NEWS AND COMMENTARY
January 30, 2001
Stocks Trade Modestly Higher as Market Awaits Fed Decision
By Dow Jones Newswires
The Waiting Game ... Weiss comments
NEW YORK - Stocks moved modestly higher early Tuesday as investors digested earnings news, but caution ahead of the Federal Reserve's interest-rate announcement restrained the market.
The main indexes struggled to find direction early Tuesday, moving in and out of negative territory. Semiconductor, Internet and telecommunications stocks propped up the Nasdaq composite, while reaction to Procter & Gamble's earnings lent support to the industrial average.
However, the market's attention remained on the Fed's two-day policy meeting, which is expected to end with an announcement Wednesday that the central bank is again lowering interest rates. Most expect an aggressive half-percentage-point cut, but the possibility of a milder quarter-point cut kept investors on edge.
The Fed surprised the market with a half-point cut earlier this month in an effort to keep the economy from sliding into a recession. The move fueled a four-week rally by the Nasdaq composite, but analysts disagree about whether another such move will bring more gains, since an aggressive move may be priced into the market.
The stock market's waiting; the bond market's waiting; the currency market is waiting. Everywhere you look, nothing's happening. We half-expect to see a tumbleweed blow across Wall Street. But no matter what the Fed decides, the stock market will head lower.
That's because Wall Street has its heart set on a half-percent interest rate cut. Anything less than that, and investors will start unloading stocks. Bond prices, too, will fall if the rate cut comes in any lower than expected.
On the other hand, if the Fed comes through with a half a percent cut for the Street, look for traders to "sell on the news". The stock market has rallied modestly over the course of the month in anticipation of this rate cut. Once it comes to fruition, the market will turn back to reality - bad earnings warnings and reports and an economy that is certainly slowing and may be careening toward a breakdown.
In fact, if we get a half-percent rate cut tomorrow on the heels of the Fed's surprise half-percent rate cut earlier this month, it reveals that the Fed sees the economy barreling toward recession. And, in a recession, the stock market is not the place to park your cash -- unless you want it to disappear.
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