Wall St Week Ahead: Declines seen as markets race to reopen
biz.yahoo.com
By Brendan Intindola
NEW YORK, Sept 16 (Reuters) - After four days of deafening silence, Wall Street on Monday will attempt to power up markets that were devastated after last Tuesday's air attacks on the heart of the financial world -- and the outlook for stock prices, at least in the short term, is grim.
Prospects darkened after European stocks on Friday plunged more than 5 percent to near three-year lows on fears of increased violence.
Look for stocks to fall on Monday, and possibly to regain some ground later in the week if the U.S. Federal Reserve cuts interest rates to stave off a recession, professional investors said.
``It seems likely the market will fall on Monday, then be flat or slightly up, but not enough to make it a positive week,'' said Matthew Norris, a portfolio manager with Advantus Capital Management in Minneapolis. ``People are going to wonder how this attack is going to affect all (their) companies. They'll take money out and think awhile before putting it back in. I'm not that optimistic in the short term.''
(U.S.) Vice President Dick Cheney sounded a note for cautious optimism on Sunday when he said the U.S. economy was "strong'' and, while the country ``quite possibly'' could be in recession, he expected it to rebound later this year.
``We look forward to recovery later this year from the slowdown that we've been through, and I have every confidence that will in fact happen,'' Cheney said on NBC's ``Meet the Press.''
To be sure, any stock-market lurch depends on whether the New York Stock Exchange, Nasdaq stock market and American Stock Exchange reopen for business as usual at 9:30 a.m. EDT (1330 GMT) on Monday after the four-day hiatus.
At a news conference at the NYSE on Saturday, Big Board Chairman Richard Grasso said communications tests to determine if he could deliver on his promise to reopen the market on Monday had been successful so far and would continue throughout the weekend.
Since the attack, the New York Stock Exchange, Nasdaq, Wall Street firms, the city and state have joined with New York's telecommunications provider Verizon Communications (NYSE:VZ - news) and power provider Consolidated Edison Inc. (NYSE:ED - news) to make repairs necessary for a resumption of trade.
EARNINGS AND ECONOMIC DATA
Among the important earnings announcements due next week are General Mills Inc. (NYSE:GIS - news) and Solectron Corp. (NYSE:SLR - news) on Monday, Best Buy Co. Inc. (NYSE:BBY - news) on Tuesday and 3Com Corp. (NasdaqNM:COMS - news), Adobe Systems Inc. (NasdaqNM:ADBE - news) and Circuit City Stores Inc. (NYSE:CC - news) on Wednesday.
On Thursday, those expected to report quarterly results include FedEx Corp. (NYSE:FDX - news), Morgan Stanley (NYSE:MWD - news), Palm Inc. (NasdaqNM:PALM - news) and Nike Inc. (NYSE:NKE - news).
Among the economic numbers due this week are Tuesday morning's August Consumer Price Index, a gauge of retail inflation. But with prices increases tame in an economy that may be recessionary, market participants have few concerns about that report. The CPI is expected to rise 0.2 percent compared to a 0.3 percent decline in July.
Fed Chairman Alan Greenspan, who goes to Capitol Hill on Thursday to discuss the health of the U.S. financial system, will be intently watched.
The Fed has been pumping massive amounts of temporary money into the U.S. banking system -- $81.25 billion on Friday alone -- to make sure the complex web of financial transactions do not seize up and Wall Street can conduct business.
To keep money flowing around the world, the Fed has agreed on swaps of currency with the European, Canadian and British central banks.
STABILIZING FACTORS
The attacks have deepened the markets and economic pessimism, worsening fears of a U.S. recession.
For example, Continental Airlines Inc. (NYSE:CAL - news) said Saturday that it was laying off 12,000 staffers and warned it could file for bankruptcy as it and two other top-five U.S. carriers slashed flight schedules in the fallout from last Tuesday's events.
Despite the economic and market pessimism brought on by the attack, stabilizing factors have emerged in recent days. These include growing hopes for an interest-rate cut by the U.S. central bank, corporate stock repurchases and a patriotic bullishness.
Already computer networking giant Cisco Systems Inc. (NasdaqNM:CSCO - news), and tax preparer H&R Block Inc. (NYSE:HRB - news). have announced stock buybacks, which can help stabilize prices by putting some demand into the market. To make stock buybacks easier for companies to conduct, federal securities regulators lifted some accounting, size and volume regulations.
Stocks in many overseas markets fell, as investors fled to traditional safehavens -- bidding up prices of precious metals, oil and U.S. Treasuries. However one bulwark of stability in recent years, the U.S. dollar, dropped to six-month lows against the European currency and the Japanese yen on fears the U.S. economy will become mired in recession.
``Clearly foreign investors are freaking out and that shows up in the dollar breaking down,'' said Peter McTeague, Treasury market strategist at Greenwich Capital Markets. ``It is a no-brainer -- the market is discounting slow growth.''
A POTENTIAL FED MOVE
A rate cut could help prop up stocks, although the Fed's seven cuts this year have done little to boost the sagging stock market. The Standard & Poor's 500 index (^SPX - news) posted its worst six-month performance from the start of a Fed easing cycle in some 50 years, according to market tracking firm MarketHistory.com.
Bear Stearns on Friday said in a bulletin the central bank could lower rates before the resumption of stock trading.
"We hope ... that the Fed will lower interest rates significantly prior to the resumption of equity trading. Even if the events of (Sept. 11) had not occurred, the economic case for lower interest rates was a strong one, according to top Bear economists Wayne Angell and John Ryding.
``We simply do not see any inflation risk from an aggressive move to lower interest rates. The Fed funds futures markets are now looking to an aggressive easing move by the Fed ...'' the Bear economists said.
But other market strategists said more important right now is for the Fed to keep plenty of money flowing through the financial system through its injections of temporary funds, and a rate cut can wait. That would keep another bullet left in its gun to fire when a further confidence boost is needed for markets and the consumer.
RETALIATION CELEBRATION
Investors may dismiss the attack's economic impact or celebrate likely retaliation by U.S. forces against the culprits, experts said.
``The overriding question is whether the attacks have created the type of economic lever that could change market and economic behavior on a longer-term basis,'' market strategist Charles Blood at Brown Brothers Harriman said. ``In our view, there are no direct economic consequences from the terrorist attacks, such as a war restructuring or oil price shock, that could permanently change the course of the economy or the markets.''
A successful pursuit of those behind the attack could push the market higher, Edward Yardeni, chief investment strategist at Deutsche Banc. Alex Brown in New York, said.
``If the U.S. succeeds in rounding up the immediate surviving members of the terrorist cell quickly, including those in the Middle East, then stock prices might rebound on the news,'' Yardeni said. ``It would also be very positive if nations unite to destroy the global network of terrorists.''
For the week ahead outlook on European stocks, double click on [nL16105601]
For the week ahead outlook on Asian stocks, double click on
This week is going to be very difficult for long investors. Longer term in my opinion the speed of any recovery depends on just how successful we are in dealing with those responsible for these acts of terrorism. If we can show good success in this endeavor some confidence might come back into the market.
The capture of Osama bin Laden could ignite a rally. So too could successful military efforts against any country that might harbor him and members of his organization.
RtS |
