(Repeats story first published Friday with no changes to text)
By Caroline Valetkevitch
NEW YORK Dec 9 Next week's Federal Reserve
meeting and possible signals on the pace of rate hikes for next
year could pose the biggest risk yet to the rally the U.S. stock
market has seen since last month's presidential election.
While investors have long anticipated the Fed will raise
rates at the Dec. 13-14 meeting - in what would be its first
such move in a year and second in nearly a decade - the worry
for some stock investors is that the Fed takes a more aggressive
stance on inflation and future hikes.
Stocks have set a string of record highs since the Nov. 8
election on hopes of a pickup in U.S. economic growth, thanks to
President-elect Donald Trump's promises of increased
infrastructure spending, lower taxes and easier regulations.
U.S. investors seem optimistic about prospects of future
growth, but the question remains if the Fed does as well.
The U.S. central bank should announce new economic forecasts
next week, along with a rate hike. If inflation is expected to
pick up quickly, the Fed may need to raise rates faster than
investors expect, and that could be a negative for U.S. stocks.
"If they believe that inflation is going to march higher and
more rapidly ... That would give the market reason to pause,"
said Quincy Krosby, market strategist at Prudential Financial in
Newark, New Jersey.
"I don't think investors want to hear that this is going to
be an aggressive Fed."
Fed Chair Janet Yellen will more likely want to reassure
investors that the transition to higher rates will be gradual,
Last December, the Fed raised rates for the first time in
nearly a decade, and later signaled four more hikes would come
in 2016. But the outlook quickly changed as the economy did not
pick up speed, oil prices fell further and the stock market
plunged at the start of 2016.
Next week, "the market is going to try to key off of whether
we are going to fall into the one-to-two (hikes), or the
three-to-four for 2017," said Jason Ware, chief investment
officer at Albion Financial Group in Salt Lake City.
"If in the statement and the discussion afterwards it
appears that the Fed is getting more concerned that they are
behind the curve and they have to tighten more aggressively than
the market currently expects, that could knock stocks back."
Given the sharp run-up in equities since the election, some
strategists are already advising caution. The S&P 500 has
had its best five-week run since March and the Dow is up 7.8
percent since the election.
"The market is now overbought in the short and long terms,"
said Brad Lamensdorf, a manager for the Ranger Equity Bear
exchange-traded fund, which bets stocks will fall.
Financials could see the biggest impact if there's a shift
in the outlook for rates. The group has outperformed the broader
market in the recent rally, partly on the view that Trump will
ease regulations for the sector but also on expectations of
rising rates, which benefit banks.
Stock investors also worry about the impact of rising rates
on the U.S. dollar.
Strategists in a Reuters poll this week cited the dollar,
which has strengthened sharply since the election, as among the
biggest possible risks for stocks next year because of its
negative impact on U.S. multinationals' earnings.
(Reporting by Caroline Valetkevitch; Additional reporting by
Lewis Krauskopf; Editing by Rodrigo Campos and Nick Zieminski)