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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: alan w who wrote (172599)	8/19/2001 12:11:05 AM
From: calgal	Respond to of 769670

The Coming Week: Expect a Quarter-Point Cut, but Not Much Else By Kristen French Staff Reporter 8/18/01 6:05 PM ET After a long break, Wall Street gets another Federal Reserve policy meeting in the coming week. But don't expect it to yield any surprises or shake stocks out of their August doldrums. The market is overwhelmingly expecting the Fed to cut interest rates by a quarter-point next week and to maintain its bias toward more cutting. All but two of 65 economists polled by Bloomberg expect a quarter-point cut. And the fed fund futures market is now pricing in 100% odds of a 25 basis-point cut at next week's meeting, along with 68% odds of another quarter-point cut later in the year. "On the equity market, enough people out there are expecting that if [the quarter-point cut] does come along, it will be pretty much a nonevent," said Jeff Warantz, equity strategist at Salomon Smith Barney. If the Fed follows its script, the market will neither celebrate nor mourn, strategists say. At this point, investors are more interested in hard evidence of a recovery in the economy and in earnings than more rate cuts. The Fed has cut interest rates six times since January to 3.75% from 6.5% to get the flagging economy back on its feet. Historically, the economy tends to respond six months after the first rate cut, but so far, a recovery remains elusive. While the past two weeks of data have shown some signs of hope, investors are skeptical. Retail sales and consumer sentiment were quite strong, business inventories burned off faster, the decline in industrial production slowed and second-quarter productivity was robust. But investors seemed to concentrate on the Beige Book for June and July, which showed weakness in manufacturing trickling into the service sector and other areas. "If you were watching earlier data carefully, you wouldn't have been surprised," said Mickey Levy, chief economist at Banc of America Securities. "The easiest thing for the market to do is extrapolate the bad news forever. It's very difficult to see the turnaround until it actually starts to occur." The "Dog Days" of August After two weeks of selling, and without any other catalysts for buying on the horizon, stocks should remain flat or move slightly lower next week. Most of Wall Street is on vacation in August, and no major earnings reports are scheduled for the week. Little economic data will be released, but the July durable goods orders (definition \| chart \| source) report and new home sales data for last month will come out Friday. Market watchers say investors may wait until September, when third-quarter earnings confessions start rolling in, to place any big bets on the market. "I expect things to move sideways to slightly down through the end of the month," Warantz said. "They could move up if we see less negative preannouncements by September. The question is how much of a slowdown is there really. If we can see the light at the end of the tunnel, then we know what we're dealing with." In the meantime, investor sentiment will be colored largely by the events of the past two weeks. The earnings picture worsened a little late last week, and low volume helped exaggerate the market's reaction, causing the major indices to break through key support levels to the downside. Dell (DELL:Nasdaq - news - commentary - research), Hewlett-Packard (HWP:NYSE - news - commentary - research) and Ford (F:NYSE - news - commentary - research) all issued negative reports at the end of last week. Dell was the worst of the lot. That companies continue to lower their earnings outlooks shouldn't come as any big surprise. Analysts continue to aggressively reduce third- and fourth-quarter earnings estimates for the S&P 500. Third-quarter earnings are expected to decline 13.2%, while fourth-quarter numbers are seen as falling 0.4%, according to Thomson Financial/First Call. Just a month ago, those estimates weren't nearly as bad. While the estimated decline for the fourth quarter might suggest an end to the slowdown, analysts caution against getting too excited. Year-over-year comparisons get a lot easier in the fourth quarter because of weakness in the same period last year. And fourth-quarter estimates should fall even more in the coming months. Stocks sold off in the wake of the bad earnings news and are getting closer and closer to the two-year lows hit in the spring. Friday, the Nasdaq fell 3.28% to 1867.01. The Dow dropped 1.46% to 10,240.78. The S&P 500 fell 1.67% to 1161.97. Volume was practically nonexistent. "The Dow and the Nasdaq have broken through some levels they had bounced off before," said Michael Lyons, vice president of investment banking at Morgan Stanley Dean Witter. "We're in the middle of vacation here. There is no inclination for the buyers to come back in. It's the dog days of August." thestreet.com