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 Yellen will speak to the Senate panel on Thursday, when she will
give the second part of her comments on monetary policy. She had
already reassured Wall Street with her testimony on February 11 to
the House Financial Services Committee that the Fed would not make
any changes to its schedule for trimming its stimulus.
Her initial appearance before the Senate Banking Committee had been
set for February 13, when Washington, D.C., was walloped with the
heaviest snowfall of the season and the hearing had to be postponed.
Snowstorms and ice have repeatedly slowed travel and commerce this
winter in the Northeast, the South and the Midwest, with the impact
rippling through recent economic data and companies' first-quarter
profit warnings.
Yelena Shulyatyeva, an economist at BNP Paribas in New York, said
investors and economists will pay attention to Yellen's answers on
"questions about the weather, how much does she think the weather is
impacting economic activity and how much will (the Fed) pay
attention to that."
Market participants will also monitor Yellen's statements on
Thursday for any signs regarding the U.S. central bank's plans as it
tapers its stimulus measures. As the U.S. unemployment rate nears
the Fed's 6.5 percent target, the debate has grown over whether
interest rates should be raised.
James Bullard, president of the Federal Reserve Bank of St. Louis,
said on Friday that the U.S. economy is headed for a good year of
growth. He added that he expects the central bank to keep trimming
its massive bond-buying stimulus.
The Group of 20 central bankers and finance ministers, in their
two-day meeting over the weekend, acknowledged the concerns of
emerging nations that the Federal Reserve should consider the impact
of tapering its bond purchases, which has led to capital flight from
some of the more vulnerable markets.
Australian Treasurer Joe Hockey, who hosted the meeting, said Yellen,
in her first G20 meeting since becoming the Fed's chair, was "hugely
impressive" in dealing with members about the impact of the U.S.
central bank's tapering of its stimulus.
All told, the U.S. stock market could be roiled again by political
turmoil this week as investors monitor unrest in Venezuela and
Ukraine. While those countries represent a small portion of the
global economy, further deterioration could dent sentiment.
S&P 500 FACES RESISTANCE AT 1,850
Stocks may find tougher sledding in the week ahead as investors may
be unwilling to push the Standard & Poor's 500 Index <.SPX> to a
record past the all-time intraday high of 1,850.84 set on January
15. That level has served as resistance in recent sessions.
Over the past three weeks, the S&P 500 climbed 3 percent while
investors largely forgave a flurry of soft economic data blamed on
the harsh winter.
With the U.S. stock market's slight downturn on Friday, the S&P 500
broke a two-week rally after flirting with its record highs reached
last month.
"1,850 seems to be a level where enough natural selling comes out
and it doesn't have the 'oomph' to take it up and through, and every
time that happens, it seems to back off a little bit," said Ken
Polcari, director of the NYSE floor division at O'Neil Securities in
New York.
"If the market breaks down, (investors) are happy to jump in and
support. But if the market tries to break out, there are plenty of
people willing to take a little off the table because they are still
looking for the market over the next couple of months to be volatile
to the downside."
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One potential hurdle to continued gains will come on Friday, the day
after Yellen's testimony, with a preliminary reading on gross
domestic product for the final three months of 2013. The data is
expected to show U.S. economic growth at an annualized rate of 2.5
percent in the fourth quarter, down from a previous reading of 3.2
percent.
"The GDP revisions, that will be big," said Jeffrey Cleveland, chief
economist at Payden & Rygel in Los Angeles.
"You could argue that some of that is priced in, or a lot of it is
priced in, but the sticker shock will be interesting, especially
given (that) the first quarter is tracking below the fourth
quarter."
THE CONSUMER CONFIDENCE GAME
This week's economic calendar includes consumer confidence, new home
sales and several other reports on the housing market, durable goods
orders, as well as the preliminary GDP data and the final February
reading on consumer sentiment from Thomson Reuters and the
University of Michigan.
While the housing data is likely to be discounted as a result of the
weather, the consumer confidence reading may still give investors
some insight into whether economic growth remains on track.
"If you look at consumer confidence, looking past the weather cycle
of indicators, we find the economic outlook of consumers has not
changed materially despite all the other indicators that may suggest
otherwise," said Anastasia Amoroso, global market strategist at J.P.
Morgan Funds in New York.
"So if consumer confidence comes in as the preliminary reading did,
that suggests the end-user demand for goods and services did not
fall off a cliff, but rather has been deferred due to weather."
Earnings season will also wind down, with retailers in focus as the
weather has added to the sector's many other challenges.
Retailers set to report earnings this week include Home Depot Inc <HD.N>,
Lowe's Companies Inc <LOW.N>, Target Corp <TGT.N>, Macy's Inc <M.N>,
TJX Companies <TJX.N>, JC Penney Company Inc <JCP.N>, Best Buy Co
Inc <BBY.N> and Gap Inc <GPS.N>.
Thomson Reuters data showed that of the 441 companies in the S&P 500
that had reported results through Friday, 65.3 percent had posted
earnings above analysts' expectations. That was slightly below the
67 percent rate for the past four quarters, but above the 63 percent
average since 1994.
(Reporting by Chuck Mikolajczak;
additional reporting by Caroline Valetkevitch and Luciana Lopez;
editing by Jan Paschal)
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