Monday, September 20, 2004
Earnings reports, not interest rates, are likely to move markets.
NEW YORK (AP) -- Wall Street opinion is split on whether the Federal Reserve will raise interest rates at its meeting Tuesday, with conventional wisdom siding with a rate increase. But either way, the decision probably won't have as much impact on what happens to stock prices in the week ahead as will news of corporate earnings surprises.
Contrarians argue that last week's reading of the consumer price index showed that inflation, which higher interest rates help to combat, is not a threat to the economy. And with job growth sluggish, keeping short-term rates steady could encourage businesses to invest in growth and hire new workers.
Investors' fear
However, by not raising rates, some investors fear the Fed would be sending a negative message about the nation's economic prospects. And while economic growth has slowed in recent months, it hasn't reversed course entirely.
With the benchmark lending rate at 1.5 percent, rates are still historically quite low -- past economic recoveries have seen rates at 3 percent or higher at this stage. Thus, the Fed can raise rates without substantially harming companies' ability to borrow, analysts said.
Unless the Fed does something really surprising, the interest rate decision isn't likely to be a market mover this week, and investors will have to look elsewhere for guidance, most likely at individual company pre-announcements, on how stocks will perform in the near-term. And so far, the results have been mostly disappointing.
The Coca-Cola Co., a Dow component, precipitated last Wednesday's sell-off with its negative outlook, and Intel Corp.'s mid-quarter update did the same the previous week. While Ford Motor Co.'s bullish outlook on Friday was a positive for the markets, most pre-announcements usually carry warnings rather than good news, a product of the Securities and Exchange Commission's pressure on companies to get news to the public as soon as possible.
Last week, muddled news on the economic front and Coke's outlook kept the major indexes mixed. The Dow fell 0.3 percent, reversing five weeks of gains, while the S & amp;P 500 was up 0.4 percent and the Nasdaq rose 0.8 percent. The S & amp;P 500 remained in positive territory for the sixth straight week, while the Nasdaq, up two weeks in a row, broke the 1,900 mark on Monday for the first time since July 20.