| NEW YORK
NEW YORK Nov 15 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
and Best Buy, 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
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 Oct.
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
An earnings report from Macy's 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, which is seen
posting a loss, and from Lowe's Cos.
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
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."