By Sam Forgione
NEW YORK (Reuters) - U.S. stocks could be in for a jolt of volatility in the week ahead as Congress debates whether to authorize a military strike against Syria and as the Federal Reserve's pivotal decision on winding down its stimulus grows near.
U.S. equity markets have remained on a relatively even keel recently even as others such as U.S. Treasuries and emerging markets have been roiled by worries over what the Fed is likely to do at its meeting later this month and by the Obama administration's campaign to punish Syria for an alleged chemical weapons attack against civilians.
After falling 3.1 percent in August, the benchmark Standard & Poor's 500 (^GSPC) rebounded 1.4 percent in the first week of September. For the week, the Dow Jones Industrial Average (.DJI) rose 0.76 percent and the Nasdaq Composite (.IXIC) gained nearly 2 percent.
The CBOE's Volatility Index, or VIX, a proxy for investor anxiety, fell 7 percent for the week, its largest weekly decline since mid-July. Its closing level of 15.85 on Friday was near a two-week low, and the so-called "fear gauge" is within a point of its average level for the past year, so it is far from elevated.
Still, President Obama's efforts to convince reluctant lawmakers to back his request for a military strike could get the volatility needles rising. A Senate vote is likely to come this week.
"(This) week has the potential to see increased volatility and perhaps a jump in the VIX," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York, with $1.5 billion in assets.
The worry for investors would be if a U.S.-led military strike against Syria escalates into a prolonged conflict, Ghriskey said. That could be negative for stocks.
"The market will be very susceptible to rumor," said Quincy Krosby, a market strategist at Prudential Financial in Newark, New Jersey. "The worry is that a surgical strike suddenly changes and becomes a bigger, wider event."
The fact that the congressional debate over Syria comes on the effective eve of the Fed's key meeting will not help Wall Street's mood. The central bank's policy-setting committee meets on September 17-18 and is expected to announced a reduction, or "tapering," of the pace of its $85 billion a month in bond purchases that have been instrumental in supporting asset prices over the past year. The S&P 500 is up 16.1 percent this year.
"If the Fed does taper, it becomes a double whammy," Ghriskey said.
If that weren't enough, the question of just who will lead the Fed after Chairman Ben Bernanke steps down early next year also creates uncertainty for investors, not to mention another possible showdown between the White House and Congress over the federal budget and debt ceiling.