U.S. stock futures were lower this morning as Wall Street awaited the Federal Reserve conclusion of its two-day policy meeting, with investors largely anticipating an interest rate cut. More earnings and especially a report on economic growth be closely watched. After advancing the past two sessions, markets seem poised to at least open lower this morning.On Tuesday, stocks were up in anticipation of a Fed rate cut. The Dow industrials closed up 96 points, or 0.78%, the S&P 500 added 8 points, or 0.62% and the Nasdaq composite finished 8 points higher, or 0.35%.
Today, at 2:15 p.m. EST, all eyes and ears will be turned to the Fed. Chairman Ben Bernanke will read his statement, which includes the decided policy and reasons behind it such as recent overall economic activity. While most believe the Fed will indeed cut rates again, they don't agree on the amount. Hopes of half of a percentage point cut to 3% today caused the recent rally in stocks. Some, though, say that after the surprising and aggressive 75 basis points cut last week, the Fed may be less aggressive this time.
What might be a deciding factor on the Fed's move, would be none other than the GDP report due out at 8:30 a.m. this morning, an hour before the opening bell. Should the report show slowing activity, rather than a recessionary one, and other indicators point that direction as well, it is possible the Fed might mimic Greenspan's series of quarter point rate cuts.
The advanced fourth quarter gross domestic product is expected to show a 1.2% economic growth. That's compared to 4.9% in the third quarter. While 1.2% is a definite slowdown in growth, it is not recessionary (declining) yet. A recession is two or more quarters when economic activity declines rather than grows. But are there signs Q1 has seen an actual decline in economic activity? Some economists say the economy entered a recession in December already. Regardless, since most stimulus plans require time before they can help, the Fed and the Government need to act now to prevent further slowdown of growth.
Should the GDP report come stronger than expected, the market could react negatively as it would mean a lower rate cut. However, stronger GDP could also mean higher corporate profits, and the market could react to that too.
On Tuesday, the House has passed the $146 billion economic recovery package, but it still faces an uncertain future in the Senate.
Overseas, global markets were declining on doubts of the size of the Fed's rate cut. In Asia, the Nikkei ended down 1% and Hong Kong stocks fell sharply, with the Hang Seng Index ending down 2.6%. European markets have been trading lower by midday as well.
Meanwhile, investors are still scratching their head, trying to figure out Yahoo! (NASDAQ: YHOO). The web portal giant reported Tuesday after the close, beat Wall Street estimates, but CEO Jerry Yang warned that the company faces "headwinds" this year. Yahoo is preparing to lay off as many as 1,000 workers. What was once considered the end of Yahoo! is now tossed around casually as more and more suggest Yahoo! should outsource search to rival Google Inc. (NASDAQ: GOOG). And talk of who could buy Yahoo! is again prevalent. YHOO shares are down 10% in premarket trading. No doubt, downgrades from Citigroup and Oppenheimer aren't helping.
Many companies are reporting today. Before the bell: Boeing (NYSE: BA) -- is expected to report earnings of $1.32 a share in the fourth quarter, Merck (NYSE: MRK) -- is expected to post earnings of 74 cents a share in the fourth quarter and Altria (NYSE: MO) -- is expected to report earnings of 97 cents a share in the fourth quarter.
After the close: Starbucks (NASDAQ: SBUX) -- is expected to report 28 cents a share in fiscal first-quarter, Amazon.com, Inc (NASDAQ: AMZN) -- is expected to post earnings of 48 cents a share in the fourth quarter.
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Reader Comments (Page 1 of 1)
1-30-2008 @ 8:26AM
michael schneider said...
An analyst on Bloomberg Television yesterday morning said everyone is expecting a 25 basis point cut while CNBC has been reporting that everyone expects a 50 basis point cut. Everyone can't be right.