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Preview / JAN. 28-FEB. 3

Fed Is Expected to Halt Rate Cutting

January 28, 2002|Reuters

First, the good news for stocks: The Federal Reserve is expected to say this week that it's done with its rate-cutting spree, hinting at an economic recovery to come, and nudging the equity market higher.

Now the bad news: Mixed signals on the economy, weak corporate earnings and lukewarm profit forecasts will cast a pall on Wall Street's mood, pulling stocks in the opposite direction.

The result: Experts forecast a virtually unchanged market.

The Fed's policy-setting committee meets Tuesday and Wednesday for the first time this year. Federal Reserve Chairman Alan Greenspan has hinted that the central bank will put an end, for now at least, to the aggressive rate cutting that drove short-term interest rates to 40-year lows.

Nevertheless, Wall Street pros expect the market to seesaw in the days ahead as investors grapple with the question of whether stocks are too pricey--given the market's strong run late last year, tepid earnings forecasts and inconsistent economic data.

Although more than half of the companies in the S&P 500 have issued their corporate report cards, a torrent of results is on its way. Tech giant Texas Instruments and two blue-chip names--American Express Co. and Walt Disney Co.--are scheduled to report earnings this week.

Other Wall Street stalwarts reporting earnings this week: Coca-Cola Co., Philip Morris, UAL Corp., AOL Time Warner, ChevronTexaco, Procter & Gamble and AT&T.

The economic calendar is crowded this week.

* Tuesday, the Conference Board's consumer confidence report will be closely watched as an indicator of whether Americans will keep spending. The main index is expected to rise to 96.9 in January from 93.7 in December.

* Tuesday, new orders for durable goods are expected to show a 1.3% gain in December, compared with a drop of 4.8% in November. The report will be awaited anxiously for clues on whether the recession-strapped manufacturing sector is starting to recover.

* Wednesday, the government will give its advance estimate of fourth-quarter GDP. Economists in a Reuters survey estimated fourth-quarter GDP dropped 1%, marking a second straight quarter of contraction in U.S. growth. Two consecutive quarters of decline are widely seen as the official stamp of a recession.

* Thursday, investors will look at personal income and spending data for hints on whether consumers are keeping up their pace. Personal income is expected to show a 0.3% rise in December; spending is forecast down 0.1%.

* Friday, Wall Street will scrutinize the crucial jobs data. U.S. payrolls are expected to have shed 27,000 jobs in January, according to economists polled by Reuters, following a drop of 124,000 in December. Economists estimated the unemployment rate rose to 5.9% in January from 5.8% in December.

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