Wall St Weekahead- No dips or spikes as vacuum looms
By Haitham Haddadin
NEW YORK, Feb 4 (Reuters) - U.S. stocks are likely to move
sideways with no major spikes or dips as Wall Street starts to
face a vacuum with the corporate earnings season winding down
and little key economic data guiding trade.
This leaves investors in a tug-of-war between the reality
of economic and earnings deterioration and the hope for a
future boost from January's two deep interest rate cuts by the
U.S. Federal Reserve, and more possible easing down the road.
"The best we can expect now is kind of sideways market, but
where we don't have collapses like we had September to
December," said Donald Selkin, chief market strategist at
Joseph Gunnar & Co. "It's the battle between lower rates, which
is positive ... and the negative (which) is the uncertainty
over first-quarter earnings."
Among big companies reporting will be entertainment giant,
Walt Disney Co. <DIS.N>, on Tuesday. Market watchers will also
dissect the scorecard of Internet infrastructure giant Cisco
Systems Inc. <CSCO.O>, due after the closing bell Tuesday. But
barring any bombshells, many see a limited impact, especially
after Cisco's Chief Executive John Chambers has already
cautioned investors that the current fiscal quarter was more
challenging than believed a few weeks ago.
"I am not sure what additional information can be gleaned,"
said Ned Riley, chief investment officer at State Street Global
Advisors, which manages $740 billion. "In Cisco's case, a
growth deceleration to 20 to 30 percent should have already
been accepted by people if not factored into the stock price."
The stock market has shrugged off bad news from high-tech
leaders "after they've announced a fairly horrendous scaleback
in expectations," Riley said, referring to downbeat news
recently from the likes of No. 1 computer chip maker Intel
Corp. <INTC.O> or personal computer maker Dell Computer
<DELL.O>.
"Probably the major reasons for any setbacks or sell offs
would be more a function of investors' perception of change in
the interest rate environment as opposed to continuing
announcements that the environment is depressed," he said.
RATE CUTS PUT FLOOR UNDER MARKET
The Fed last Wednesday slashed the key funds rate by half a
percentage point, saying the threat of an economic slump
required a "rapid and forceful response," and vowed to do even
more if needed.
The Street reacted little to the widely expected move at
the end of January, in a sharp contrast to a mammoth rally Jan.
3 after a surprise cut of a half-point that day. The debate now
moves to the extent of the Fed's next move, which is likely to
induce some volatility.
"Each time the Fed comes to a new meeting you see all kinds
of volatility as people price various likelihoods into their
expectations for the Fed," Uri Landesman, chief investment
officer with AFA Management Partners, said.
"There are certain days when the market seems to be focused
on the second half (of 2001) and beyond when it is reasonable
to expect that the liquidity being injected into the market by
the Fed easing will turn the economy around," he said, "and
other days when it is focused on what is happening in the
market and economy right now which is pretty ugly."
A new Reuters poll shows that a growing number of top Wall
Street firms expect the power central bank to continue its
monetary easing campaign with another cut by March.
The Nasdaq Composite index <.IXIC> fell more than 120
points on Friday, its biggest drop since Jan. 4, as investors
sold tech shares to lock in profits from the January rally. But
analysts don't expect a major sell off in the market, which had
been bid up last month as optimists bet on better prospects for
high-growth tech stocks late this year as the rate cuts work
their way through the economy to benefit corporate results.
"The Nasdaq did have its fifth-best January ever and so
people are saying it needs to cool off a bit and pull back. But
then again the advance came from very, very low levels," said
New York-base Selkin, whose company manages $750 million.
"There is that lingering concern over earnings, especially
since the tech earnings forecast has been lowered to about
unchanged," he said. "But I think we put in the lows in Nasdaq
in early January when the (Fed funds) rate was still 6.50
percent. We've had two rate cuts now and I think that put a
floor under the market."
DEARTH OF ECONOMIC DATA
The economic calendar carries fourth-quarter productivity
data on Wednesday, expected to a show a gain of 2.0 percent,
down from 3.3 percent in the previous period. But eyes will be
on the Jan. retail sales due the following week, which are
expected to show an improvement, in addition to other data
later this month like the Producer Price Index and the Consumer
Price Index, the key gauges of wholesale and retail level
inflation, respectively.
Going forward, economic data is likely to point to very low
confidence from consumers or purchasing managers, more
contraction in industrial production, and a rise in
unemployment, Landesman said.
Stocks have generally done well over the last 40 years
every time the Fed has been in an easing cycle, Landesman said,
as lower interest rates spur corporate and consumer borrowing
and spending on big-ticket items.
"Then we're back to having happy days," Landesman said.
Meanwhile, he sees the market in a narrow range in February and
March with no major corrections or surges.
"The market is a scale now. That is the positives of fiscal
policy and the Fed and the potential for a tax cut versus the
reality of earnings which are not going to be good."
((--Wall Street Desk, Tel 212 859 1881,
haitham.haddadin@reuters.com))
REUTERS
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