closing at records on Friday, following the Fed's mid-week announcement it will reduce its $85 billion monthly bond purchases by $10 billion.

For the week, the Dow gained 3.1 percent, the S&P 500 was up 2.5 percent and the Nasdaq added 2.6 percent.

Trading volume this week was also below average as many investors had already locked in their gains for the year ahead of the holidays.

"There's a lot of transparency in the market, but most of the noise has already been made. We should expect to continue seeing light volume and not much selling as we go into next week," said Mark Martiak, senior wealth strategist Premier Wealth/First Allied Securities in New York.

"We're selling our winners and looking to see what sectors could be the ones to be in next year. I like cyclical and industrials. I want to see the news post-holiday season before I start to recommend defensive names."

With Christmas and New Year's holidays in the middle of the week, trading volume is likely to be lower than previous years. The New York Stock Exchange will close early at 1 p.m. ET on Tuesday and will remain closed for Christmas day.

Analysts say next week will be a start of investors finally shifting focus to the fundamentals of the economy, like economic reports and corporate earnings.

"With the Fed out of the way now, the market is going to move back to making more rational decisions and focus on what really matters in the economy," said Scott Clemons, chief investment strategist at Brown Brothers Harriman Wealth Management.

"Fourth-quarter earnings will start coming in January and the market's full focus will be on those numbers and outlooks."

Economic data due next week include personal income and outlays at 8:30 a.m. ET on Monday. Tuesday's data include durable goods orders at 8:30 a.m. ET and new home sales at 10:00 a.m. ET. On Thursday, weekly jobless claims will be released at 8:30 a.m. ET.

(Additional reporting by Ryan Vlastelica and Chuck Mikolajczak; Editing by Nick Zieminski)

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Comments (9)
beancube2101 wrote:
It doesn’t seem right. Where are those China vs Japan war money stirring? Are you paying enough to those Zionists?

Dec 21, 2013 6:33am EST  --  Report as abuse
tmc wrote:
I think the bigger question is what will Reuters use in all its financial headlines now? I was so sick of seeing “Fed” in every title….

Dec 21, 2013 9:09am EST  --  Report as abuse
Afrodo wrote:
The F E D, not out of the way. For the record, The F E D owns $4 TRILLIONS in U S A assets. That is about 69 Warren Buffets put together. My QUESTION: How does the Federal Government owe so much money? Where was The F E D at the beginning? Allegorically speaking: What does a smoker expect after constant smoking of XYZ years? Merry Christmas & Make Love Not War.

Dec 21, 2013 12:19pm EST  --  Report as abuse
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