Wall Street will be looking to the Federal Reserve in the week ahead, hoping the nation’s monetary policy maker will issue a positive outlook on the economy and potentially give stocks a year-end boost.
The Fed’s Open Market Committee meets Tuesday and is widely expected to raise the nation’s benchmark interest rate by a quarter percentage point, to 2.25 percent. The move assumes that the economy is healthy enough to withstand a higher rate.
However, with the dollar still weak against foreign currencies and wholesale prices creeping higher, a rate hike could be necessary even if the Fed sees weakness in the economy. The dollar’s woes and higher prices could bring on inflation, and tightening the money supply through a rate hike would assure investors that inflation won’t get out of hand.
As usual, Wall Street will be looking far more intently at the Fed’s policy statement, since the rate hike itself is considered a done deal. The Fed has been cautious with its words, but is still expected to retain its stand that a “measured pace” of rate hikes is needed to forestall inflation.
Last week, investor uncertainty pressured stocks as Wall Street contended with volatile oil prices and a mix of economic data that left a muddled picture of the economy that many hope the Fed will clarify. For the week, the Dow fell 0.46 percent, the S&P dropped 0.27 percent and the Nasdaq was down 0.93 percent.
ECONOMIC DATA:
So far, the holiday shopping season has been disappointing for many retailers, and their stocks have suffered as well. On Monday, the Commerce Department will issue a report on retail sales for November, which are expected to be flat, compared with a 0.2 percent rise in October. In addition, Commerce will report on business inventories, which are expected to rise 0.5 percent for November, much higher than the 0.1 percent climb in October. If the expectations are correct, that would mean more inventory is sitting on shelves and in warehouses than going home with holiday shoppers.
On Friday, investors worried about inflation will see firsthand whether rising wholesale prices are being passed on to the consumer. The Labor Department will issue its Consumer Price Index reading for November, which is expected to rise 0.2 percent — less than the 0.6 percent hike seen in October. “Core” CPI, with food and fuel costs excluded, is expected to rise 0.2 percent as well, on par with October’s rise.
EARNINGS:
Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. will lead off earnings in the financial sector on Wednesday and Thursday, respectively. Lehman Brothers has risen 26.9 percent since hitting its 2004 low of $67.65 on July 19. The stock closed Friday at $85.86, just 4.1 percent lower than its year-to-date high of $89.50 on March 5. The brokerage is expected to earn $1.70 per share, just off the $1.71 per share it earned a year ago, when it reports before Wednesday’s session.
Goldman Sachs is expected to earn $2.29 per share when it issues earnings Thursday morning, much higher than the $1.89 per share from the year-ago quarter. The stock had its best close of the year Friday, up $1.91 to $109.40. Goldman has risen 30.5 percent from its 2004 low of $83.86 on Aug. 12.
In technology, Oracle Corp. is expected to earn 13 cents per share when it reports Monday morning, slightly higher than the 12 cents per share profit from a year ago. The company, which is down 10.8 percent from its year-to-date high of $14.89 on Jan. 15, could also provide an update on its takeover bid of rival PeopleSoft Inc.
Shipping giant FedEx Corp. has risen steadily throughout the year, closing Friday at $98.95, just shy of its 52-week high of $99.83. The company is expected to earn $1.24 per share, up from 87 cents per share a year ago, when it reports its quarterly results Thursday morning.
In addition, a number of national retailers are issuing earnings statements in the week ahead, including:
- Pier 1 Imports, reporting Tuesday morning, expected to earn 22 cents per share for the quarter, down from 35 cents per share a year ago;
- Best Buy Co. Inc., due out Wednesday morning, forecast to earn 44 cents per share, compared with 37 cents per share a year ago;
- Bed Bath & Beyond Inc., scheduled after Wednesday’s session, expected to earn 39 cents per share, up from 33 cents per share a year ago; and
- Circuit City Stores Inc., reporting Friday morning, expected to lose 8 cents per share, better than the 12 cents per share loss posted a year ago.
EVENTS:
The Fed’s interest rate decision and policy statement, due out Tuesday, are customarily issued at 2:15 p.m., and have traditionally caused a near-instant reaction in the stock market.
On Friday, options and futures contracts expire, which usually generates intense volatility as contract holders move to cover their positions and purchase or sell new contracts.