Sunday April 26, 12:38 pm Eastern Time
Wall Street Week Ahead - Fearing the Fed
By Marjorie Olster
NEW YORK, April 26 (Reuters) - Wall Street will shift its attention this
week from corporate earnings to fears the Federal Reserve may soon raise
U.S. interest rates.
With a barrage of new economic data coming to the market, analysts will
be busy trying to gauge whether the mix of solid growth and a tight
labor market are creating enough inflationary pressures to spur the Fed
into action.
''The situation most people are going to be watching right now is what
happens with interest rates,'' said Joseph Barthel, chief investment
strategist at Fahnestock & Co.
The Dow Jones industrial average backtracked late last week after
closing at a record high of 9184.94 on Tuesday. The blue chip average
Friday fell 79 points, ending at 9064.62.
For the week it lost 103 points, or 1.1 percent.
Concerns that borrowing costs may be headed higher began creeping back
into the market after several Federal Reserve policymakers warned
recently of building price pressures. The Fed's policy-setting committee
is due to meet next on May 19.
Stock investors have also been watching with a worried eye as the
benchmark long bond yield edges up toward the 6.0 percent level.
''If you go through 6.0 percent, that will spook the market,'' Barthel
said.
The yield on the 30-year Treasury bond ended Friday at 5.95 percent.
The key reports for the week will be the government's initial estimate
of first-quarter gross domestic product and the employment cost index,
both due Thursday at 0830 EDT/1230 GMT.
GDP growth is forecast at 3.3 percent down from 3.7 percent in the
fourth quarter.
The quarterly employment cost index, which will be closely watched for
signs of wage inflation from the tight labor market, is expected up 0.9
percent versus 1.0 percent in the fourth quarter.
Barthel said stocks were correcting and concerns that share prices had
gone too high were giving investors pause.
''The market is sort of telling you the rally has gotten a little long
in the tooth,'' he said, adding a number of internal indicators were
showing a loss of momentum.
Barthel predicted trading this week would be choppy again with the
possibility of marginal new highs or a break below the 9000 level.
Charles Payne, head analyst at independent market research firm Wall
Street Strategies, said he expects the Dow to trade sideways in a 200
point range this week.
''Personally I think right now there is 80 percent chance we don't raise
rates at all but it's the dark cloud,'' he said.
There may be bursts of excitement in the event of another bank or
brokerage takeover, Payne added.
The heavy flows from mutual funds that have been a driving force in the
rally are expected to slow going into May, which could also put a dent
in stocks, analysts said.
Other major economic data on next week's calendar include National
Association of Purchasing Management April index on Friday at 10
a.m.EDT/1400 GMT. The NAPM is seen falling to 53.8 from 54.8 in March.
March Personal income and spending numbers are due at 0830 EDT Friday. |
