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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Giordano Bruno who wrote (14611)	5/21/1999 10:40:00 PM
From: Giordano Bruno	Respond to of 99985

Wall Street heading into a long, hot summer By Jennifer Shaw NEW YORK, May 21 (Reuters) - Wall Street is getting ready for a long, hot summer with consensus growing that the sizzling economy will send interest rates higher before Labor Day. With the Dow finally showing signs of pausing after its run on 10,000 and then a month later 11,000, technology stocks down from their highs and big-cap stocks looking expensive, many on Wall Street think some kind of summer slump is inevitable. After the Federal Reserve's disclosure that it is now leaning toward an interest rate increase, many analysts say a move is likely to come sooner rather than later. ''We have moved up the expected date of an initial rate hike into a three-month window,'' Smith Barney economists Robert DiClemente and Mitchell Held said in a research report Friday. ''Policymakers now believe that the balance of risks forward has tilted toward higher inflation. As a result, they appear poised to take back some of last fall's easing,'' the report also said. With little news due out on the corporate front, the market heads into the last week before Memorial Day with the rate question expected to effectively cap the market. ''The world is locked into wondering what the Fed is going to do,'' said Barry Hyman, market analyst at Ehrenkrantz, King & Nussbaum. ''It's going to keep the market locked into a trading range and keep a lid on the upside.'' Although the Federal Reserve this week left the key federal funds rate unchanged at 4.75 percent, a rate hike may be inevitable. Smith Barney's DiClemente and Held said in their report that, ''barring a significant tightening of financial conditions, additional moves to take the fed funds rate to 5-1/2 percent in the first half of 2000 may be warranted.'' While markets are expected to hit the summer doldrums, there will still be money-making opportunities. Some, for example, see small-cap stocks emerging as a viable alternative. ''You will see a shift into the smaller-cap stocks. Don't be surprised if you see the S&P and the Dow Jones industrial average do nothing,'' said Hugh Johnson, chief investment officer of First Albany Corp. ''If you are a portfolio manager, that means the large caps will be just fine but short term your performance will not be as good as the broader market.'' Johnson also said he would not be surprised to see rates increase. If there are further indications of price pressure, he said, ''my guess is that they will raise rates in July or August, before the end of the third quarter.'' The Russell 2000 is up near its highest level of the year. ''The small caps and midcaps are leading the way and I think you will continue the strength in the sector,'' said Ehrenkrantz's Hyman.