Skip to main content

Fed Poised to Keep Low Rate: Coming Week

Strong corporate results thus far have dampened any earnings season jitters, allowing investors to shift their focus to the upcoming FOMC rate decision on Wednesday.

NEW YORK (TheStreet) -- The market heads into the thick of earnings season next week, but investors have already become accustomed to better-than-expected results since half of the Dow components that already reported have beaten estimates. With earnings anxiety largely dissolved, the market can shift its attention to the Federal Reserve's Federal Open Market Committee rate decision on Wednesday and Friday's GDP report for the latest read on the strength of the economic recovery.

"What we've seen so far is a very strong earnings season, but the market isn't really reacting that much, perhaps because people were expecting strong improvement," said Michael Sansoterra, portfolio manager for the RidgeWorth Large Cap Growth Fund.

Next week kicks off with key results from


(CAT) - Get Caterpillar Inc. Report



(HUM) - Get Humana Inc. Report


Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

, which are expected to post per-share profits of 39 cents, $1.14 and 51 cents, respectively. Big energy names like


(BP) - Get BP Plc Report


Scroll to Continue

TheStreet Recommends

Exxon Mobil

(XOM) - Get Exxon Mobil Corporation Report



(CVX) - Get Chevron Corporation Report

are also on tap alongside results from oil service firms like

BJ Services



Smith International


. BP is expected to show a profit of $1.57 a share while Exxon and Chevron are forecast to post earnings of $1.41 a share and $1.93 a share, respectively.

"So far, there have not been many major disappointments," Avalon Partners chief market economist Peter Cardillo said of the current earnings season. "But I think that's already priced into the market, so the real driving force next week will be the economic data."

> > Bull or Bear? Vote in Our Poll

The first-quarter GDP report from the Commerce Department will be released on Friday, but Cardillo doesn't foresee any surprises. He anticipates GDP expansion of 3.75%, which is ahead of the 3.5% growth that economists have been projecting.

The most highly-anticipated release, however, will be the Federal Open Market Committee's rate decision announcement at 2:15 p.m. ET on Wednesday, April 28. Although the fed funds rate is expected to remain unchanged, speculation about the statement has been swirling since

minutes from the last FOMC meeting showed that the committee has been examining its use of the "extended period" language.

"Obviously, we're not going to see a rate change," Cardillo said. "The statement will be scrutinized, as usual, and I think they'll be more optimistic about the recovery."

All but one of the Federal Reserve's 12 reporting districts reported improved economic activity, according to the

Fed's Beige Book, released earlier this month. Regions noted particular strength across retail and tourism sectors but continued to express concern about job creation and the health of the housing market.

Jay Suskind, senior vice president at Duncan Williams, is looking forward to studying the FOMC statement's terminology.

"Are they going to start telegraphing that higher rates will come sooner rather than later? They might -- and that's a double-edged sword because if they do signal that they're going to raise rates, that indicates confidence in the strength of the economy, but the market could sell off on that news," Suskind said. "But even when they do raise rates, it'll be a small increase, so I think the market will be OK with signs that it's coming."

"I don't know if they'll change the language of the release," said RidgeWorth's Sansoterra. "The Fed wants to keep this recovery on track and the last thing they want to do is raise rates too early. We don't even think they'll raise rates this year. But you will start to see slow, but sure, exit moves from the Fed. I think they've got levers that they can pull that are more subtle than changing the language but that can achieve the same thing."

Other economic data expected next week will focus on consumer strength, with the Conference Board's Consumer Confidence Index for April expected to rise to 54 from 52.5 on Tuesday, and the University of Michigan's April Consumer Sentiment reading expected to hit 71.8 on Friday, from 69.5, previously.

Initial jobless claims and the Chicago purchasing managers' report toward the end of the week are both expected to show continued improvement.

"The market is just going to look for confirmation that the economy is solidifying," said Duncan Williams' Suskind. "Actually, towards the end of the week I think you'll already hear people looking a week ahead because you have the latest unemployment report two weeks from now and that's what everyone really looks at for confirmation. Because everything is all about jobs, jobs, jobs."

-- Written by Melinda Peer in New York