Getty Images SAN FRANCISCO (MarketWatch) — Investors this week will look at what the Federal Reserve used as a trigger to taper its asset purchases, and whether jobs data back that decision, while focusing more on company fundamentals as earnings season ramps up.
The week ahead will also see more traders return from holiday vacations, so volume is expected to get a sizable boost. Since Christmas, average daily volume for stocks has been 25% or more below the fourth-quarter average for 2013, according to Barclays.
/quotes/zigman/3870025/realtime SPX 1,831.37, -0.61, -0.03% S&P 500 over 10 days Stocks hit highs on Tuesday, Dec. 31, 2013.
The Dow Jones Industrial Average (DJIA) , the S&P 500 Index (SPX) , and the Nasdaq Composite Index (COMP) all finished slightly lower last week, after all three hit their highs for 2013 on Dec. 31. The New Year's Eve surge capped the best year for the S&P 500 and Dow average since the 1990's. The last leg of that rally came after the Fed finally made the move that had obsessed financial markets for the past year: It said it would start reducing asset purchases in January. Whether investors felt the tapering was slight ($10 billion) or because the Fed stressed it was committed to keep rates low, stocks kept on their rally hats. The S&P 500 rose by about 4% before year end following the Dec. 18 Fed decision.
Investors will get a better sense of what drove outgoing Fed Chairman Ben Bernanke and his colleagues to make that move when they read minutes from the Federal Open Market Committee's December meeting on Wednesday afternoon. Stocks got a preview of the Fed's influence on Friday as they drew back on remarks from Philadelphia Fed President Charles Plosser that the central bank may have to get "aggressive" in raising rates only to regain some lost ground after Bernanke defended the policy of near-zero rates that kept the economy afloat.
"The Plosser comments were refreshing," said Mark Luschini, chief investment strategist at Janney Montgomery Scott. "Too many people think unwinding a $4 trillion balance sheet will be as smooth as silk."
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Investors want to know the details of what prompted the Fed to go from delaying an expected September tapering — leading to expectations that it would happen sometime in March — to pulling the trigger in December, Luschini said. Aside from the FOMC minutes, the biggest focus for the week will be jobs data, he added.
December jobs data and the unemployment rate on Friday will be crucial in supporting the Fed's decision to start lightening up on bond purchases, said Dan Greenhaus, chief global strategist at BTIG.
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"What jobs will do is reinforce the decision," Greenhaus said. "If they don't, that would certainly be annoying: You'd like to see a strong number reinforce the Fed decision."
A consensus of economists surveyed by MarketWatch expects the addition of 190,000 jobs in December with the unemployment rate holding steady at 7.0%.
Show me the revenue, not the earningsA trickle of company earnings will set the stage for the fourth-quarter earnings dump that happens mid-January.
"While next week is not the biggest week, the conversation changes back to company fundamentals," said BTIG's Greenhaus.
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