Fed meeting, State of the Union, economic growth on tap

Two events this week will garner big attention: The two-day Federal Reserve policy meeting, which begins on Tuesday and the State of the Union address on Tuesday night. Of the two, investors are more likely to pay attention to the Fed.

Despite what President Obama says in front of the glaring lights, the current political gridlock that grips Washington will prevent any major initiative from moving beyond an idea to legislation. Perhaps that's why people are so unhappy with Congress. Only 13 percent approve of the job Congress is doing, barely above the all-time low of 9% reached in November, according to the most recent CBS News/New York Times poll. The most that investors can hope for is for Congress to extend the payroll tax cut and benefits for the long-term unemployed for the entire year (both measures were extended for two months before the holiday break).

While expectations for lawmakers are low, the Fed is another story. The central bank is expected to keep its key policy interest rate at near zero, which is where it has been for more than three years. The Fed will also maintain the so-called "Operation Twist," in which it sells shorter-dated Treasuries and uses the proceeds to buy longer-dated bonds. The effect of the strategy has been to keep longer term interest rates low.

Fed-watchers will get another juicy nugget this week: For the first time, Bernanke and Co. will publish quarterly forecasts, which will include one chart of when they predict they will begin raising interest rates and another chart that will show individual Fed members' predictions for the rate at the end of 2012, 2013 and 2014. How exciting is that? The charts are part of the Fed's effort to make communications with the public more open.

How well have the Fed's policies performed? We'll have a better idea when the first estimate of fourth-quarter GDP is released on Friday. Consensus estimates are for annualized growth of 3 percent, which would be a nice way to end a slow-growth year (Q1 was 0.4 percent, Q2 was 1.3 percent and Q3 was 1.8 percent). The big question then becomes whether the momentum carries into 2012. So far, data on jobs, manufacturing and housing have improved, though only from rock-bottom levels. And of course the elephant in the room is Europe, whose finance ministers convene another meeting this week.

The improving economic data, combined with earnings results, pushed stocks higher over the week. Of the 72 S&P 500 companies that have reported, 60 percent have reported results that were better than expected, which means that investors were probably expecting much worse numbers and were pleasantly surprised that profits hadn't eroded further.

-- DJIA: 12,720, up 2.4% on week, up 4.1% on year

-- S&P 500: 1,315, up 2% on week, up 4.6% on year

-- NASDAQ: 2,786, up 2.8% on week, up 6.9% on year

-- February Crude Oil: $98.46, down 0.2% on week

-- February Gold: $1664, up 2% on the week

-- AAA National Average Price for Gallon of Regular Gas: $3.38

FACTOIDS OF THE WEEK: Stocks

You may be surprised to learn that stocks have performed quite well thus far in 2012, but don't look too far back or you might get a little depressed, according to the Wall Street Journal.

-- U.S. stocks posted the best start to a new year in 15 years

-- The S&P 500 has now climbed 19.7 percent since its close on Oct. 3, just short of the 20 percent gain that would indicate a bull market

-- Since the October 2007 peak, the S&P 500 has lost 8 percent, including reinvested dividends

-- Adjusted for inflation, the S&P 500 is down 18 percent since August 2000

THE WEEK AHEAD:

Mon 1/23:

Halliburton, CSX, Texas Instruments

Many Asian markets closed for lunar New Year (China closed all week)

EU finance ministers meet in Brussels

Tues 1/24:

DuPont, J&J, McDonald's Travelers, Verizon, Apple, Yahoo

FOMC meeting begins

State of the Union address

Weds 1/25:

Boeing, ConocoPhillips, United Technologies, Delta, Motorola, Amgen, Netflix

7:00 Weekly mortgage apps

10:00 FHFA house price index

10:00 Pending home sales

12:30 FOMC meeting announcement

2:15 Bernanke press conference

Thurs 1/26:

AT&T, Caterpillar, 3M, Nokia, AutoNation, Bristol-Myers, Time Warner Cable, Motorola Mobility, Starbucks

8:30 Jobless claims

8:30 Durable Goods

10:00 New Home Sales

10:00 Leading Indicators

Fri 1/27:

Chevron, P&G, DRHorton

8:30 Q4 GDP

9:55 Consumer Sentiment