Investors to Focus on Interest Rates, Oil Prices
The Federal Reserve’s stance on interest rates and the price of crude oil could determine the direction of the market this week.
Higher oil prices could pull industrial and transportation stocks lower, and interest rate worries could weigh on financial and home builders’ shares, strategists said.
“What the Fed says will be on the minds of investors next week, as will be the cost of oil,” said Alex Motola, portfolio manager at Thornburg Investment Management.
The markets will be closed Friday in observance of Good Friday.
Carmakers’ stocks could continue their slide after General Motors Corp. warned Wall Street on Wednesday that it expected a first-quarter loss.
Crude oil futures vaulted to a record intraday high of $57.60 a barrel Thursday on the New York Mercantile Exchange. April crude rose 32 cents Friday to settle at $56.72.
High oil prices hurt the market as a whole by crimping corporate profits and consumer spending.
FedEx Corp. offered evidence of the negative effect of higher oil prices on profits. The world’s largest air-express carrier Thursday gave a current-quarter forecast toward the low end of analysts’ estimates, citing rising fuel costs as a concern.
On Friday, stocks finished almost unchanged. The blue-chip Dow Jones industrial average rose 3.32 points, or 0.03%, to 10,629.67. The broader Standard & Poor’s 500 index edged down 0.56 point, or 0.05%, to 1,189.65. The tech-heavy Nasdaq composite index slipped 8.63 points, or 0.43%, to 2,007.79, a closing low for the year. In the afternoon, Nasdaq briefly dipped below the psychologically important 2,000 mark.
For the week, the Dow fell 1.34%, the S&P; 500 slipped 0.87% and Nasdaq dropped 1.66%.
The U.S. producer price index, which gives a reading of inflation at a wholesale level, will be closely studied on its release Tuesday morning -- several hours before the Fed’s announcement on interest rates.
The Federal Open Market Committee is expected to raise its benchmark federal funds rate target by another quarter of a percentage point to 2.75%. It also could indicate the pace of future rate increases. This would be the Fed’s seventh rate hike in this credit-tightening cycle, which began last June.
“There’s a lot of speculation that they may take out the term ‘measured’ from their statement, which will open the door for a more aggressive move in interest rates,” said Walter Todd, portfolio manager at Greenwood Capital Associates. “The short-term impact of such a move will be increased volatility, followed by a downside.”
Rising rates hurt banks, making it trickier for them to earn money on lending. Home builders also take a hit amid climbing rates as they translate into higher mortgage rates, which could slow the housing boom.
On the earnings front, builder KB Home’s first-quarter results will be in focus today.
Oracle Corp. will report its quarterly results Tuesday.
On Thursday, Oracle raised its offer for Retek Inc. by 25%, topping German software maker SAP’s sweetened bid for the U.S. retail automation software company.
Investors could be drawn toward the software sector amid merger activity and strong earnings from software makers such as Adobe Systems Inc., which gave a better-than-expected outlook Thursday.
However, investors may steer clear of automakers. General Motors, the world’s largest automaker, warned Wednesday that its 2005 earnings would be as much as 80% below its previous forecast as a result of slumping North American auto sales, sending its shares down 14% to a 12 1/2 -year low.
The news also dragged on shares of GM rivals Ford Motor Co. and DaimlerChrysler.
“General Motors’ comments on its business put a spotlight on similar mature carmakers,” said Robert Lutts, chief investment officer of Cabot Management Inc.
“Investors are probably going to be asking themselves, ‘Do I own a company like GM? Are they innovating? Are they a low-cost carrier?’ Companies like Ford and GM are in trouble. They are not healthy at all.”
From Reuters
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The Week Ahead
Today
* Quarterly earnings to be released by KB Home and Carnival Corp.
Tuesday
* Federal Open Market Committee meets to discuss interest rates.
* Labor Department reports on producer price index for February.
* Quarterly earnings due from General Mills Inc. and Oracle Corp.
Wednesday
* Labor Department reports on consumer price index for February.
* National Assn. of Realtors reports on existing-home sales for February.
* Trustees of the Social Security program issue their annual report on the status of the program.
* Quarterly earnings to be released by Darden Restaurants Inc. and Sharper Image Corp.
Thursday
* Commerce Department reports on durable-goods orders for February.
* Labor Department reports on weekly jobless claims.
* Commerce Department reports on new-home sales for February.
* Mortgage company Freddie Mac reports on mortgage rates.
* Kmart Holding Corp. and Sears, Roebuck & Co. hold special shareholder meetings to vote on their proposed merger.
* Rescheduled sentencing of Adelphia Communications Corp. founder John Rigas and his son Timothy, convicted last year of looting more than $100 million from Adelphia for personal use and hiding more than $2 billion in debt.
* Quarterly earnings due from ConAgra Foods Inc.
Friday
* Many financial markets around the world, including U.S. markets, are closed for Good Friday.
* New York International Automobile Show opens to public.
