By Chuck Mikolajczak
NEW YORK, Feb 23 (Reuters) - For U.S. stock investors, the main event will be Federal Reserve Chair Janet Yellen’s return trip this week to Capitol Hill. Wall Street will hang on her every word about the weather, of all things, when she goes before the Senate Banking Committee to complete her semi-annual testimony about monetary policy.
Yellen will speak to the Senate panel on Thursday, when she will give the second part of her comments on monetary policy. She had already reassured Wall Street with her testimony on Feb. 11 to the House Financial Services Committee that the Fed would not make any changes to its schedule for trimming its stimulus.
Her initial appearance before the Senate Banking Committee had been set for Feb. 13, when Washington, D.C., was walloped with the heaviest snowfall of the season and the hearing had to be postponed. Snowstorms and ice have repeatedly slowed travel and commerce this winter in the Northeast, the South and the Midwest, with the impact rippling through recent economic data and companies’ first-quarter profit warnings.
Yelena Shulyatyeva, an economist at BNP Paribas in New York, said investors and economists will pay attention to Yellen’s answers on “questions about the weather, how much does she think the weather is impacting economic activity and how much will (the Fed) pay attention to that.”
Market participants will also monitor Yellen’s statements on Thursday for any signs regarding the U.S. central bank’s plans as it tapers its stimulus measures. As the U.S. unemployment rate nears the Fed’s 6.5 percent target, the debate has grown over whether interest rates should be raised.
James Bullard, president of the Federal Reserve Bank of St. Louis, said on Friday that the U.S. economy is headed for a good year of growth. He added that he expects the central bank to keep trimming its massive bond-buying stimulus.
The Group of 20 central bankers and finance ministers, in their two-day meeting over the weekend, acknowledged the concerns of emerging nations that the Federal Reserve should consider the impact of tapering its bond purchases, which has led to capital flight from some of the more vulnerable markets.
Australian Treasurer Joe Hockey, who hosted the meeting, said Yellen, in her first G20 meeting since becoming the Fed’s chair, was “hugely impressive” in dealing with members about the impact of the U.S. central bank’s tapering of its stimulus.
All told, the U.S. stock market could be roiled again by political turmoil this week as investors monitor unrest in Venezuela and Ukraine. While those countries represent a small portion of the global economy, further deterioration could dent sentiment.
Stocks may find tougher sledding in the week ahead as investors may be unwilling to push the Standard & Poor’s 500 Index to a record past the all-time intraday high of 1,850.84 set on Jan. 15. That level has served as resistance in recent sessions.
Over the past three weeks, the S&P 500 climbed 3 percent while investors largely forgave a flurry of soft economic data blamed on the harsh winter.
With the U.S. stock market’s slight downturn on Friday, the S&P 500 broke a two-week rally after flirting with its record highs reached last month.
“1,850 seems to be a level where enough natural selling comes out and it doesn’t have the ‘oomph’ to take it up and through, and every time that happens, it seems to back off a little bit,” said Ken Polcari, director of the NYSE floor division at O‘Neil Securities in New York.
“If the market breaks down, (investors) are happy to jump in and support. But if the market tries to break out, there are plenty of people willing to take a little off the table because they are still looking for the market over the next couple of months to be volatile to the downside.”
One potential hurdle to continued gains will come on Friday, the day after Yellen’s testimony, with a preliminary reading on gross domestic product for the final three months of 2013. The data is expected to show U.S. economic growth at an annualized rate of 2.5 percent in the fourth quarter, down from a previous reading of 3.2 percent.
“The GDP revisions, that will be big,” said Jeffrey Cleveland, chief economist at Payden & Rygel in Los Angeles.
“You could argue that some of that is priced in, or a lot of it is priced in, but the sticker shock will be interesting, especially given (that) the first quarter is tracking below the fourth quarter.”
This week’s economic calendar includes consumer confidence, new home sales and several other reports on the housing market, durable goods orders, as well as the preliminary GDP data and the final February reading on consumer sentiment from Thomson Reuters and the University of Michigan.
While the housing data is likely to be discounted as a result of the weather, the consumer confidence reading may still give investors some insight into whether economic growth remains on track.
“If you look at consumer confidence, looking past the weather cycle of indicators, we find the economic outlook of consumers has not changed materially despite all the other indicators that may suggest otherwise,” said Anastasia Amoroso, global market strategist at J.P. Morgan Funds in New York.
“So if consumer confidence comes in as the preliminary reading did, that suggests the end-user demand for goods and services did not fall off a cliff, but rather has been deferred due to weather.”
Earnings season will also wind down, with retailers in focus as the weather has added to the sector’s many other challenges.
Retailers set to report earnings this week include Home Depot Inc, Lowe’s Companies Inc, Target Corp , Macy’s Inc, TJX Companies, JC Penney Company Inc, Best Buy Co Inc and Gap Inc .
Thomson Reuters data showed that of the 441 companies in the S&P 500 that had reported results through Friday, 65.3 percent had posted earnings above analysts’ expectations. That was slightly below the 67 percent rate for the past four quarters, but above the 63 percent average since 1994.
(Wall St Week Ahead runs every Sunday. Questions or comments on this column can be emailed to: charles.mikolajczak(at)thomsonreuters.com)