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Market Preview: Bulls on Break

"In the end the Fed didn't take the opportunity to introduce a third round of quantitative easing last week, but the FOMC statement and the Fed Chairman's comments in the subsequent press conference certainly didn't rule out the possibility in the near future," the firm said Friday.

Capital Economics said statements made in the press conference suggest that the FOMC recognizes the threat that persistent unemployment poses in a weak economy.

A further clue about the Fed's intentions could come as soon as the coming week, when Bernanke is scheduled to provide testimony to the House Budget Committee, Capital Economics said.

If he begins making the case for Q3 then, he can continue to build his argument at his next semiannual congressional testimony in mid- to late-February, the firm added.

"We still think that the most likely option is a round of mortgage-backed securities purchases that could run simultaneously with the Fed's 'Operation Twist,' which involves lengthening the average maturity of its overall holdings of Treasury securities," Capital Economics said.

As for Monday, Wendy's International (WEN - Get Report) is slated to report its fiscal fourth-quarter results before the opening bell, and the average estimate of analysts polled by Thomson Reuters is for earnings of 4 cents a share in the December-ended quarter on revenue of $613.2 million.

The stock has gained nearly 8% in the past year, but its 52-week high of $5.62 dates back to early July, a few weeks after the company agreed to sell the Arby's chain to a private equity firm in mid-June. Since then, the shares sank as low as $4.29 in early October but have bounced along with the broad market, rising 21% to close Friday at $5.21.

Wall Street is still skeptical about Wendy's turnaround efforts, which have included new burger offerings and the appointment of new CEO Emil Brolick in September.

Of the 20 analysts covering the company, 14 are at either hold (13) or sell (1), although the median 12-month price target of $5.75 suggests confidence in some upside from current levels.

The shares still look expensive though, trading at a forward price-to-earnings ratio of 23.7, vs. 15.6 for McDonald's (MCD - Get Report), whose stock was the top performer in the Dow in 2012, rising nearly 34% in the past year.
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