Market Update: Indices Inch Higher in Light Trading Awaiting G-Man's Word
The equity market continued to gain strength at midday, though trading was light in anticipation of the outcome of the
Federal Reserve's policy meeting, now under way in Washington. Results will be announced at about 2:15 p.m. EST.
Lately, the market's gotten its hopes up that the Fed might be more aggressive in recognizing an economic slowing, thanks to a
Wall Street Journal
article yesterday suggesting that the Fed may officially lean toward cutting the 6.5%
fed funds rate. Many investors feel that a more accommodative stance from the Federal Reserve would alleviate some of the pressure on stocks.
This quarter and the previous quarter have been marked by many companies' earnings warnings and outright misses on earnings estimates. The market's harsh reaction to the deteriorating picture has investors clamoring for some relief from the Fed, which aggressively raised rates in the last year and a half to curb speculation and stave off inflation.
Today,
Morgan Stanley Dean Witter
(MWD)
missed earnings projections. The brokerage
fell short of expectations based on declining trading and investment banking revenue and losses in
high yield bonds. Credit has tightened since 1998, when the Fed cut rates three times, and banks have investments on their books that haven't panned out. The stock, however, was higher, up 6.1%.
On the other hand,
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Goldman Sachs
(GS) - Get Goldman Sachs Group, Inc. Report
handily beat Wall Street expectations with $1.50 a share, excluding certain items, for its fiscal fourth quarter. Analysts had been forecasting $1.38 per share. Goldman was rising 6.3%; the
Amex Broker/Dealer Index
was gaining 3.1%.
Elsewhere on the earnings front,
SBC Communications
(SBC)
, for example, reaffirmed its forecast for fourth-quarter earnings per share of 56 cents to 58 cents, but that's at the low end of expectations.
Merrill Lynch
cut its rating on the company today, and the stock was lately down 12.5% to $46.63.
Solectron
(SLR)
, a provider of electronics manufacturing and supply-chain management services, posted
stronger-than-expected results for the quarter ended Dec. 1, thanks to strong demand for networking and telecommunications products. Solectron was lately up 17.9% to $30.99.
Yesterday's
Wall Street Journal
, citing insiders at the Fed, said the policy-making body is considering taking a more aggressive stance on the economy; and could even cut interest rates as early as today. However, that seems unlikely; as a
Reuters
poll published yesterday shows all 26 primary dealers of government securities believe no change in rates will be made and just three feel the Fed will shift to a directive suggesting rate cuts are imminent.
Currently, the Fed has a tightening bias -- which holds that the risks of inflation exceed those of recession and indicates a predilection towards raising interest rates. The odds of a rate cut coming today in the fed funds rate, implied by the prices of
fed funds futures contracts, rose to 46% yesterday from 41% on Friday.
And always-in-the-news
Microsoft
(MSFT) - Get Microsoft Corporation Report
is planning to cut costs and simultaneously boost some salaries to ensure that valued talent doesn't leave. That's according to a memo circulated last week by Mr. Softie CEO Steve Ballmer. Microsoft, which was pummeled Friday and yesterday after issuing its first
earnings warning in more than a decade, was trading down 88 cents to $47 today.
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Sector Watch
Major technology indices are stronger today. The
Philadelphia Stock Exchange Semiconductor Index
was lately up 5.5%; the
Nasdaq Telecommunications Index
was gaining 0.9%, and the
Philadelphia Stock Exchange Computer Box Maker Index
was rising 2.2%.
Following a pummeling yesterday, the networking stocks are holding their own today. Analysts at
Thomas Weisel Partners
are expected to release a report suggesting that networking spending will grow just 2.6% next year -- that hurt those stocks yesterday.
Cisco
(CSCO) - Get Cisco Systems, Inc. Report
, which was smashed, was lately up 4.2% to $44.81.
Energy stocks were also rising. The
American Stock Exchange Oil Index
was rising 1.2%; and the
Amex Natural Gas Index
was up 0.5%. The
Philadelphia Stock Exchange Oil Services Index
was rising 2.6%.
The
S&P Retail Index
was down 1.6% after
UBS Warburg
downgraded all the retailers it covers, including
Wal-Mart
(WMT) - Get Walmart Inc. Report
and
Home Depot
(HD) - Get Home Depot, Inc. Report
.
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Bonds/Economy
Treasury prices were lower ahead of the Fed meeting. The benchmark 10-year
Treasury note was lately down 12/32 at 103 30/32, yielding 5.225%. Treasury prices rose yesterday on expectations that the Fed will modify its stance on the economy.
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