THE Federal Reserve holds the wild card for the US stock market this week with a decision on whether or not to slow the pace of its stimulative bond buying.
Federal Reserve policymakers gather for the last time in 2013 for a two-day meeting that concludes on Wednesday. Many investors are still expecting the Fed to delay scaling back its $85bn-a-month bond buying programme until early next year.
But recent developments suggest a December move by the Fed is at least in the realm of possibilities. Those developments include a stronger-than-expected November jobs report, a US budget deal in Washington and the latest signs of tame inflation.
Most economists in a Reuters poll last week said they expect Fed policymakers to defer action until January or March, but the number of those expecting a Fed move in December has increased compared with one month ago.
Some stock traders, guarding against a Fed surprise, have been using options as a hedge against possible losses.
The S&P 500 is on track to end 2013 with its best yearly gain since 2003, so what the Fed decides could mean the difference between pulling back or resuming the advance.
Stocks logged their worst week in nearly four months last week.
“Once we get the Fed news out of the way, I expect the seasonal factor to kick in and we may see historical highs again leading up to the new year,” said Ryan Detrick, analyst at Schaeffer’s Investment Research.