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Wall Street Awaits Word From the Fed

Will the FOMC move to a tightening bias? Opinion is divided on the Street.

It might be better for everyone if they held off ringing that bell until this afternoon.

Until the

Federal Open Market Committee

finishes its meeting at around 2:15 p.m. EDT, there's not going to be a heck of a lot doing on Wall Street. There is a high degree of uncertainty surrounding the meeting, not over whether the Fed will raise rates -- it almost certainly will not -- but over whether members will move to a tightening bias.

The Fed's policy bias, or its policy directive, is simply an indication of where the Fed thinks rates will go next. The Fed decided only at the December meeting that it could announce changes in bias; before that, the market wouldn't find out until the meeting minutes were released six weeks later, or the Fed leaked the news to a reporter.

Now that the Fed will announce changes in bias when it wants to "communicate to the public a major shift in its views about the balance of risks or the likely direction of future policy," the game has changed. Before, a meeting like today's when there were no expectations of a change in rates would be a nonevent.

Now the market is second-guessing not just changes in rates, but changes in stance. In the wake of Friday's strong

consumer price index

, the Wall Street is sharply divided over whether the Fed will move to a tightening bias. Economists recognize it as a risk, but most seem to expect it won't happen. The bond market, on the other hand, seems to think it will.

It's also unclear how the market will react to whatever the Fed does. Up if there's no change in bias? Some have said the bonds would actually sell off, because that would suggest the Fed's not being vigilant. Admittedly, that is an argument made by bond bears -- but then the bears have been in control of the bond market for a while here.

And the stock market? It will spend most of the day just watching the bonds.

"The guys who are the real experts in interpreting the Fed are in the bond market," said Dan Mathisson, head stock trader at

D.E. Shaw Securties

. "The stock market will be lagging

behind the bond market."

The way stocks react to the bond market after the FOMC meeting is wrapped up will have some complexity to it. A change in bias -- with its attendant expectation of inflation -- will hurt the most highly valued stocks badly, while cyclical and value issues may get off better. In contrast, if there's no change in bias


the bonds rally on that, growth stocks should jump.

Mathisson does think that there will be something of a bid in the techs and Internets early on, though, in a continuation of the gains those stocks saw late yesterday. "It was turning into a frenzy at the end of the day," he said.

A bit of strength in the bond market after a slip in April

housing starts

helped firm the outlook for stocks at the open. At 9 a.m. EDT, the

TheStreet Recommends

S&P 500

futures were up 3.6, fractionally above fair value. The 30-year Treasury was up 9/32 to 91 8/32, dropping the yield to 5.88%.

Action overseas was light, with most investors sticking to the sidelines ahead of the Fed meeting.

In Japan, the


slipped 42.4 to 16,373.62.

Hong Kong's

Hang Seng

added 38.5 to 12,627.1.

In Frankfurt, the


was up 18.84 to 5133.31.

In Paris, the


was up 57.72 to 4301.66.



was up 13.2 to 6179.

Tuesday's Wake-Up Watchlist


Brian Louis

Staff Reporter

  • (AMZN) - Get, Inc. Report, the online retailer, took a 35% stake in online grocer for $42.5 million.
  • Morgan Stanley Dean Witter raised its price target on Broadcomundefined to 120 from 95. The stock closed Monday at 90 3/4.
  • Charter One Financial (COFI) is buying St. Paul Bancorp (SPBC) for $1.2 billion in stock. Charter One will swap 0.95 share for each share of St. Paul.
  • Dayton Hudson (DH) posted first-quarter earnings of 41 cents a share, beating the 14-analyst estimate of 39 cents and up from the year-ago 34 cents, which excludes a charge of a penny.
  • Deere (DE) - Get Deere & Company Report posted fiscal second-quarter earnings of 65 cents a share, beating the 18-analyst consensus estimate of 60 cents but down from the year-ago $1.45.
  • GTE (GTE) - Get Gran Tierra Energy Inc. Report is auctioning its defense-electronics holdings, which are expected to fetch more than $1.3 billion, with General Dynamics (GD) - Get General Dynamics Corporation (GD) Report, L-3 Communications (LLL) - Get L3 Technologies Inc Report and Raytheon (RTN.A) among the leading bidders, The Wall Street Journal reported, citing execs familiar with the negotiations. The auction-style sale, which is expected to conclude in the next few weeks, also includes bids for all or part of the holdings by Northrop Grumman (NOC) - Get Northrop Grumman Corporation Report, Litton Industries (LIT) - Get Global X Lithium & Battery Tech ETF Report and Boeing (BA) - Get Boeing Company Report, the newspaper reported.
  • Salomon Smith Barney analyst Jack Grubman is out with positive comments about the recently announced merger of Global Crossing (GBLX) and U S West (USW) , CNBC reported. In other news (earnings estimates from First Call:)
  • Hewlett-Packard (HWP) after the close reported second-quarter earnings of 88 cents a share, 8 cents above the 20-analyst consensus estimate and above the year-ago 65 cents. took a look at H-P's report in a story last night.
  • J.C. Penney (JCP) - Get J. C. Penney Company, Inc. Report posted first-quarter earnings of 60 cents a share, excluding a 1-cent pretax gain, beating the 15-analyst estimate of 53 cents, but down from the year-ago 64 cents.
  • Home Depot (HD) - Get Home Depot, Inc. (HD) Report posted first-quarter earnings of 32 cents a share, beating the 22-analyst estimate of 28 cents and up from the year-ago 22 cents.
  • Merrill Lynch named Methode Electronics (METHA) its Focus One stock of the week, CNBC said.
  • Qualcomm's (QCOM) - Get QUALCOMM Incorporated Report stellar fiscal second quarter corresponded with a short-lived bubble in the Korean domestic cellular-phone market, the Heard on the Street column in the Journal reported. Wall Street doesn't really know how much of Qualcomm's superb earnings in the quarter were due to the Korean bubble and Qualcomm isn't saying, the newspaper said.
  • Staples (SPLS) posted first-quarter earnings of 11 cents a share, a penny ahead of the 19-analyst estimate.
  • Tiffany (TIF) - Get Tiffany & Co. Report reported first-quarter earnings of 44 cents a share, beating the 14-analyst estimate of 39 cents and up from the year-ago 31 cents.