The winter holidays are finally over, and we're kicking off 2014's first uninterrupted week of trading.
In the U.S., we'll get new stats on the labor market, consumer credit, and the massive services sector.
Yes it's cold, and the weather is likely to impact the comparability of some of the December data.
"The coldness contrasted with unusual mildness in December 2012 and December 2011," noted High Frequency Economics' Jim O'Sullivan.
"Extreme cold and a major storm likely hampered construction, as well as activity in the leisure and accommodation industries," said Citi's Peter D'Antonio.
Here's your Monday Scouting Report:
Top StoryRemembering Fiscal Drag: In what might've been his final speech as chairman of the Federal Reserve, Ben Bernanke argued that the U.S. economic recovery would've been much more robust had it not been for the fiscal drag. From his speech: "To illustrate the extent of fiscal tightness, at the current point in the recovery from the 2001 recession, employment at all levels of government had increased by nearly 600,000 workers; in contrast, in the current recovery, government employment has declined by more than 700,000 jobs, a net difference of more than 1.3 million jobs. There have been corresponding cuts in government investment, in infrastructure for example, as well as increases in taxes and reductions in transfers. Although long-term fiscal sustainability is a critical objective, excessively tight near-term fiscal policies have likely been counterproductive. Most importantly, with fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be."
The good news is that fiscal drag and budget bickering isn't expected to be as bad this year. From Goldman Sachs' Alec Phillips: "The upshot is that while debate on most of these issues is likely to last beyond the end of 2014, there are at least a few areas, such as trade, where agreement might be reached. Perhaps more importantly, the near-term growth outlook depends less on the legislative agenda than it did a year ago, and while yet another debt limit deadline still leaves some uncertainty, the risk of further disruptions from fiscal debates does appear to be gradually declining."
Stocks remain near all-time highs, and strategists generally expect modest gains for the year. However, Goldman Sachs' Stuart Kaiser thinks some stocks (40 of them to be specific) should do better than others.
"Lower valuation stocks have outperformed peers by an average of 420 bp in 1Q during the past 35 years vs. just 170 bp in all other quarters," said Kaiser. "Buying laggards has also performed well early in the calendar year, which is notable given the strategy’s extremely poor long-term cumulative returns."
Goldman's house view is that the S&P 500 tops out at 1,900 this year.
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