Coming Week: Searching for Signs

Wall Street may be approaching a holiday slowdown, but the action in the coming week likely will be spirited.

In addition to inflation data and big-name earnings, the market will be watching the Federal Reserve's last meeting of 2006 for clues about what the central bank plans to do in 2007.

In recent weeks, economic data have been pointing to a slowdown in the economy, creating concerns about a so-called hard landing scenario. At the same time, the data raised many traders' hopes that the Fed will cut its target rate early next year.

Last week's trading, however, culminated with a stronger-than-expected jobs report for November. While most analysts don't expect the Fed to make any changes to interest rates at its meeting on Tuesday, Friday's jobs report heightens the impact of the committee's policy statement.

Immediately following the employment data, rate-cut odds for January dropped to 10% from 14%, while March odds fell to 32% from 48%. Chances for a May cut slipped to 95% from 100%.

"If [the Fed is] planning to cut rates in March, then they need to start telegraphing it to the market at Tuesday's meeting," says Paul Mendelsohn, chief investment officer at Windham Financial.

Robert Pavlik, chief investment officer for Oaktree Asset Management, says recent hawkish comments by Fed Chairman Ben Bernanke have already tempered expectations for a rate cut in the first quarter of 2007.