NEW YORK (Reuters) - Wall Street expects Federal Reserve policy-makers to cut interest rates next Tuesday to help ease a global credit squeeze, a much anticipated event that spurred stock prices higher this week and could boost them next week.
Investors expect the Federal Open Market Committee to cut the federal funds rate in response to growing concerns that the U.S. economy is slowing and may be heading into recession.
Short-term interest rate futures on Friday indicated investors believe a half a percentage point cut in the federal funds rate is slightly more likely than a quarter percentage point cut when the FOMC meets.
Some investors say the stock market has priced in a quarter-percentage point rise, limiting any upside. But if the past is a guide, investors will react to the actual event, said David Bianco, chief U.S. equity strategist at UBS in New York.
"I think the market's going to have a positive reaction to it, I really do," said Bianco, who expects a 25 basis point cut in the federal funds rate and a 50 basis point cut in the discount rate.
"It will signal a response to what's going on, to try to prevent credit market troubles from spreading to the real economy," he said.
Reuters polls showed on Thursday that economists see about a 30 percent chance that the United States enters recession in the next 12 months should the effects of a housing slowdown continue to seep into the wider economy.
Major U.S. stock market gauges moved up this week in anticipation of a rate cut, with the Dow Jones industrial average <.DJI> posting its best week since April.
For the week, the Dow rose 2.5 percent, the benchmark Standard & Poor's 500 Index <.SPX> gained 2.1 percent and the Nasdaq Composite Index <.IXIC> rose 1.4 percent.
On Friday, the Dow closed up 17.64 points, or 0.13 percent, at 13,442.52; the S&P 500 closed up 0.30 points, or 0.02 percent, at 1,484.25, and the Nasdaq closed up 1.12 points, or 0.04 percent, at 2,602.18.
OPTIONS EXPIRATION TO STIR VOLATILITY
Investors will want to see if the subprime mortgage trauma has worsened for four big investment banks -- Lehman Brothers (LEH.N: Quote, Profile , Research), Morgan Stanley (MS.N: Quote, Profile , Research), Bear Stearns Cos. Inc. (BSC.N: Quote, Profile , Research) and Goldman Sachs Group Inc. (GS.N: Quote, Profile , Research) -- when they release fiscal third-quarter earnings results over three days next week.
The release of third-quarter earnings for most companies doesn't begin in earnest until October.
The banks have diversified business models and are able to profit from worldwide economic growth, which will alleviate any downdraft of credit market issues, said Michael Cuggino, chief investment officer of the Permanent Portfolio family of funds in San Francisco.
"We may be surprised to find the negative impact was not as great in the third quarter as people may have expected," Cuggino said.
Volatility is likely to intensify at week's end because of the expiration of four different options and futures contracts, a quarterly event known as "quadruple witching."
Investors also will be parsing inflation data for August, information on housing starts and building permits, also for August, and unemployment claims for the week ending September 15.
According to a Reuters poll of economists, producer prices, which are a measure of prices paid at the farm and factory gate, are expected to decline 0.2 percent in August when the Labor Department releases data on Tuesday.
The following day, a Labor Department reading for the Consumer Price Index, a key inflation gauge, is expected to be unchanged from July.
Also on Wednesday, housing starts for August are expected to decline to 1.35 million and building permits are expected to decline to the same amount, 1.35 million.
On Thursday, a Labor Department report on U.S. workers signing up for jobless benefits is expected to show initial claims of 321,000.
Although the labor market has shown recent softness and the housing sector is clearly suffering, both Bianco and Cuggino said the overall U.S. economy is not in that bad shape.
"It's been almost astounding how good things have been outside of the financial economy," Bianco said. "For the most part the energy companies, the industrial companies and the technology companies are on the verge of a full recovery of the dip."
Cuggino said that "for every financial service firm that's having difficulties, there's a technology firm that's experiencing pretty good earnings growth and pick-up in business."
