Today's Market: Indices Flat Ahead of Rate Decision
(Updated from 9:28 a.m.)
Early trading was cautious this morning ahead of the
Federal Reserve's interest-rate decision and following a mixed stew of corporate news.
The
Dow Jones Industrial Average was lately up about 6 points to 10,479; the
Nasdaq Composite Index was flat at 2065; and the
S&P 500 was lower by 2.1 points to about 1214.
Tech bellwethers
Palm
(PALM)
and
Oracle
(ORCL) - Get Report
were soaring after dishing out some positive earnings news after the close of regular trading yesterday.
Stocks often rally ahead of an interest-rate announcement, so any early weakness could give way to strength later in the trading day. In any case, investors will likely play the market with the caution typical of trading sessions preceding a
Fed decision, and volume should be light.
Stocks bounced back late yesterday from their lows of the trading session as investors anticipated today's rate-cut decision. Still, the major indices ended the day mixed. The Dow lost 0.31% to 10,472.48. The Nasdaq rose 0.67% to 2064.62.
Fed Follies
The Fed kicked off its two-day meeting yesterday, and Wall Street remains close to evenly split about whether it will go for a half- or quarter-point cut. At the close of trading Tuesday,
fed fund futures, a good proxy for the bond market's expectations of monetary policy, were pricing in 100% odds of a quarter-point cut and 40% odds of a half-point cut.
The central bank has already cut the
fed funds rate five times this year, by a total of 2.5 percentage points, to 4%. The rate cut decision will be announced around 2:15 p.m. EDT this afternoon.
"If they cut by anything less than 50, I think the market will sell off," said Jim Herrick, managing director of trading at
Robert W. Baird
. "But that may depend on what they say their bias is going forward. If he
Chairman Alan Greenspan indicates a seventh rate cut is in store, the market could rally. If not, it may sell off."
Meanwhile, fresh signs of slowing in corporate America emerged after the close of regular trading yesterday. Telecom equipment maker
Lucent
(LU)
is stepping up its restructuring and plans to cut an additional 10,000 jobs,
The Wall Street Journal
reported this morning. The company has already announced plans to lay off 10,000 employees, cut another 12,000 jobs through the sale of its fiber-optic business and two manufacturing plants and offered early retirement to 13,000 workers.
And a couple more tech companies confessed to continuing earnings weakness. Chipmaker
Xilinx
(XLNX) - Get Report
said it sees first-quarter revenues down 32% from the first quarter,
lowering a forecast made earlier this month. It was recently 4.8% lower to $41.75 in early trading. And networking-equipment maker
3Com
(COMS)
missed its fourth-quarter earnings estimates. The company reported a loss of $1.52 a share in its fourth quarter, compared with a loss of 42 cents a share in the year-ago period. Analysts on average expected a loss of 57 cents a share for the period. But the company affirmed its forecast for ongoing business to be profitable at the end of the next fiscal year. It was lately off 3.5% to $4.68.
But the news wasn't all bad. Palm reported fiscal fourth-quarter earnings that beat analyst estimates. And software giant Oracle's CEO, Larry Ellison, said during a press conference that the current quarter "looks a lot stronger." Palm was rising 16.4% to $6.03 this morning, though it's still well below its 52-week high of $67.37. Oracle was up 0.6% to $18.55.
Despite a few morsels of good earnings news in recent weeks, on balance the news has been overwhelmingly negative. At this point, Wall Street seems to have given up on a third-quarter acceleration in earnings, and expectations for the fourth quarter
are dimming.
Today's widely predicted Fed interest-rate cut could give investors new hope for an economic and earnings recovery. Five rate cuts so far this year -- comprising one of the most aggressive rate cutting schedules in recent history -- have had little positive impact on earnings or the economy, but the effects of such cuts tend to lag by about six months. Market pros say investors now want concrete signs of an economic recovery during the third quarter and an earnings rebound early next year -- but those signs may not come for another month or two.
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Bonds/Economy
Bond prices were flip-flopping this morning ahead of the Fed decision, but were lately higher. The benchmark 10-year
Treasury note was up 1/32 to 98 10/32, yielding 5.226%.
The 30-year bond was rising 6/32 to 96 5/32, yielding 5.644%.
U.S. Treasuries fell yesterday after some strong economic data dampened expectations the Fed will cut rates by a half-point.
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International
European markets were mixed today as they waited on the U.S. rate cut decision. After closing at a 12-week low yesterday, London's
FTSE 100
was moderately higher, led by strength in drugs and bank stocks. The index was lately up 0.57%, or 31.80, to 5587.50. Across the channel, earlier gains had expired but the major indices were moving off earlier lows. The Paris
CAC-40
was slipping 0.23%, or 11.94 points, to 5078.79. Frankfurt's
Xetra Dax
was off 0.23%, or 13.56 points, to 5834.23.
Asian markets were mixed overnight. Tokyo's
Nikkei 225
fell 1.15%, or 149.84 points, to 12,828.98. Hong Kong's
Hang Seng
lifted 42.24, or 0.33%, after a steep decline Tuesday.
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