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With Fed out of the way, what's next on Wall Street?

Traders work on the floor of the New York Stock Exchange shortly after the market opening December 19, 2013. REUTERS/Lucas Jackson
Traders work on the floor of the New York Stock Exchange shortly after the market opening December 19, 2013. REUTERS/Lucas Jackson

By Angela Moon

NEW YORK (Reuters) - With the U.S. Federal Reserve finally announcing it will start tapering its stimulus, it removed a big uncertainty in the market last week and raised the question: Can Wall Street expect a stronger finish to the year? Not really.

The "Santa Claus rally" is a seasonal anomaly that describes a rise in stock prices in December, generally over the final week of trading before the new year.

The benchmark S&P 500's average gain during the last five days of December and the first two of January has been about 1.5 percent since 1950, according to the Stock Trader's Almanac. The equities market has gone up in December about 80 percent of the time for the past 20 years.

Although the S&P 500 is up just about 1 percent so far this month, the index is up about 27 percent for the year and is on track for its biggest gain since 1997. The Dow is up about 24 percent and the Nasdaq is up almost 36 percent for the year.

"It's been a strong year, and I wouldn't be surprised if investors closed out their year today," said Doug Foreman, co-chief investment officer of Kayne Anderson Rudnick Investment Management in Los Angeles, in an interview late last week.

"There isn't much room or news to move higher from here until next year."

Stocks rallied sharply last week, with the Dow and the S&P 500 closing at records on Friday, following the Fed's mid-week announcement it will reduce its $85 billion in monthly bond purchases by $10 billion in January.

For the week, the Dow gained 3 percent, the S&P 500 rose 2.4 percent, and the Nasdaq climbed 2.6 percent.

Trading volume last week was also below average as many investors had already locked in their gains for the year ahead of the holidays.

"There's a lot of transparency in the market, but most of the noise has already been made. We should expect to continue seeing light volume and not much selling as we go into next week," said Mark Martiak, senior wealth strategist at Premier Wealth/First Allied Securities in New York.

"We're selling our winners and looking to see what sectors could be the ones to be in next year. I like cyclical and industrials. I want to see the news post-holiday season before I start to recommend defensive names."

With Christmas and New Year's holidays in the middle of the week, trading volume is likely to be lower than in previous years. The New York Stock Exchange will close early at 1 p.m. EST (1800 GMT) on Tuesday and will remain closed on Wednesday for Christmas Day. Trading will resume on Thursday.

BACK TO BASICS

Analysts say this week will be the start of investors finally shifting focus to the fundamentals, like economic reports and earnings.

"With the Fed out of the way now, the market is going to move back to making more rational decisions and focus on what really matters in the economy," said Scott Clemons, chief investment strategist at Brown Brothers Harriman Wealth Management in New York.

"Fourth-quarter earnings will start coming in January, and the market's full focus will be on those numbers and outlooks."

Apple Inc will be in focus after the company announced on Sunday a multiyear deal with China Mobile to bring its iPhone product lines to China, starting in January. Terms of the deal were not disclosed.

Economic data this week includes personal income and consumption at 8:30 a.m. EST (1330 GMT) on Monday. At 9:55 a.m. EST on Monday, the Thomson Reuters/University of Michigan's final reading on consumer sentiment for December will be released.

Tuesday's data includes durable goods orders at 8:30 a.m. EST and new home sales at 10 a.m. EST. On Thursday, weekly initial jobless claims will be released at 8:30 a.m. EST.

(Wall St Week Ahead runs every Sunday. Questions or comments on this column can be e-mailed to: angela.moon(at)thomsonreuters.com )

(Additional reporting by Ryan Vlastelica and Chuck Mikolajczak; Editing by Nick Zieminski and Jan Paschal)

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