The Week Ahead: Investors Look to Fed Minutes, Jobs Data

Wall St Week Ahead Investors to watch Fed minutes, jobs
Scott Eells/Bloomberg via Getty Images
By Caroline Valetkevitch

NEW YORK -- 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 Dec. 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 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 Friday. The Fed has tied its policy in part to jobs data. In its December announcement, %VIRTUAL-article-sponsoredlinks%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, Del.

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 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 last week with modest losses, with the Dow Jones industrial average (^DJI) off less than 0.1 percent and the Standard & Poor's 500 index (^GPSC) down 0.6 percent. The Nasdaq composite (^IXIC) also fell 0.6 percent for the week.

Besides the payrolls data Friday, this week brings the Institute for Supply Management's December report on the U.S. services sector Monday as well as November factory orders and a revised report on November durable goods orders.

The week's economic calendar includes the international trade deficit data for November on Tuesday and payrolls processor ADP's report on U.S. private-sector employment in December on Wednesday. The ADP report is expected to show that private-sector employers added 200,000 jobs in December, down slightly from 215,000 in November, according to a Reuters poll.

"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 of Janney Montgomery Scott in Philadelphia, which manages about $60 billion in assets.

To be sure, Ben Bernanke, in his last speech Friday as Fed chairman, 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. The U.S. Senate is scheduled to vote late Monday afternoon on Yellen's nomination as the Fed's next chair. She is expected to get approval, and as a result, she would become the first woman to chair the U.S. central bank.

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 with expectations. Results from Alcoa (AA) and Monsanto (MON) are both due this week.

The pace of companies reporting earnings isn't expected to pick up until the following week, when a number of banks are due to report, including JPMorgan Chase (JPM).

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, N.Y.

Some focus may turn to retailers as companies report holiday same-store sales in the coming days, ahead of the consumer and retail ICR XChange conference Jan. 13-15.

Goldman Sachs analysts recommended buying options on the stocks of some companies, including Wendy's (WEN) and GameStop (GME), heading into the events.

14 Money Mistakes to Avoid in 2014
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The Week Ahead: Investors Look to Fed Minutes, Jobs Data
Interest rates are low, but that's no excuse to accept 0.01 percent interest rates on your savings. Just a little shopping can find you many FDIC-insured savings accounts paying as much as 1 percent in interest, usually with no fees and easy availability to your money through electronic funds transfers. Compared to the near-zero rates that uninsured money-market mutual funds and other alternatives pay, high-interest savings accounts are a much safer way to save.
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In the past, investors had to pay hundreds or even thousands of dollars just to make a simple stock purchase. Now, though, the rise of discount brokers, low-fee index funds and exchange-traded funds, and freely available investment news and advice have made it silly to spend large amounts to get access to the financial markets. If you're still paying your broker too much to invest, look into alternatives that can help you avoid cutting serious money out of your retirement nest egg.
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Many investors found out the hard way this year that bonds aren't as safe as they thought, with some major bond funds posting double-digit percentage losses in 2013. Despite those losses, bonds still carry substantial risk in 2014, with many calling for imminent interest-rate hikes that would erode their value further. Even now, bond rates are so low that they don't compensate you much for their risk.
If you pay full price for just about anything these days, you're paying too much. The rise of deep-discount stores has led to falling prices at stores and shopping malls. Moreover, online tools like coupon sites, daily-deal offers, discounted gift cards, and cash-back credit-card deals can cut your costs as well. With all these tools, you won't find many situations in which you have no chance of getting a bargain on the items you want.
In the past, many young adults focused on getting into as strong a college as they could, figuring that their degree would pay them enough to make up for the costs they incurred. With college graduates facing a more challenging job environment than ever, smart students are thinking about college costs before they make a decision on a school. By maximizing financial aid and looking at lower-tuition schools with nearly as strong educational quality, you can avoid creating a big debt hole that you'll struggle with for years into the future.
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Resolving to be more financially astute and to avoid common mistakes will help you get your finances in order more quickly. These tips should give you more money to help you meet all your financial goals.
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