Last Update: 9:04 AM ET Aug. 14, 2002
NEW YORK (CBS.MW) - Stocks were looking at a slightly higher open Wednesday as better economic data brightened the mood of investors as they anxiously waited for a slew of corporate chieftains to certify their financial statements before the end-day deadline.
In pre-market action, S&P futures reversed gears to trade up 2.90 at 888.20, while Nasdaq futures rose 5 to 916.
So far, just more than half of chief executives and chief financial officers required to vouch for the accuracy of their financial statements have yet to do so with the Securities and Exchange Commission. The deadline is 5:30 p.m. Wednesday. Read full story.
Apart from business inventories, the economic calendar was light.
Stockpiles at U.S. businesses expanded by 0.2 percent in June, the Commerce Department reported. A large jump in car inventories paced the increase that month. The increase was slightly better than the 0.1 percent rise predicted by Wall Street economists. Read Market Pulse.
Economists say the biggest positive is that inventories are so lean that there's no possibility of another inventory correction, which is the major cause of recessions. The data flow improves Thursday, with industrial production and jobless claims. Check economic calendar and forecasts.
There was no dearth of corporate news, however.
In technology, IBM (IBM: news, chart, profile) announced massive job cuts, cutting 15,000 or 5 percent of its workforce. Read full news. Applied Materials (AMAT: news, chart, profile), the world's largest chip equipment maker, said its customers have recently become more cautious. Read full story.
Vivendi Universal (V: news, chart, profile) tumbled 8 percent in Europe after a credit rating downgrade fuelled concerns the French-U.S. media group won't be able to regroup fast enough to counter a near-term cash crunch. Read full story.
In Asia and Europe, stocks sagged in line with the New York markets decline after the Federal Reserve Tuesday kept its key interest rate at 1.75 percent, as expected, but shifted to an 'easing bias.' The shift was being read as a warning of slowing growth in the U.S.
The Fed's caution weighed on the dollar, which skidded to a one week low vs. the euro at 98.70 U.S. cents and a two-week low vs. the yen. Read indications
Tuesday's stocks
Stocks plunged Tuesday after the Fed left interest rates unchanged while shifting its bias to an "ease" from the current neutral stance. The move proved disappointing to Wall Street as some had been clamoring for a 1/4 point rate cut.
Michael Strauss, senior economist at Commonfund, believes equities may have been disappointed by the Fed's lack of action due to the misconceived notion that an ease was in the offing.
The Dow ended down 2.4 percent and the Nasdaq dropped almost 3 percent. Wednesday marks the deadline for corporations to sign off on their financials.
But Strauss feels the Fed made the right choice by leaving rates unchanged. "They need to use their [remaining] ammunition gingerly."
The Dow Jones Industrial Average ($INDU: news, chart, profile) slid 206.50 points, or 2.4 percent, to 8,482.39. The Nasdaq Composite ($COMPQ: news, chart, profile) lost 37.56 points, or 2.9 percent, to 1,269.28 and the Nasdaq 100 Index ($NDX: news, chart, profile) lost 31.36 points, or 3.3 percent, to 907.62.
The Fed conceded that weakness is now the greatest risk the U.S. economy faces, pointing out that sluggish demand has been prolonged by weakness in financial markets and heightened uncertainty related to corporate governance issues. See full story and listen to interview with former Fed Governor Meyer.
Whether the Fed decides to lower rates at the upcoming Sept. 24 FOMC meeting depends on the economic data released over that timeframe, Strauss said. The Fed last cut rates on Dec. 11 of last year, bringing the fed funds rate to a 40-year low of 1.75 percent.
One market watcher said the Fed's acknowledgement that it's worried about financial markets rather than the economy represented a departure from past statements.
"The Fed's only concerns were directed at the markets and corporate reporting. In past [statements], the Fed's concerns were directed at economic factors such as capital spending and consumer demand," noted Ashraf Laidi of MG Financial.
"The Fed provided a confidence boosting statement that strongly implied the underlying structure of the economy, led by strong productivity growth, remains sound. However, they also admitted that softness in financial markets poses a threat," said Anthony Chan, chief economist at Banc One Investment Advisors.
"With good fundamentals, they do not appear to be moving towards another ease unless financial markets deteriorate further," Chan concluded.
The fed funds futures markets, which discount expected changes in the overnight rate, are predicting at least one ease of 1/4 point by the end of the year. That's in stark contrast to expectations at the start of the year, when traders were projecting three to four rate hikes by the end of 2002.
In the broad market, the Standard & Poor's 500 Index ($SPX: news, chart, profile) gave up 2.2 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks declined 2.8 percent.
Elsewhere, Merrill Lynch's global fund manager survey for August revealed that portfolio managers were less optimistic on economic recovery prospects. They reacted by pulling money out of cyclical sectors while padding their holdings in more defensive areas of the market. Watch interview with Merrill's David Bowers.
Separately, President Bush said the foundations of the American economy are strong. "Yet the only purpose of a strong foundation is to build on it, and that's what we're discussing today," Bush said.
Treasury Secretary Paul O'Neill maintained that the economy is bouncing back and defended the administration's economic policies at the White House's economic forum in Waco, Texas. See full story. |
