From bonds.online (via Les H.), - although FED Funds Rate had 100% probability of quarter point
at FOMC 0n 15 May?
US Stock Outlook: Economy Outweighs Rates
07:15 EDT 04/30
By Mark Pender
NEW YORK (MktNews) - Strong first quarter GDP has changed the balance for the stock market, shifting expectations away from weak economic growth and aggressive Fed policy and toward firmer-than-expected growth and neutral Fed policy.
Dealers expect to see economic strength to emerge in the weeks ahead, fulfilling the promise of the first quarter's 2 percent GDP rate. Declining in proportion will be concern over Federal Reserve accommodation.
"GDP surprised a lot of people. I think with 200 basis points already on the table, the Fed will be done for a while," said Tom Schrader, trader at Legg Mason. Schrader says the market now waits for the prior rate cuts to do their work and evidence of a recovery to appear.
Calling the interplay between growth and interest rates a cycle, Schrader said it turned Friday distinctly toward growth. Just a week ago Wednesday, interest rates were at center stage after the Fed announced a dramatic, if not completely unsurprising, inter-meeting cut.
Jay Suskind, trader at Ryan Beck, agrees that the emphasis is on growth and said expectations have down shifted to a quarter-point rate cut at the Fed's May 15 meeting, after that it's uncertain. He doesn't think a quick economic snapback is likely, pointing to the prospect of higher unemployment and higher fuel bills. Yet he said if the economy does improve sharply, the Fed could go to "neutral" by the summer.
The Commerce Department reported Friday that gross domestic product rose 2 percent, twice expectations and twice the rate of the fourth quarter. Though the data will be revised, stock market dealers do not expect big downward surprises.
Given improving economic growth, Suskind looks for stocks to form a base and begin a gradual climb. He likes blue chip technologies, arguing that much of the inventory overhang in the sector has unwound. "They're going to perform okay. Not like the late 90s, but they can stabilize and start to grow," he said.
But there was bad news this week, including a weeklong shutdown by Sun Microsystem and earnings disappointments from JDS Uniphase on Tuesday and Corning on Friday. Corning dramatically cut its full year outlook and announced a major layoff. But the market, like it has over the last several weeks, failed to move on the news, encouraging the perception that weaker profits have been fully priced in.
This was the same reaction we saw in January, when Gateway, Corning, Home Depot all issued memorable warnings that were ignored. But dealers say further sharp losses are unlikely given the now building signs of an economic recovery. Schrader concedes that theres significant risk in the market. "Perhaps, the best we can do is build a base during the summer and gradually improve to year-end." |