Showing posts with label Federal. Show all posts
Showing posts with label Federal. Show all posts
Monday, September 17, 2007
Friday, September 14, 2007
after poor retail data
Wall Street experienced another choppy week of trading and with stocks relatively steady on Friday, the major benchmarks were poised for one of their better weeks since the squeeze in the credit and money markets emerged in mid-July.
This relative calm coupled with light trading volumes came before the Federal Reserve meeting and third quarter earnings results from leading investment banks next week. The better mood in stocks reflected hopes that a policy easing next week would prevent financial market stress infecting the broader economy, say analysts.
A record low in the dollar against the euro and a record high in crude oil did not derail stocks this week. Sluggish retail sales data on Friday, on the heels of a weak employment report the previous week, have reinforced expectations that policy-makers will ease rates at least a quarter-percentage point on Tuesday.
"A rate cut will certainly make the markets feel the Fed is with them," said Jack Ablin, chief investment officer at Harris Private Bank.
At midday, the S&P 500 index was steady around 1,483.61, for a rise of 2.1 per cent this week. The S&P has now rebounded more than 5 per cent from its mid-August low of 1,406.70 when credit concerns intensified. That leaves the benchmark just over 4 per cent below its record close of 1,553 from mid-July.
"The rhetoric from Wall Street is for a rate cut, but if you watch what they have done, the leadership seen in stocks reflects expectations of a better economy, not a crisis," said Jim Paulsen, chief investment strategist at Wells Capital Management.
Although energy stocks led the S&P's major sectors higher, retailers and financials also rebounded smartly this week. Technology, which had done well in prior weeks, lagged in recent days.
Homebuilders also underperformed. This group has now fallen more than two-thirds from its peak in 2005.
At midday, the Nasdaq Composite was unchanged at 2,601.02, but had risen 1.4 per cent since Monday.
The weak dollar helped boost the appeal of large multinational companies, such as those in the technology sector, and the Nasdaq 100 index was up 2.2 per cent this week, outpacing the Composite.
Among big technology stocks, Apple rose 5.3 per cent to $138.38 as it announced the sale of 1m iPhones. UBS raised its price estimate to $182.
The Dow Jones Industrial Average was a fraction higher on Friday at 13,426.83, and had gained 2.4 per cent over the week. This was the Dow's best week since a rise of 2.8 per cent for the week ending April 20.
A number of Dow stocks surged this week. McDonald's rallied 10.5 per cent to $54.80 and set a record high of $54.95 yesterday. The fast food group announced a 50 per cent increase in its annual cash dividend to $1.50 a share after posting a 8.1 per cent rise in global same-store sales during August.
Boeing rose 4.6 per cent to $99.17, as the aircraft maker announced it had won a $1.1bn US Air Force deal.
As oil entered record territory, Exxon Mobilgained 4.2 per cent to $89.43.
JPMorgan, a Dow banking stock, rallied 4.6 per cent to $45.55 as investors continued to discriminate among financials.
The S&P Financials sector rose 2.4 per cent this week, reversing some of the 5 per cent loss in the preceding two weeks. The S&P Investment bank index rose 5.2 per cent, its best weekly performance since mid-April, and had largely repaired the damage of the previous two weeks.
Among the brokerages, Lehman outperformed with a rise of 10.9 per cent to $58.71. Bear Stearnsrallied 9.9 per cent to $115.75 and steadily accrued gains from Monday, when a filing revealed that wealthy financier Joseph Lewis was the investment bank's single largest shareholder after a stake-building that began two months ago.
Attention will now focus on sector earnings. "The major investment banks, namely Lehman, Bear, and Goldman report and undoubtedly will help set the tone for stocks and help gauge why damage was done over the last few months," said David Ader, bond strategist at RBS GreenwichCapital.
