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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (18764)	5/14/2000 1:42:00 PM
From: Ruffian	Read Replies (1) \| Respond to of 35685

WALL ST WEEKAHEAD - Big hike seen bringing bigger rally By Eric Wahlgren NEW YORK, May 14 (Reuters) - No more baby aspirin, a pill at a time. This week Wall Street wants nothing less than an adult dose to get rid of that inflation headache. Market experts aren't just predicting the Federal Reserve will go hard on inflation with a decisive, half a percentage point interest rate hike when it meets on Tuesday. Many are hoping for the big one. This is the thinking: If the central bank sticks with its usual policy of gradually turning up the heat on inflation with modest, quarter of a percentage point boosts in borrowing costs, there's little telling when the monetary tightening could stop. ``If we get a half percentage point increase, we will get a bit of a relief rally,'' said Larry Rice, chief investment officer at Josephthal Lyon & Ross in Boca Raton, Fla. ``The Fed will be seen as being ahead of the curve. But if we get a quarter of a percentage point, there will be major disappointment.'' The central bank has raised interest rates five times since last June to head off inflation with each increase one of only 25-basis points. A basis point is a hundredth of a percentage point. Analysts caution, however, that a hefty rate increase does not really give stocks any reason to party like it's summer break. As a general rule, higher borrowing costs can make it more expensive for companies to finance their operations, a trend that can take a bite out of earnings. The perception that future profits will suffer is enough to immediately drive down stock prices. ``If the Fed were to go with 25, that would probably not have any really positive effect,'' said Rick Meckler, senior managing director at Liberty View in Jersey City, N.J. ``But I still think investors would prefer 25 to 50.'' But Meckler says these days, there's a lot more weighing on the market than just interest rates. Giving many on Wall Street a migraine is just how to value technology companies that led the record gains in equities before the recent retrenchment. ``It is not about rates anymore,'' Meckler said. ``It is about multiple contraction and what is the right multiple for a technology company. There is no longer unlimited optimism about the market.'' One reality check came last week in the form of an article in the financial newsweekly Barron's that questioned the market capitalisation of Cisco Systems Inc. (NasdaqNM:CSCO - news), the world's largest maker of data networking equipment. The pessimistic report sent the stock of the company, whose market capitalisation ranks in the world's top two, tumbling nearly 8 percent last Monday. ``Clearly the psychology is not half as good as it was in the early part of the year when everybody was just buying everything in sight,'' said Adam Weisman, managing director at Wit Soundview. ``Fundamentals are good but questionable on some of these names that ran so far and have come all the way back. I don't know if people are ever going to go back.'' Many analysts predict that stocks will remain in a trading range this week and perhaps several weeks to come until the volatility in the market quiets down. ``I think investors will stay in the market, but they will not be willing to take on new commitment until they see a period of stability,'' Meckler said. The Nasdaq composite index (^IXIC - news) rallied in the last two sessions of last week but for the week still ended off nearly 8 percent at 3,529. The blue chip Dow Jones industrial average (^DJI - news) fared better, finishing the week up 0.3 percent at 10,609. The broader Standard & Poor's 500 index (^SPX - news) closed off 0.8 percent. Before the Federal Open Market Committee decides what to do about interest rates on Tuesday afternoon, investors will get news on whether there is any inflation at the consumer level. According to economists polled by Reuters, the Consumer Price Index is expected to show a rise of 0.1 percent in April, or a 0.2 percent increase when volatile food and energy prices are stripped out. Last week, April reports on retail sales and on wholesale inflation were benign, suggesting that the Fed's series of interest rate hikes may finally be slowing the speeding U.S. economy. Computer maker Hewlett-Packard Co. (NYSE:HWP - news) and Home Depot Inc. (NYSE:HD - news), the world's largest home improvement retailer, are both due to report results on Tuesday, more or less wrapping up what has been by all accounts a remarkable earnings season. Ninety-three percent of the companies in the Standard & Poor's 500 index have so far reported their first-quarter earnings. Of those, 71 percent have beaten Wall Street's expectations, according to First Call/Thomson Financial. In past quarters, only slightly more than 56 percent of companies had surpassed estimates.