Investors in U.S. stocks will look to Washington this week, awaiting key jobs data and minutes from the Federal Reserve's most recent meeting, when the central bank decided to cut its unprecedented monetary stimulus.
Minutes from the December 17-18 meeting, after which 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. The minutes will be released on Wednesday.
Stocks rallied following the Fed's decision because it confirmed to many that the U.S. economy was on firmer footing and ended uncertainty over when the central bank would finally reduce its stimulus, which was the driver of the S&P 500's gain of nearly 30 percent last year.
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 also is evident in the December U.S. nonfarm payrolls report, due on Friday. The Fed has tied its policy in part to jobs data. In its December announcement, the Fed 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 economists polled by Reuters. The U.S. 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.
Source: Reuters
