Federal Open Market Committee
will meet Tuesday, and it is pretty much a sure thing that it will raise the
fed funds target rate
by a quarter-point to 6% -- its highest level since 1995. Nor is anyone saying that the Fed will stop hiking until the economy starts to cool.
Most economists foresee at least one more rate hike, and a number believe there will be a good deal more than that. Before
is done, the funds rate could easily be as high as it's been in more than a decade.
Given that kind of backdrop, it is difficult to imagine the coming week will be about anything but the Fed. But given the incredible action in the market recently, many investors will be far more interested in what's going on at the corner of Wall and Broad than at the Fed's offices in Washington, D.C.
The rotation into Old Economy stocks that sent the
Dow Jones Industrial Average
6.7% higher over the last week still has investors scratching their heads.
Though value investors had long bemoaned the action in nontech stocks, and some observers had
noted that the time seemed ripe for a move into beaten-down sectors, the power and speed of the move caught everybody off guard.
There are a lot of pretty theories about how this happened. A correction in biotechs forced momentum investors to reassess. Hedge funds, which were heavily invested in tech, but didn't really believe in it, redeployed capital. It was a surfeit of tech bulls and Old Economy bears. It was expiration.
It was probably a bit of all these things, but trying to figure it out is really a matter of conjecture. There's always something mythic about how these rotations happen. They change the market's firmament.
"The structure of the market has changed," said Scott Bleier, chief investment strategist at
. And in the weeks to come, the debate in the market will be over what that structural change will be, exactly.
Some reckon that the shift into the Old Economy names will stick, and that some groups will outperform tech in the coming months.
"I don't want to say we're going to go straight up from here in value investments, but I do think there will be some profit surprises in Old Economy companies," said Christine Callies, U.S. investment strategist at
Credit Suisse First Boston
Analysts forecast a 174% jump in energy company earnings in the first quarter, according to
. Basic materials will hop 55%, while tech comes in third with growth of 25%. Those energy and basic materials are less impressive than they seem -- especially in comparison to last year, which was God-awful. But First Call notes that there has been a strong trend in upward revisions for the energy companies, and that is noteworthy. Analysts usually cut estimates as earnings season approaches.
Bleier says the
Nasdaq Composite Index
will continue to outperform, but reckons there will be a change of tone.
"The Nasdaq frenzy is not over," he said. "It's just going to take a different shape. It's going to be more selective, which is healthy. Maybe it's a process of digestion. Maybe the gains won't be so fast and furious for the rest of the year."
It was fun, at least, while it lasted.