Of course, there is always the possibility that the market will bounce slightly this week if the Fed only raises rates .25%. If so, it is best to stand aside and then enter short later in the week, or on observed weakness...
Here is the note of optimism that may need to be heeded:
Stock Market Update
Sun, 27 Jun 1999, 9:31pm EDT
U.S. Stocks May Rise After Fed Policy Meeting This Week
By Claudia Carpenter
U.S. Stocks May Rise After Fed Policy Meeting This Week
New York, June 27 (Bloomberg) -- Battered financial stocks,
including Banc One Corp., Fannie Mae Corp. and Bear Stearns Cos.,
may lead the stock market higher this week on expectations the
Federal Reserve will only raise interest rates a minimal amount.
The NYSE Financials Index has fallen in eight of the past
nine weeks, dropping last week by 2.3 percent, the worst weekly
performance since early February. Financial stocks were hurt last
month on expectations the Federal Reserve might raise interest
rates as much as half a percentage point when it meets this
Tuesday and Wednesday.
''Many investors are fearing the worst, for a half-point
increase,'' said Robert Stovall, president of Stovall/Twenty-
First Advisers Inc. in New York with $1 billion under
supervision. ''I don't think they'll go that far -- it would be
too hurtful to the economy.''
The Dow Jones industrial average last week fell 303 points,
or 2.8 percent, to 10,552.56. The S&P 500-stock index slipped
27.53, or 2.05 percent, to 1,315.31, while the Nasdaq Composite
Index lost 10.79, or 0.4 percent, to 2,552.65.
The Federal Reserve said at its last meeting in May that it
was leaning toward raising interest rates to head off inflation.
Financial service companies are among the first to be affected by
rising rates as companies scale back expansion plans, reducing
demand for loans and other forms of financing. In addition, the
economy may lose steam as consumers encounter more difficulty in
getting credit.
Aggressive
''We have been aggressive buyers of some of the financial
stocks, they've been such poor performers,'' said David Rolfe,
chief investment officer of Wedgewood Partners Inc. in St. Louis,
Missouri, with $150 million under management. ''Once this focus
on interest rates goes by the wayside, these financial stocks
could really take off.''
September futures on the Standard & Poor's 500 index rose
2.2 points to 1331.2, in line with the contract's ''fair value,''
based on dividends, days until the contract expires and the cost
of money.
Stocks that could benefit if the Fed raises interest rates
by only 25 basis points, as most expect, include Brandywine
Realty Trust, Banc One, Bear Stearns, Ohio Casualty Co. and Wells
Fargo Co., analysts said.
Stocks could also gain because relatively few companies are
warning of profit shortfalls, Rolfe said. ''I think earnings for
the second quarter are going to be much better than the market is
anticipating right now,'' Rolfe said.
During the recent ''confessional period'' when companies
warn of lower earnings, he said, ''frankly, there haven't been
too many.''
Companies scheduled to release quarterly earnings results
this week include Nike Inc. and FDX Corp.
Other stocks that may move tomorrow include Georgia-Pacific
Corp., which fell 1 11/16 to 48 11/16 on Friday's news that the
No. 2 U.S. paper producer will pay Chesapeake Corp. $730 million
to combine their commercial tissue business. |
