Wall Street Week Ahead: Economic data to steer bets on Fed's next move

Fri Aug 23, 2013 6:46pm EDT
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By Ryan Vlastelica

NEW YORK (Reuters) - Wall Street just went through its weakest three-week period since November, not to mention a panicky spell when the Nasdaq stock market ground to a halt. But that doesn't mean the pain is over.

Next week is unlikely to bring much clarity to the primary issue facing markets: when and by how much will the U.S. Federal Reserve slow its accommodative monetary policy. Uncertainty, along with what is expected to be anemic trading heading into the Labor Day holiday on September 2, could make for a volatile week.

"We're cautious about the next few weeks, so we're taking gains now," said Michael Mullaney, who helps oversee about $9.5 billion as chief investment officer at Fiduciary Trust Co in Boston. "It's not like we're on the precipice of recession, but there's not much for investors to get excited about and we're expecting volatility to pick up."

Traders had hoped that the Fed's meeting minutes issued on Wednesday would provide direction about whether the Fed would begin to reduce its $85 billion-a-month of bond-buying in September. Instead, the minutes painted a mixed picture, with some members advocating patience. [ID:nL2N0GM1EC]

The mixed signals create a double-edged sword. While the stimulus has fueled the market's solid gains in 2013, for the Fed to continue its cheap money policy would signal the economy is too weak to advance without intervention. The CBOE Volatility index , a measure of investor anxiety, is up 16.7 percent over the past three weeks.

The Fed has said that the policy change depends on whether the economy meets growth targets, making markets even more sensitive than usual to financial data. Next week will see a report every day.

July durable goods orders are due on Monday while the final reading for the Thomson Reuters/University of Michigan consumer sentiment index will come on Friday. Perhaps the most important will be Thursday's latest estimate of U.S. gross domestic product for the second quarter. The data is expected to show the economy grew a revised 2.2 percent annualized rate last quarter compared with a 1.7 percent reading last month.

While a weak report would be a bearish sign for the economy, some analysts speculated that a strong reading could have negative implications for the market.   Continued...

A trader works on the main trading floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, May 20, 2013. REUTERS/Mike Segar