All eyes on Washington
The holidays may be around the corner, but there’s still work to be done in Washington, and investors will be keeping close tabs on congressional lawmakers and Federal Reserve policymakers.
Wall Street widely expects the central bank’s Federal Open Market Committee to raise interest rates by 25 basis points, to a range of 1.25% to 1.5%, at the conclusion of its Dec. 12-13 meeting. If policymakers raise rates, it will be the third time this year and the fifth time since the financial crisis.
The Fed’s upcoming meeting will warrant extra scrutiny by investors, but not because of a likely rate hike. Rather, attention already has shifted to what central bankers have in mind for the future, and the committee’s written statement or its post-meeting press conference may offer clues, says Liz Ann Sonders, senior vice president and chief investment officer of Charles Schwab & Co.
What to watch: “Any meaningful change in the Fed’s forecast,” Sonders says, adding there’s a mismatch between investors and the Fed around the number of rate hikes expected next year. The central bank has signaled it could raise rates as many as three times next year, and investors may need to raise their expectations accordingly.
Meanwhile, investors will monitor politics in Washington. If Congress passes a long-awaited tax reform bill, the market will probably get another boost. But a possible government shutdown in December is likely to spook investors and create volatility in stock prices, Sonders says. Such volatility has been largely absent in the market this year.
The final stretch
Children won’t be the only ones counting the days until Santa Claus arrives. The period around Christmas generally is positive for stocks, a phenomenon known as the Santa Claus rally.
What to watch: How much money American consumers are earning and spending. Because consumer spending makes up about two-thirds of gross domestic product, economic reports related to wage growth and retail spending will be especially important, according to Jack Ablin, executive vice president and chief investment officer of BMO Private Bank.
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