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Fed could be a snooze, but these reports will be big

The Nasdaq ended higher at 5,031.86, its best, highest closing level since Aug. 19. The Dow Jones industrial average closed higher at 17,646.70, as Microsoft posted its best trading day since 2000. The S&P 500 ended higher at 2,075.15, as information technology recorded its first four-week winning streak since November.

In the meantime, the first look at weakish third-quarter GDP is on Thursday, and economists are looking for growth of about 1.7 percent. Other key data includes durable goods Tuesday, and the employment cost index and personal income and spending Friday.

The gusher of earnings news continues with reports from big oil, like Exxon Mobil and Chevron, and drugmakers, Merck, Pfizer and Bristol-Myers.

Traders will also be keeping an eye on efforts in Congress to raise the debt ceiling.

“The bond market is really fighting with itself over a couple of things. You have the strength in equities which normally would be negative but against that you have these concerns about the debt ceiling,” said Tom Simons, money market economist at Jefferies. Simons said the two-year note attracted buyers after the Treasury announced Thursday it was delaying Tuesday’s auction of two-year notes because it might not be legally authorized to borrow money by the time the auction settles on Nov. 2.

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“I think it’s not huge right now. It’s significant in the front end but not the long end of the curve. If we go another week, it could be a bigger part,” said Simons. “It’s going to have to get closer to the end of the month with no progress for it to filter into the long end of the curve.”

As for the Fed, it could tweak its language slightly when it releases its post-meeting statement Wednesday.

“A little more language about achieving their goals in the labor market might be one way to signal the market that they’re getting closer to the exit,” said Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch. “I wouldn’t expect any major language changes. This is not the right meeting to do anything.”

Many economists now expect a December rate hike if the economy does not slow significantly.

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Harris said the Fed could make a minor change in its statement Wednesday, to end some of the confusion in the markets. “One of the things that’s been interesting is the kind of miscommunication between the Fed and the market. They might try to address this idea that the Fed is now zeroed in on the global situation and no longer views the labor market as its primary focus. And I think that’s wrong. I think the Fed tried to tell the market the global situation warranted a tactical delay but fundamentally the economy’s healthy, and more particularly the labor market,” said Harris.

Harris said this week’s third-quarter GDP may make the economy appear sluggish but the economy took a temporary hit from high inventories and trade. He sees growth rising to 2.8 percent in the fourth quarter, and running at a 2.7 percent pace next year.

“I feel comfortable with the idea the U.S. economy is still on track. The global shocks we’re facing are being absorbed very well,” he said. He added that the dollar’s been rising for more than a year, oil’s been falling and China has been weakening and the economy dealt with all of those. “The economy is adjusting to these shocks and looks like it should be OK going forward.

Market Insider with Patti Domm

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