IE 11 is not supported. For an optimal experience visit our site on another browser.

Investors seen eyeing Fed rate meeting

U.S. stocks may stall at the start of this week as investors wait for word from the Federal Reserve's final policy meeting of the year.
Wall Street will be looking at this week's Fed meeting and consumer prices data.
Wall Street will be looking at this week's Fed meeting and consumer prices data.Reuters
/ Source: Reuters

U.S. stocks may stall at the start of this week as investors wait for word from the Federal Reserve's final policy meeting of the year.

The Federal Open Market Committee, which convenes on Tuesday, is expected to keep the fed funds rate steady at 5.25 percent. Investors will comb through the FOMC's statement for some insight into how the U.S. central bank sees the economy.

"Traders are going to be positioning for the Fed meeting," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. "Players are becoming a little bit more concerned here."

The caution may linger until Wall Street sees Friday's data on the U.S. Consumer Price Index for November. Investors will be anxious to learn whether inflation was mild enough to keep Americans spending -- and driving U.S. economic growth.

Investors are still digesting a month's worth of confusing economic data. Although stocks reversed two weeks of poor performance and finished this week with gains, they are still on shaky ground, analysts said.

For the past week, both the Dow Jones industrial average and the Standard & Poor's 500 index gained 0.9 percent. The Nasdaq Composite Index rose 1 percent.

"With the absence of the Fed really doing anything, I think there will be more of a view toward what is happening with the economy and how that might impact the equity and fixed-income markets," said Neil Wolfson, chief investment officer at Wilmington Trust in New York.

Aside from a stronger-than-expected jobs report on Friday, much of the economic data from the past few weeks has fallen short of expectations. In recent speeches, Fed Chairman Ben Bernanke and other Fed officials suggested inflation was still their biggest worry.

"The question is: 'At what point does the economy soften enough and do companies start running out of steam?' Inflation is certainly a key statistic to look at," Wolfson said. "The Fed has been very clear in stating that they believe inflation should be below 2.0 percent" on a year-over-year basis.

Before Friday's opening bell, the Labor Department will release the November CPI data. Economists polled by Reuters see an increase of 0.2 percent in the overall CPI, after October's drop of 0.5 percent.

Core CPI, excluding volatile food and energy prices, also is forecast to rise 0.2 percent in November, compared with October's gain of 0.1 percent, the Reuters poll showed.

Oil prices will be on Wall Street's radar this week. The Organization of Petroleum Exporting Countries is expected to cut production when it meets on Thursday in Nigeria.

U.S. crude oil for January delivery settled on Friday at $62.03 a barrel on the New York Mercantile Exchange. For the week, NYMEX January crude was down 2 percent.

NYMEX oil futures prices have dropped about 21 percent since running up to a record of $78.40 a barrel in mid-July.

This week, an Investor's Business Daily index on consumer confidence for December and a report on the U.S. international trade deficit for October will be released on Tuesday. November retail sales data will come out on Wednesday.

The IBD/TIPP index of economic optimism for December will get attention from investors looking to judge the strength of the holiday shopping season.

"It's interesting to see how consumer confidence will hold up," Wolfson said. "The retailers wait for 11 months for December to happen and now we're here, so it can certainly make or break their year. It's looking right now to be a bit soft, but certainly not anything that is going to be devastating to the retailers."

The international trade deficit is forecast at $63 billion in October, down from September's $64.3 billion.

November retail sales are seen up 0.2 percent, compared with October's 0.4 percent drop, the Reuters poll showed.

Quarterly results from retailers Best Buy Co. Inc. and Dollar General Corp. on Tuesday, followed by Costco Wholesale Corp. on Thursday, will help investors assess the strength of consumer spending.

On the tech front, graphic software maker Adobe Systems Inc. is due to report results on Thursday.

Among the most anticipated reports will be fourth-quarter earnings from investment banks Goldman Sachs Group Inc., Bear Stearns Cos. Inc. and Lehman Brothers Holdings Inc.  Goldman's scorecard is set for release on Tuesday. Bear Stearns and Lehman report results on Thursday.

Record mergers and acquisition activity, rising demand for stock and debt financing and persistent trading strength with the major U.S. stock indexes near recent highs have set the big Wall Street banks up to report a banner quarter.

For the year, the Dow is up 14.8 percent, the S&P 500 is up 12.9 percent and the Nasdaq is up 10.5 percent.

"It will be interesting to see how the Wall Street folks are making money. We know they're making a lot of money," said Tim Hartzell, senior vice president and chief investment officer at Kanaly Trust Co. in Houston.

"What we'll really be watching for are any surprises or warnings that will be coming through in the next couple weeks for the real earnings season."