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Monday, December 2, 2013

Are you trading stocks right now? 3 things investors need to watch in December:

Are you trading stocks right now? Three things investors need to watch in December:
The November employment report, due on Dec. 6, could determine the outcome of what is arguably the most important event of the month for markets: the Fed's Dec. 17 and 18 policy meeting.

Congress and the federal budget will be also be back in focus, with budget conferees expected to provide a budget proposal on Dec. 13; the continuing resolution to fund the government runs out on Jan. 15.

"Seasonality is very strong, and it's hard to argue against the momentum coming out of the September Fed meeting. Now you run into the December Fed meeting," said Dan Greenhaus, chief global strategist at BTIG. "They could very easily decide to do something then. I think people in general have discounted to too large a degree no movement at the December meeting." "It would be a surprise if all of sudden you do get a strong jobs number, and the Fed surprisingly decides, 'we're going to do a token tapering' and maybe the market would be just caught flat-footed," said Mark Luschini, chief market strategist at Janney Montgomery. "Those who say that any tapering is factored in to the market, I don't necessarily agree with."

Stock traders are also keeping an eye on yields, with the 10-year one of their most closely watched metrics. It was yielding 2.74 percent Wednesday. Treasury yields would be expected to move higher if the jobs report is better than expected.

"I think the larger story is not whether or not there will be a negative reaction to a shift in Fed position because the answer is yes. That is a given but it doesn't matter. What matters is whether it shifts the ultimate path of equities," Greenhaus said. A higher 10-year yield is not a problem for stocks, until it gets to about 3.5 percent, Greenhaus added.

November's retail sales data, due on Dec. 12, will also be important as it will be watched by the Fed and it's also a key to the strength of the holiday shopping season. The National Retail Federation expects November and December holiday sales gains of 3.9 percent. "It'll be telling as to whether the consumer and this deleveraging process…is going to lead to sustained or improved spending prospects," Luschini said.

The Fed surprised markets in September when it refrained from tapering back its $85-billion-a-month bond-buying program, a decision that emboldened stock market bulls and helped take the market to record highs.
While the market paid little heed to Washington's budget battling in October, Luschini said there is a slight risk it could unsettle markets in the next go round.

Congress is due to return by Dec. 9, and their willingness to cooperate could be important. "That could be telling," he said. "Are we going to see the prospects of a replay of what we had just two months ago?"

Luschini and others say the market is ready for a pullback but the seasonal tide could push it higher in December regardless. The Dow and Russell are at all-time highs, the S&P 500 is close to its recent high, while Nasdaq reached a fresh 13-year high.

"That (seasonality) is tempered by the fact that the market is flirting with all-time highs," he said, adding that the market could continue to rise unless the Fed or Congress deliver a surprise
By CNBC P. Domm.

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