wall street waits for alan greenspan

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    Monday, September 19, 2005

    Investors should see stocks snap back this week and resume their September rally as long as any comments from the Federal Reserve on inflation and the economic effects of Hurricane Katrina are relatively benign.

    Also, quarterly results expected this week from firms in financial services, transportation and retail will be scrutinized for any hints the hurricane, one of the nation's worst natural disasters, has affected consumer spending.

    Stocks ended down for the week, but remain on track to end the month with gains. For blue chips, ending the month in positive territory would break a string of losses in September over the last six years.

    "The market is going to sort of tread water until we hear the results of the [Fed] meeting and what the Fed has to say about their decision," said David Joy, market strategist, RiverSource Investments in Minneapolis. "That's the 500-pound gorilla of events [this] week."

    The Fed's policy-setting committee is largely expected to raise rates by a quarter percentage point to 3.75 percent when it meets tomorrow, but its comments could indicate whether it plans to continue raising rates.

    The central bank has increased rates by a quarter-point 10 times in the last 15 months to control inflation as the economy expands.

    " The [Fed's] statement is going to be critical. But the Fed needs to send the message that the economic recovery is on track and sustainable, that Katrina is not going to derail it," said John Waterman, chief investment officer at Rittenhouse Asset Management.

    Fund managers and analysts said last week that investment in stocks should stay high, even if the Fed raises rates this week, because of better value in equities than in bonds and currencies.

    Also, a median forecast of 27 stock strategists in a recent Reuters poll showed the Standard & Poor's index is still on track for a third year of gains and it may rise 3 percent by the end of December. Government reports on weekly oil inventory data Wednesday and jobless claims Thursday also could influence stocks. "Anything labor- related will matter," said Waterman.

    Firms reporting earnings this week include Circuit City Stores, Goldman Sachs, FedEx and Nike. "Anything that shows that energy is having an impact on consumer spending will hurt the market," Waterman said.

    Crude oil prices on the New York Mercantile Exchange rose to a record US$70.85 (HK$552.63) a barrel August 30 in the aftermath of Katrina, which devastated oil rigs and refineries all along the US Gulf Coast. Prices have since eased and were trading at US$63 Friday.

    Results from transportation company FedEx could be important in terms of Katrina's effects on its industry.

    "We'll see what impact, if anything, the hurricane had on them, and it may be a harbinger," Joy said. "All of corporate America is going to use Katrina as an excuse for all of their problems," said Cummins Catherwood, managing director, Walnut Asset Management.

    The Goldman results will follow strong results from other financial firms last week, including Lehman Brothers.


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