Countrywide, the largest US mortgage lender, plunged early this week and touched a low of $16.18 as fears over its ability to secure financing intensified. On Thursday, the bank said it has secured $12bn in financing and the stock rose 14 per cent, and was up a further 2 per cent to $19.30 on Friday. (Financial Times)
This relative calm coupled with light trading volumes came before the Federal Reserve meeting and third quarter earnings results from leading investment banks next week. The better mood in stocks reflected hopes that a policy easing next week would prevent financial market stress infecting the broader economy, say analysts.
A record low in the dollar against the euro and a record high in crude oil did not derail stocks this week. Sluggish retail sales data on Friday, on the heels of a weak employment report the previous week, have reinforced expectations that policy-makers will ease rates at least a quarter-percentage point on Tuesday.
"A rate cut will certainly make the markets feel the Fed is with them," said Jack Ablin, chief investment officer at Harris Private Bank.
At midday, the S&P 500 index was steady around 1,483.61, for a rise of 2.1 per cent this week. The S&P has now rebounded more than 5 per cent from its mid-August low of 1,406.70 when credit concerns intensified. That leaves the benchmark just over 4 per cent below its record close of 1,553 from mid-July.
"The rhetoric from Wall Street is for a rate cut, but if you watch what they have done, the leadership seen in stocks reflects expectations of a better economy, not a crisis," said Jim Paulsen, chief investment strategist at Wells Capital Management.
Although energy stocks led the S&P's major sectors higher, retailers and financials also rebounded smartly this week. Technology, which had done well in prior weeks, lagged in recent days.
Homebuilders also underperformed. This group has now fallen more than two-thirds from its peak in 2005.
At midday, the Nasdaq Composite was unchanged at 2,601.02, but had risen 1.4 per cent since Monday.
The weak dollar helped boost the appeal of large multinational companies, such as those in the technology sector, and the Nasdaq 100 index was up 2.2 per cent this week, outpacing the Composite.
Among big technology stocks, Apple rose 5.3 per cent to $138.38 as it announced the sale of 1m iPhones. UBS raised its price estimate to $182.
The Dow Jones Industrial Average was a fraction higher on Friday at 13,426.83, and had gained 2.4 per cent over the week. This was the Dow's best week since a rise of 2.8 per cent for the week ending April 20.
A number of Dow stocks surged this week. McDonald's rallied 10.5 per cent to $54.80 and set a record high of $54.95 yesterday. The fast food group announced a 50 per cent increase in its annual cash dividend to $1.50 a share after posting a 8.1 per cent rise in global same-store sales during August.
Boeing rose 4.6 per cent to $99.17, as the aircraft maker announced it had won a $1.1bn US Air Force deal.
As oil entered record territory, Exxon Mobilgained 4.2 per cent to $89.43.
JPMorgan, a Dow banking stock, rallied 4.6 per cent to $45.55 as investors continued to discriminate among financials.
The S&P Financials sector rose 2.4 per cent this week, reversing some of the 5 per cent loss in the preceding two weeks. The S&P Investment bank index rose 5.2 per cent, its best weekly performance since mid-April, and had largely repaired the damage of the previous two weeks.
Among the brokerages, Lehman outperformed with a rise of 10.9 per cent to $58.71. Bear Stearnsrallied 9.9 per cent to $115.75 and steadily accrued gains from Monday, when a filing revealed that wealthy financier Joseph Lewis was the investment bank's single largest shareholder after a stake-building that began two months ago.
Attention will now focus on sector earnings. "The major investment banks, namely Lehman, Bear, and Goldman report and undoubtedly will help set the tone for stocks and help gauge why damage was done over the last few months," said David Ader, bond strategist at RBS GreenwichCapital.
Countrywide, the largest US mortgage lender, plunged early this week and touched a low of $16.18 as fears over its ability to secure financing intensified. On Thursday, the bank said it has secured $12bn in financing and the stock rose 14 per cent, and was up a further 2 per cent to $19.30 on Friday. (Financial Times)
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