The Coming Week: Ho, Ho, Hope - TheStreet

The Fed is coming! The Fed is coming! Everybody run!

After the hope for a post-election rally fell flat on its face last week, and as fears of recession tighten their grip on the market, it seems the only thing that will lift stocks out of their despair during the coming week is a kinder and gentler Fed.

Unfortunately, some Wall Streeters may not get what's on their Christmas or Chanukah list -- an interest-rate cut when the

Federal Open Market Committee meets on Dec. 19. Most economists think the Fed will take a step in that direction -- changing its assessment of the economy to neutral from weighted toward inflation. But if investors are disappointed, stocks could take another drubbing.

On the other hand, the population of companies issuing earnings warnings has exploded like a family of rabbits in a small cage over the past few weeks, and some wonder if there are any high-profile companies left to add to the list. Certainly, the warnings are not going to

let up any time soon. But smaller tech and industrial stocks shouldn't have the same negative impact as, say,

Microsoft

(MSFT) - Get Report

did on Friday.

And even if there are more high-profile warnings, maybe the market could pull the same trick it did early last week, going in for the bargain hunt and lifting battered stocks after the news comes out. That's what happened with

Intel

(INTC) - Get Report

and several other companies Monday and Tuesday. The trend lost steam as the week wore on.

Whether or not investors feel like bargain hunting on

Nasdaq stocks next week may depend largely on whether the Comp can hold its head above 2500 in coming days. It's a psychologically important level, as the Nazz closed at its low for the year on Nov. 30 at 2597.9 and retested that level just a few weeks ago.

Many believe the Comp of yore is simply gone -- disappeared, never to return -- and that a more democratic market will continue to favor industrial and defensive stocks.

"Tech stocks don't have to come back around. It's been a very democratic market this year," said Bryan Piskorowski, market analyst at

Prudential

.

Meanwhile, interest in stocks (and anything else, for that matter) is expected to fade as the coming week comes to a close and holiday preparations begin.

Al and His Merry Team

On Dec. 19, the FOMC holds its much-discussed meeting to determine interest-rate policy -- that means a lengthy gathering of men in dark suits presided over by Chairman

Alan Greenspan and bated breath in the stock market, as investors wait for the final word.

Market optimism that an interest-rate cut is in the cards was first generated by some encouraging words from the G-man on Dec. 5. In a speech that day, he said inflation was no longer his primary concern and if the economy showed signs of slowing too far too fast, he would take action.

"Some people in equities expect an easing, but they don't watch the Fed as closely as bond market people," said Mark Wanshell, financial economist at

J.P. Morgan

. "There is always some chance it will break from traditional action, but the bond market is generally not expecting that."

While economists say an interest-rate cut isn't out of the realm of possibility, none of the big Wall Street firms are currently projecting a cut in rates. Most believe the Fed will opt to change its bias to neutral, saving rate cuts for the first quarter of next year.

"The Fed will very likely go to a neutral at the next meeting," said Wanshell. "It is very unusual to go through a 180-degree turn in one meeting," he added in reference to the distance in policy that lies between an inflationary bias and an interest-rate cut. Wanshell doesn't expect the Fed to make the leap to an easing bias -- or an assessment of the economy as weighted more toward recession than inflation -- either.

Merrill Lynch

economist Mary Dennis also expects a balanced risk assessment out of the Fed meeting and interest-rate cuts of 100 to 125 basis points over the next 12 months, starting in March.

"Economic indicators show it's best for the Fed to wait a bit," said Dennis.

At least a Fed bias change would send the message to the market that interest-rate cuts are near. The Fed uses the bias as a tool and probably hopes to inject some fuel into consumer and investor confidence.

As signs of a slowdown in equity markets and credit markets accumulate, consumers begin to fear a recession. Slowing consumer spending hurts corporate earnings in many sectors of the economy, which slows corporate spending, and on down the line.

Wanshell wasn't predicting a recession, however.

"I think there is a 40% chance of a hard landing -- which is defined as growth substantially below the economy's potential. But I don't expect a recession, which is defined as negative growth," he said.

The Rumor Mill

The list of high-profile companies that have issued earnings warnings this quarter is a long one. So some market observers doubt there are many left to damage things.

There have been rumors aplenty that

Sun Microsystems

(SUNW) - Get Report

will issue one due to accounting problems, however. The company, which reports earnings on Jan. 18, denied any such thing last week, affirming its guidance for the coming quarter. But the stock hit several new 52-week lows last week and was downgraded by

Bear Stearns

on Friday.

Whatever happens with the Fed or warnings, red and green promise to be the colors for the coming week. And with all those holiday colors, can presents be far behind? That might be enough to spread a little cheer in markets desperately in need of some.