| NEW YORK
NEW YORK Nov 8 The U.S. stock market's rally
could be put to the test next week if comments from Federal
Reserve officials including Janet Yellen add to views the
central bank could be scaling back its stimulus plan sooner
rather than later.
While next week is light on economic news, bond yields have
been rising, giving further credence to the idea the Fed may
soon temper its bond-buying program in the near future.
With less than two months left in the year, many investors
are bracing for something that could shake up the stock market
and the Standard & Poor's 500's 24 percent year-to-date
That could come from the Fed, even if it's just that
investors begin to anticipate the Fed is ready to make a move
"There needs to be some sort of catalyst, and that would be
the No. 1 catalyst that I think could happen," said Uri
Landesman, president of Platinum Partners in New York. "This is
a monster bull market."
Continued stimulus and ultra-low interest rates from the Fed
have boosted the stock market this year. As part of its
quantitative easing policy, adopted more than four years ago,
the Fed has been buying Treasury and other bonds each month to
keep interest rates low and promote growth.
Next week brings several speeches by Fed officials, but key
will be a hearing Thursday before the U.S. Senate Banking
Committee on the nomination of Fed Vice Chair Yellen to replace
Fed Chairman Ben Bernanke.
Yellen has been a strong supporter of the stimulus and is
expected to face criticism from Republicans concerned by the
Fed's ultra-easy monetary policy, but is considered likely to
get approval for the position. Bernanke's term expires on Jan.
Federal Reserve Bank of Atlanta President Dennis Lockhart is
expected to speak on the economic outlook on Tuesday.
While most analysts still don't expect the Fed to begin
tapering before the end of the year, a string of mostly upbeat
economic data this week, including Friday's
stronger-than-expected October payrolls report, pushed up the
view that the Fed could act sooner rather than later.
A Reuters poll on Friday showed that more U.S. primary
dealers now see the Fed scaling back its stimulus before March.
Just two weeks ago, a similar poll found the majority of dealers
expected the central bank would not start easing before March.
Stocks have been weighing the benefits of a stronger economy
against chances of an earlier-than-expected reduction in Fed
stimulus. On Friday, the stronger economy won out, with all
three major indexes ending the day with gains of more than 1
But the report initially pressured the market, causing stock
futures to tumble, because of the possible implications for the
Fed. And on the bond market, 10-year benchmark note
prices slid 1-10/32 by late Friday, causing yields to shoot up
to 2.75 percent from 2.60 percent.
"We will see what happens behind the doors at the Fed, but
certainly there will be some reassessment of at least the
possibility of a December and/or January tapering," said Cameron
Hinds, regional chief investment officer for Wells Fargo Private
Bank in Nebraska.
Some analysts, including those at JPMorgan, said the
stronger trend shifted the expected timing of the Fed tapering
to January, earlier than the March-April period they had been
Friday's upbeat jobs data came a day after a Commerce
Department report showed gross domestic product grew at a 2.8
percent annual rate in the third quarter, the quickest pace in a
Some analysts say more data will likely be needed to show a
real improvement trend.
The Fed seems to be focusing on a fairly long trend, said
Rick Meckler, president of investment firm LibertyView Capital
Management in Jersey City, New Jersey.
"I think this has been a positive sign in terms of giving
them time to think about tapering, but they also have shown a
willingness to wait until you get some consistently better
numbers," he said.
Next week brings data on industrial output, as well as
weekly jobless claims.
RETAILERS TO REPORT
Also on the agenda next week are results from several
retailers, with results in the upcoming weeks rounding out the
third-quarter earnings season.
Of the 16 S&P 500 companies expected to report next week,
four will be retailers: Macy's Inc, Kohl's Corp,
Wal-Mart Stores Inc and Nordstrom Inc.
Wal-Mart and Macy's are expected to show increases in
earnings from a year ago, while Kohl's and Nordstrom are
expected to show declines, Thomson Reuters data showed.
With results already in from 447 of the S&P 500 companies,
the quarter's estimated profit growth of 5.5 percent is likely
to see little change.
But their results could also offer clues about the upcoming
holiday shopping season, which some analysts have predicted
could be among the slowest in years.