Weeks of speculation and nervous trade on Wall Street are set to reach an apex this week with a US Federal Reserve meeting expected to yield a new economic stimulus plan and key elections.
Stocks have been treading water in recent days, despite a deluge of generally positive corporate earning reports, as traders took positions ahead of the Fed action and key congressional and local elections, whose anticipated outcomes have been priced into the markets.
For the week, the Dow Jones Industrial Average was down 0.13 percent to 11,118.49 points.
The broader S&P 500 index rose a slight 0.02 percent to 1,183.26 points, while the technology-rich NASDAQ composite index rose 1.13 percent to 2,507.41 points.
Wall Street stocks, however, closed the month with solid gains: The Dow rose 2.61 percent, the S&P index advanced 3.37 percent and the NASDAQ index surged 5.51 percent this month.
“What we’ve seen is really a sideways movement in the markets for the last week to 10 trading days,” said David Levy, portfolio manager at Kenjol Capital Management.
This week is likely to see cautious trading before Wednesday’s expected Fed announcement of another round of large-scale bond purchases and as a new flow of earnings from companies, including Pfizer and Kellog, comes in.
“If anything is certain it is that the markets don’t like uncertainty,” Levy said.
“We’ve seen very little movement because for some degree the expectations are already priced in but investors do not want to get ahead of themselves in case of a surprise,” he said.
The US mid-term elections on Tuesday are widely expected to see the Democrats take a thumping and lose their majority in the House of Representatives, but not in the Senate.
“If that occurs I would not expect too much volatility in prices, anything other than that can cause some ripple effect,” Gina Martin of Wells Fargo Securities said.
However, it will take weeks if not months to see whether the change will lead to a gridlock on Capitol Hill or allow the passage of reforms in key financial issues, such as the thorny topic of tax cuts.
On Wednesday investors will be focused on the policy-setting Federal Open Market Committee (FOMC), which is expected to announce the renewal of asset purchases in an effort to resuscitate the lagging economy, in what is known as quantitative easing.
The past week’s data, including a modest 2 percent rise in US economic output this quarter and a surprise drop in jobless claims, did little to shake confidence that stimulus is nearing.
“The FOMC meeting is most important, and it’s not a question of whether or not the quantitative easing is announced, it is really a question of what size it is going to be and under what timeline,” Jefferies analyst Craig Peckham said.
Earlier this week, stock indices plunged after the Wall Street Journal reported the Fed will purchase bonds worth “a few hundred billion dollars over several months,” dampening hopes for a more aggressive intervention.
“A lot of the market reaction to the Fed will be based on the number, but a big part of it will be based on the text that accompanies their action and their -reasoning,” Levy said.
Trade is likely to remain tense ahead of Friday’s monthly unemployment report. Analysts expect the unemployment rate will be unchanged at 9.6 percent for the third consecutive month this month.
“At some point we will have to see job growth for the economy to rebound. The consumer is so vital to our economy, specially as we head in to the holiday season, it is very important to see jobs growth,” Levy said.
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