Waiting for some clues
Investors to keep focus on Fed for hints on stimulus tapering
new york — The US stock market’s rally could be put to the test this 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 this 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 programme 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 per cent year-to-date gain.
That could come from the Fed, even if it’s just that investors begin to anticipate the Fed is ready to make a move soon.
“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.
This week brings several speeches by Fed officials, but key will be a hearing on Thursday before the US 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 January 31.
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 poll on Friday showed that more US primary dealers now see the Fed scaling back its stimu-
There needs to be some sort of catalyst... this is a monster bull market
Uri Landesman
lus 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-thanexpected reduction in Fed stimulus. On Friday, the stronger economy won out, with all three major indexes ending the day with gains of more than one per cent each.
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 on Friday, causing yields to shoot up to 2.75 per cent from 2.60 per cent.
“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, region- al 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 expecting.
Some analysts say more data will likely be needed to show a real improvement trend.
Retailers to report
Also on the agenda this 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 this week, four will be retailers: Macy’s, Kohl’s, Wal-Mart Stores and Nordstrom.
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 per cent 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. —