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Ahead of Wall Street

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Monday, November 11, 2013

The markets are open today, but there is not much on the economic or earnings calendars because of Veterans Day holiday. With the calendar for the rest of this week on the light side as well, stocks will likely struggle for direction with Fed-centric issues dominating the discourse.

The key issue for the market at this stage is handicapping when the Fed will start its QE Taper. The Fed has only one meeting left this year (in December) after which Bernanke is scheduled to retire. Given this timeline and the scheduled leadership transition, the consensus view has been that the central bank will leave the Taper announcement to next year, likely to April 2014. But the recent run of positive economic data, ranging from the ISM surveys to Q3 GDP and October non-farm payrolls, has put the December Taper back on the market’s agenda. The market will be closely watching the coming Janet Yellen confirmation hearings to get a sense of the new Fed Chair’s thinking on the subject.

On the earnings front, we have reached the final phase of the Q3 reporting season with results from 449 S&P 500 members already out. It has been a good enough earnings season, with total earnings reaching a new all-time record. There is not much growth and most companies have guided lower, but the overall earnings growth in Q3 has been better relative to what was achieved in the first two quarter of the year. The Retail sector is heavily represented in the still-to-come reports, with 22 of the remaining 51 S&P 500 from the Retail sector. This week’s results from Wal-Mart (
(WMT - Analyst Report)), Macy’s ((M - Analyst Report)), Nordstrom ((JWN - Analyst Report)) and others will give us a good sense of what to expect from consumer spending in the holiday-shopping season.

Stocks have had an impressive run thus far in 2013 and odds are high that the trend will continue into these final weeks of the year as well. But nothing goes up forever. The expected change in Fed policy, whether in December or early next year, could be the catalyst that puts an end to the market’s strong recent run.

Sheraz Mian
Director of Research

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