Fed May Jump-Start Sagging Stocks
Sunday December 17 4:45 PM ET
Fed May Jump-Start Sagging Stocks
By Denise Duclaux
NEW YORK (Reuters) - Wall Street is in for a bounce this week if the nation's
top inflation fighter throws a lifeline to a market swamped by companies warning
the economic slowdown is hurting business.
U.S. Federal Reserve Chairman Alan Greenspan (news - web sites) is widely
expected to say he now is more worried about a slowing economy than nascent
inflation at the Fed's policy-making meeting on Tuesday. That will clear the path
for interest-rate cuts and give investors the green light to buy stocks again.
The move will perk up a market battered by dour growth outlooks from such
American corporate icons as Microsoft Corp. (NasdaqNM:MSFT - news), Intel
Corp. (NasdaqNM:INTC - news), Eastman Kodak Co. (NYSE:EK - news),
General Motors Corp. (NYSE:GM - news), Compaq Computer Corp.
(NYSE:CPQ - news) and Chase Manhattan Corp. (NYSE:CMB - news) -- to
name just a few.
The technology-stacked Nasdaq (^IXIC - news) market has suffered a nose-bleed
fall of nearly 50 percent from its March high, and a loss of about 35 percent for
the year. The Dow Jones industrial average (^DJI - news), the blue-chip gauge on
track for its first down year since 1990, has lost almost 10 percent this year.
Pummeled share prices may lure investors gambling that stocks have hit their
bottom. But traders will be wary ahead of crucial economic data throughout the
week, earnings from financial giant Goldman Sachs Group Inc. (NYSE:GS -
news) on Tuesday and mounting fear the economy is slowing too fast.
``The market has been anticipating somewhere between a hard landing and a
recession, which means your worst case scenario is probably already
discounted in the stocks,'' said Tony Dwyer, chief market strategist at Kirlin
Holdings. ``It doesn't look better, but it looks more stable.''
GREENSPAN TO THE RESCUE?
Investors are looking to Greenspan for help in propping up the market and
ensuring the economic slowdown does not accelerate into something worse.
``The famous economic slowdown is under way,'' said Robert Dederick,
economic consultant at Northern Trust Co. ``Rather than inflation, the main issue
for the Fed right now is whether the economy is going to slow more than they
would like it to.''
The Fed's top policy-making group, the Federal Open Market Committee, is
expected to end its current credit tightening stance on Tuesday by stating the
economy's risks are balanced between sliding growth and inflation. That would
open the door to interest-rate cuts in the new year.
``I don't think Greenspan is going to be cutting rates on Tuesday,'' said John
Forelli, a portfolio manager at Independence Investment Associates. ``But he's
going to let people know that if the economy continues to weaken that he won't
be afraid to cut rates.''
The Fed, which has jacked up interest rates six times since last year, had
sought to cool the then-blockbuster economy to prevent it from overheating and
triggering inflationary pressures. For several months, the U.S. central bank has
officially maintained a position that economic risks were weighted toward higher
inflation.
The week is chock full of crucial economic data -- including international trade
estimates on Tuesday, gross domestic product numbers on Thursday and
personal income reports on Friday -- guaranteed to keep traders on their toes
during the economic uncertainty.
Earnings To Get The Microscope
Investors will place earnings under the microscope after Microsoft joined a
growing pile of marquee names painting dismal growth pictures last week. The
world's top software company warned that a global slowdown, lower personal
computer sales and less corporate spending would dent earnings and revenues.
``We are having a slowing economy and you can see the problems everywhere,''
said Barry Hyman, chief investment strategist at Weatherly Securities.
Goldman Sachs and Morgan Stanley Dean Witter & Co. (NYSE:MWD - news)
are slated to report their financial results on Tuesday. Wall Street will scrutinize
their numbers to gauge how the brokerage business has fared the slowdown in
mergers and new stock offerings in a dismal market.
Merger partners Chase Manhattan and J.P. Morgan & Co. Inc. (NYSE:JPM -
news) last week forecast quarterly profits substantially below estimates because
of weak trading revenues, higher expenses and investment losses. The warning
triggered a sell-off in the financial sector.
Investors, shaken by a rash of profit warnings pointing to a slowdown in the
technology sector, will study earnings from businesses that supply major
computer and communications equipment companies. Contract electronics
manufacturers Solectron Corp. (NYSE:SLR - news) reports on Monday and Jabil
Circuit Inc. (NYSE:JBL - news) posts results on Tuesday.
Investors will brace for more warnings that profits or sales will miss analysts'
expectations, but the damage should be minimal.
``At this point most of the names that can influence the market have
preannounced bad numbers,'' Dwyer said. ``Who's left?'' |
