| NEW YORK
NEW YORK Jan 3 Investors in U.S. stocks will be
looking to Washington next week, awaiting key jobs data and
minutes from the Federal Reserve's most recent meeting, when it
decided to cut its unprecedented monetary stimulus.
Minutes from the Fed's Dec. 17-18 meeting, when the central
bank announced its plan to reduce monthly asset purchases by $10
billion to $75 billion, could give further insight into the
reasons behind the decision and offer clues about how quickly
the Fed will wind down the stimulus.
Stocks rallied following the decision because it confirmed
to many that the U.S. economy was on firmer footing and ended
uncertainty over when the Fed would finally reduce its stimulus,
which was the key driver of the S&P 500's nearly 30 percent gain
Recent data, including Thursday's factory activity report,
confirmed underlying strength in the economy, suggesting the Fed
was justified in its move.
But investors will be anxious to see whether that strength
is also seen in the December U.S. payrolls report, due on
Friday. The Fed has tied its policy in part to jobs data. In its
December announcement said it "likely will be appropriate" to
keep overnight rates near zero "well past the time" that the
U.S. jobless rate falls below 6.5 percent.
"The expectation is we're going to hear things are good,
otherwise why would they have tapered," said Rex Macey, chief
investment officer of Wilmington Trust Investment Advisors,
based in Wilmington, Delaware.
U.S. employers are expected to have added 197,000 jobs in
December, down slightly from the 203,000 jobs added in November,
according to a Reuters survey. The unemployment rate is expected
to remain at a five-year low of 7.0 percent.
The Fed's decision to trim its stimulus in December came as
a surprise to many investors, who had expected the Fed to delay
such a decision until early in 2014.
Signs of weakness in economic data could suggest that the
Fed acted too soon and give investors reasons to sell,
especially as last year's huge rally left investors braced for a
period of consolidation.
Stocks ended with slight losses for the week, with the
Standard & Poor's 500 index down 0.6 percent.
Besides the payrolls data on Friday, next week brings a
report on the U.S. services sector on Monday as well as a report
on durable goods orders.
"I think the equity markets borrowed a bit out of 2014 in
terms of sniffing out better growth, and now if there is some
concern that it may not be fulfilled, then that might be an
impetus for investors to cool their enthusiasm," said Mark
Luschini, chief investment strategist at Janney Montgomery Scott
in Philadelphia, which manages about $60 billion in assets.
To be sure, Ben Bernanke, in his last speech as Fed chairman
on Friday, said the central bank is no less committed to highly
accommodative policy now that it has trimmed its stimulus. In
order to help the economy recover from its 2007-2009 recession,
the Fed has held interest rates near zero since late 2008.
Bernanke is set to be succeeded by Fed Vice Chair Janet
Yellen when he steps down at the end of this month. Yellen is
expected to get U.S. Senate approval sometime next week, while
minutes from the last Fed meeting will be released Wednesday.
ALCOA RESULTS DUE
Investors also will be keeping an eye on the first results
from the upcoming earnings season for signs of how well they are
holding up compared to expectations. Results from Alcoa Inc
and Monsanto Co are both due next week.
The pace of companies reporting isn't expected to pick up
until the following week, when a number of banks are due to
report, including JPMorgan Chase & Co.
Fourth-quarter results are expected to have increased 7.6
percent from a year ago, according to Thomson Reuters data. That
compares with earnings growth of 6 percent in the third quarter.
Those results are likely to help determine whether earnings
forecasts for 2014 need to come down and whether stock values
have become overstretched.
"If you have earnings growth and the economy is better, then
stocks can go up," said John Fox, director of research at
Fenimore Asset Management in Cobleskill, New York.
Some focus may turn to retailers as companies report
holiday same-store sales in coming days and ahead of the
consumer and retail ICR XChange conference Jan. 13-15.
Goldman Sachs analysts recommended buying options in
companies including Wendy's and GameStop heading
into the events.