Investors to search for clues that Fed moves are kicking in
Few investors expect this week’s readings on the housing market and personal spending to be especially strong. But many are hoping the data show at least a few clues that an economic rebound is on the horizon.
More than six months have passed since the Federal Reserve started lowering interest rates; usually, this is the point when there’s evidence that a rate cut is having a salutary effect on the broader economy.
The stock market has begun to act as if it believes the Fed’s rate and lending actions are helping to revive the limping financial system, but investors aren’t completely confident yet. Seesaw trading led to big gains in stocks last week, but the volatility indicated that investors are still on edge.
Wall Street is still uneasy because it’s too soon to say that the credit market freeze-up is over. The credit markets have shown signs of improvement recently after several moves by the Fed, but not enough for the market’s nerves to calm.
“With the credit markets, every time you whack a mole in place, something else seems to pop up,” said Bill Stone, PNC Wealth Management’s chief investment strategist. He also said, though, that “you get the feeling that you have a hard time making the case that the entire financial system is going to collapse.”
The Fed has had a busy couple of weeks working to keep the ailing U.S. banking system operating.
It has backed JPMorgan Chase & Co.’s buyout of Bear Stearns Cos., expanded its lending policies to more types of financial institutions, started accepting different types of mortgage-backed collateral and slashed its key federal funds rate by three-quarters of a percentage point.
The central bank’s target for the fed funds rate -- the rate banks charge one another for overnight loans -- is now at 2.25%, its lowest point in more than three years. The Fed also lowered the discount rate, the interest it charges banks for loans, and encouraged investment banks such as Lehman Bros. Holdings Inc., Goldman Sachs Group Inc. and Morgan Stanley to borrow billions of dollars.
Last week, Wall Street finished sharply higher, encouraged by the Fed’s moves as well as better-than-expected quarterly results from Lehman, Goldman and Morgan Stanley. The Dow Jones industrial average rose 3.43%, the Standard & Poor’s 500 increased 3.21%, and Nasdaq added 2.06%.
This week brings a slew of data, which analysts do not predict will show much recovery. And meanwhile, Wall Street will have to keep an eye on commodity prices; crude oil and gold have retreated from record levels, leaving potential room for further rate cuts.
--
At a glance
Today
National Assn. of Realtors reports on existing-home sales.
Quarterly earnings reports due from Tiffany & Co. and Walgreen Co.
Tuesday
Quarterly earnings report due from SAIC Inc.
Wednesday
Commerce Department reports on new-home sales and durable-goods orders.
Quarterly earnings report due from Oracle Corp.
Thursday
Quarterly earnings reports due from Apollo Group Inc., ConAgra Foods Inc., Lennar Corp. and Red Hat Inc.
Friday
Commerce Department reports on personal spending and income.
Quarterly earnings report due from KB Home.
Source: Associated Press
