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Greenspan offers focal point for skittish market

Fed Chairman Alan Greenspan has three public appearances scheduled this week, offering a focal point for investors showing increasing nervousness over inflation and high oil prices.
/ Source: Reuters

A nervous U.S. stock market fretting over high oil prices and inflation will watch Federal Reserve Chairman Alan Greenspan this week for any unexpected hints on the pace of future interest-rate rises.

After a disappointing first quarter when the blue-chip Dow and the broader Standard & Poor’s 500 both fell 2.6 percent and the tech-heavy Nasdaq sank 8.1 percent, winter-weary Wall Street will pounce on any sign from Greenspan that spring may bring new vitality to the market.

History is on the side of investors. The Stock Trader’s Almanac says April has been the best month for the Dow average since 1950.

Nevertheless, on Friday, stocks continued to slide, giving up gains made in a midweek rally. Major indexes ended the week near their lowest levels of the year.

“A lot of traders are very nervous. They don’t know which way to jump,” said Michael Metz, chief investment strategist at Oppenheimer & Co.

“It’s an environment where there is really no external stimulus, so you watch the market action itself to see what it’s signaling to traders — whether they should buy more or unload.”

With little in the way of earnings or major economic data for investors to trade on this week, Wall Street’s focus will be on Greenspan’s three public appearances.

Investors’ attention also will stay riveted on sky-high oil prices. Rising crude costs weigh on most stocks because they can curb consumer spending and hurt corporate profits.

Oil prices surged to a record near $58 a barrel on Friday, powered by a report the day before from top energy derivatives trader Goldman Sachs that said oil markets may have entered a “super-spike” period that could eventually drive prices toward $105.

Greenspan to focus on energy
Appropriately, Greenspan’s first appearance of the week will address the energy situation. On Tuesday, the Fed chairman is due to speak via satellite before the National Petrochemical and Refiners Association’s International Petrochemical Conference in San Antonio, Texas.

On Wednesday, the Fed chairman will testify before the Senate Banking Committee on regulatory reform of government-sponsored enterprises like mortgage companies Freddie Mac and Fannie Mae.

Greenspan said recently the two companies' mortgage holdings should be slashed to avoid “almost inevitable” problems for the U.S. financial system. The companies, which together account for nearly half of total residential mortgage debt outstanding, face the possibility of tougher supervision.

On Friday, Greenspan will speak on consumer finance at a Fed-sponsored community affairs conference in Washington.

“The focus will be on Greenspan, oil and interest rates, as the market tries to discern if inflation is going to pick up — or if the economy is cooling off,” said Jeffrey Saut, chief investment strategist at Raymond James Financial.

“There are a lot of cross-currents right here. It’s a very difficult market.”

Analysts said a raft of economic reports that were published on Friday implied the Fed could extend its campaign of edging interest rates up in quarter-percentage-point increments to curb inflation rather than with bigger, more disruptive moves.

U.S. employers added only half as many jobs last month as were expected, which together with data showing slower growth in manufacturing and services eased some concerns about steeper interest-rate rises in the future.

Oppenheimer’s Metz said the dearth of corporate and economic data this week left a potentially dangerous news vacuum in the marketplace.

The current nervousness in stock markets “is an indication that short-term traders dominate the arena,” he added.

“Long-term investors are very skittish here,” Metz said. “It’s hedge funds, it’s short-term traders, it’s proprietary traders — they really are whipping the market around day to day.”

In this week’s corporate news, Dow component and aluminum producer Alcoa Inc. kicks off the first-quarter earnings season Wednesday.