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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: donald sew who wrote (29258)	9/28/1998 6:11:00 PM
From: yard_man	Respond to of 94695

This was intersting I thought: A few days ago it was everything -- now it is being downplayed. What do your dumb technicals say, donald? Monday September 28, 5:51 pm Eastern Time Wall St valuations seen only loosely linked to Fed By Huw Jones NEW YORK, Sept 28 (Reuters) - An interest rate cut by the Federal Reserve on Tuesday would likely provide a boost to the stock market, but most on Wall Street doubt it would be anything more than psychological. In fact, most strategists said they used combinations of 10-year, 30-year and 6-month Treasury bill yields -- rates set in the bond market daily -- in valuation models. ''I don't think fair value depends on what the Fed does,'' said Bill Meehan, chief market analyst at Cantor Fitzgerald. ''The best way to measure fair value is by market rates.'' The rate-setting Federal Open Market Committee (FOMC) meets Tuesday. A Reuters poll of U.S. economists showed 27 of 28 expected a cut of at least a quarter percentage point (25 basis points) in the federal funds rate, currently at 5.50 percent. Christine Callies, chief investment strategist at Credit Suisse First Boston, said any stock market lift from a 25 basis point rate cut only be viewed as psychological. She noted that a much bigger decline in long-term interest rates has done little to stimulate the U.S. economy. Others were more optimistic, if guardedly. ''Stocks are cheap on a valuation basis already, and a Fed easing would only make them cheaper,'' said Arun Kumar, senior U.S. equities strategist at Lehman Brothers. ''We know an interest rate cut will help stocks, but to what extent, we don't know.'' Kumar said an easing earlier in the year certainly would have boosted stock values, but given the more difficult economic environment the market now faces, predicting the market's response to a cut has also become more difficult. Part of that difficulty stems from the fact that while lower interest rates are a boon, rates themselves are of limited help when the corporate earnings outlook is unfavorable. ''You have a tug of war between declining interest rates which support higher valuations and, on the other side, you have diminishing earnings expectations, especially for next year, and that pushes down valuations,'' said Marshall Acuff, portfolio strategist at Salomon Smith Barney. ''The key is earnings and whether they come through. People should be looking at earnings and let the valuation take care of itself,'' Acuff said. Collectively, Wall Street expects earnings will decline in the third quarter of 1998; and while expectations for the three quarters after that are for double-digit growth, individual analysts have begun slashing forecasts. Acuff said the Dow would be fairly valued at 8,500 to 9,000 points at best based assuming a forecast of S&P 500 earnings falling one percent in 1999.