Washington Will Drive Stocks This Week

Economic data was fairly strong last week, and that drove stocks higher even though we don't have a fiscal-cliff deal yet. The Dow Jones Industrial Average gained 0.99% and the S&P 500 was up a paltry 0.13%.

Last week, we saw better-than-expected figures for nonfarm payrolls, the unemployment rate, and factory orders. But not all of the news was positive. The ISM Index, which gauges manufacturers' confidence, fell to 49.5 from 51.7 last month, and a consumer confidence index from the University of Michigan and Thomson Reuters fell to 74.5 in December, from 82.7 last month. So what should we watch for this week?

A retail sales report comes out on Wednesday, and analysts are expecting a 0.6% growth in November, or 0.2% if you take out auto figures. This report will affect the sentiment toward retailers such as Target and Wal-Mart , which are still hurting from the onslaught of online retail this year. Better-than-expected growth could help retail stocks and would also be a good sign for the economy.

Of course, there will be talk about the fiscal cliff, but the big news this week will come from the always exciting Federal Reserve meeting in Washington. Ben Bernanke and Co. are expected to announce continued stimulus in the form of Operation Twist. That's not a dance move; it's when the Fed buys long-term bonds and sells short-term ones in an effort to lower mortgage and corporate bond rates. The question about this meeting surrounds the Fed's thoughts on the fiscal cliff and the steadily growing economy. There's been talk recently that the Fed may slow down stimulus or even raise rates in the foreseeable future, a sign of a stronger economy but not something the market likes short-term.

Bank stocks will respond to the Fed news more than most other stocks. Bank of America , Citigroup , and JPMorgan Chase are three stocks to watch, and they could move sharply this week depending on what happens at the Fed meeting.

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The article Washington Will Drive Stocks This Week originally appeared on Fool.com.

Fool contributor Travis Hoium has no positions in the stocks mentioned above. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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