A flight information board displaying delays and cancellations at Logan International Airport during a winter nor'easter snow storm in Boston, Massachusetts, January 2, 2014. REUTERS/Dominick Reuter 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 Story

Remembering 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."

Economic Calendar



ISM Non-Manufacturing Index (Mon) : Economists estimate the ISM services index climbed to 54.6 in December from 53.9 the month prior. "We expect the headline index to increase to 54.6 in December as retail sales, which is closely correlated to the headline index, has increased over the past two months and is now up 4.7 percent over the past year," said Wells Fargo's John Silvia. "Gains in real sales suggest the headline ISM non-manufacturing index should improve."

: Economists estimate the ISM services index climbed to 54.6 in December from 53.9 the month prior. "We expect the headline index to increase to 54.6 in December as retail sales, which is closely correlated to the headline index, has increased over the past two months and is now up 4.7 percent over the past year," said Wells Fargo's John Silvia. "Gains in real sales suggest the headline ISM non-manufacturing index should improve." Factory Orders (Mon) : Economists estimate orders climbed 1.7% in November. "Durable goods orders surged 3.5% in November, led by a 4.5% rebound in core capital goods orders that pointed to business equipment investment getting back on track after a recent soft patch," said Morgan Stanley's Ted Wieseman. "Lower oil and other commodity prices will likely contribute to softer reading for nondurables, but overall factory orders should still post a strong gain."

: Economists estimate orders climbed 1.7% in November. "Durable goods orders surged 3.5% in November, led by a 4.5% rebound in core capital goods orders that pointed to business equipment investment getting back on track after a recent soft patch," said Morgan Stanley's Ted Wieseman. "Lower oil and other commodity prices will likely contribute to softer reading for nondurables, but overall factory orders should still post a strong gain." Trade Balance (Tues) : Economists estimate the trade deficit narrowed to $40.0 billion in November from $40.6 billion. "On the export side, the durable goods report pointed to upside in capital goods, but a pullback in consumer goods, which have been seeing a run of extreme volatility in gems and jewelry in recent months, and some price- related softness in petroleum products will likely be a partial offset," said Morgan Stanley's Wieseman. "On the import side, lower prices and volumes should result in a significant decline in petroleum products, but strength in inbound cargo at major ports pointed to a good gain in ex-oil goods imports."

: Economists estimate the trade deficit narrowed to $40.0 billion in November from $40.6 billion. "On the export side, the durable goods report pointed to upside in capital goods, but a pullback in consumer goods, which have been seeing a run of extreme volatility in gems and jewelry in recent months, and some price- related softness in petroleum products will likely be a partial offset," said Morgan Stanley's Wieseman. "On the import side, lower prices and volumes should result in a significant decline in petroleum products, but strength in inbound cargo at major ports pointed to a good gain in ex-oil goods imports." ADP Employment Change(Wed) : Economists estimate 200,000 private payrolls were added in December. "ADP private payrolls likely grew by 200,000 in December, down from 215,000 in November," said Bank of America Merrill Lynch economists. "Compared to BLS data, ADP private payrolls have flip-flopped between overestimating and underestimating BLS private payrolls over the last several months. Consistent with this trend, ADP private payrolls are expected to underestimate our BLS private payroll forecast of 225,000 in December, after overestimating in November by 19,000."

: Economists estimate 200,000 private payrolls were added in December. "ADP private payrolls likely grew by 200,000 in December, down from 215,000 in November," said Bank of America Merrill Lynch economists. "Compared to BLS data, ADP private payrolls have flip-flopped between overestimating and underestimating BLS private payrolls over the last several months. Consistent with this trend, ADP private payrolls are expected to underestimate our BLS private payroll forecast of 225,000 in December, after overestimating in November by 19,000." Federal Reserve FOMC Minutes (Wed) : The minutes from the December meeting will be released at 2 p.m. ET. "The discussion leading to the tapering decision could be interesting, but the minutes are unlikely to be market-moving; the tapering process is now probably almost on auto-pilot, at $10 billion per meeting," said High Frequency Economics' O'Sullivan.

: The minutes from the December meeting will be released at 2 p.m. ET. "The discussion leading to the tapering decision could be interesting, but the minutes are unlikely to be market-moving; the tapering process is now probably almost on auto-pilot, at $10 billion per meeting," said High Frequency Economics' O'Sullivan. Consumer Credit (Wed) : Economists estimate consumer credit balances increased by $13.75 billion in November. "Nonmortgage consumer credit continues to rise quite rapidly," said UBS's Kevin Cummins. "Much of the rise over the past year has reflected Federal lending—primarily student loans. However, commercial banks and finance companies have also been increasing lending."

: Economists estimate consumer credit balances increased by $13.75 billion in November. "Nonmortgage consumer credit continues to rise quite rapidly," said UBS's Kevin Cummins. "Much of the rise over the past year has reflected Federal lending—primarily student loans. However, commercial banks and finance companies have also been increasing lending." Initial Jobless Claims (Thurs) : Economists estimate weekly claims fell to 335,000 from 339,000 a week ago. "Initial jobless claims likely continued to decline," said Citi's D'Antonio. "However, there is a risk of a higher print as the termination of the federal Emergency Unemployment Compensation (EUC) program on January 1 might have caused a brief spike in state claims by those confused by the cut-off. Unlike previous expires of this program, there is no phase-out period, and all persons (~1.4 million) on this roll stopped receiving benefits immediately."

: Economists estimate weekly claims fell to 335,000 from 339,000 a week ago. "Initial jobless claims likely continued to decline," said Citi's D'Antonio. "However, there is a risk of a higher print as the termination of the federal Emergency Unemployment Compensation (EUC) program on January 1 might have caused a brief spike in state claims by those confused by the cut-off. Unlike previous expires of this program, there is no phase-out period, and all persons (~1.4 million) on this roll stopped receiving benefits immediately." The Jobs Report (Fri) : Economists estimate U.S. companies added 195,000 nonfarm payrolls in December including 195,000 private payrolls. The unemployment rate is expected to be unchanged at 7.0%. "Payrolls probably rose solidly in December, albeit slightly less than the underlying trend," said UBS's Cummins. "Unusually cold winter weather in early December may have dampened payroll growth a bit."

Market Commentary

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.