Markets & Stocks
Wall St. awaits a rate
August 21, 2001: 9:12 a.m. ET

Fed contemplates seventh rate cut of 2001, to seven-year low
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NEW YORK (CNNfn) - If seven is lucky, Wall Street could have fortune on its side Tuesday when, as expected, the Federal Reserve cuts interest rates for the seventh time this year -- taking the overnight lending rate between banks to its lowest level in more than seven years.

That's what economists forecast from the central bank trying to prop up the economy. A decision is scheduled for this afternoon, followed immediately by market speculation over whether rates will go lower still in October.

Speculation about the Fed's economic outlook will also dog trading until the policy makers' statement in the afternoon. Stock futures indicated little change in the major indexes at the start of trading. The Nasdaq-100 futures trended higher, while the Standard & Poor's futures were flat.

The rate cut -- if it's as large as predicted -- will bring to three percentage points the total rate reductions made since the Fed began cutting rate on Jan. 3. That would put the key fed funds rate at 3.50 percent, its lowest level since early 1994.

Perhaps more important than the rate cut will be the Fed's interpretation of how the economy is doing. The policy makers could signal more rate cuts by saying there's still some weakness, or they could shift their focus to a more neutral stance and indicate that the economy is improving.

An announcement is expected around 2:15 p.m. ET.

Most market experts agree that whatever the markets do after the rate decision isn't likely to be sustained -- as long as there's concern about the economy and corporate earnings.

"It's certainly not a nonevent. But for us, it really isn`t a crucial event," Doug Cliggott, J.P. Morgan strategist, told CNN's Lou Dobbs Moneyline on Monday. "Fed policy matters, but it will take a long time, in our view, before earnings really improve."

Goldman Sachs' Abby Joseph Cohen appeared to agree. In a note to clients, Cohen cut her estimates for S&P 500 operating earnings per share estimate to $51 for 2001, and $56 in 2002.

She also lowered her year-end target for the S&P 500 to 1,550 from 1,500, a still-optimistic 28 percent gain from current levels.

The Dow Jones industrial average goes into Fed Day at 10,320.07 following a 79-point advance Monday. The Nasdaq composite index stands at 1,881.35 after rising 14 points, while the S&P 500 begins at 1,171.41 after a 9-point gain.

Investors overseas were also awaiting the Fed's decision. Asian stocks finished mixed Tuesday, while European markets were mixed at midday.

Treasury prices were little changed. The 10-year note yield held steady at 4.90 percent, while the 30-year bond yield was trimmed to 5.45 percent from 5.46 percent.

The dollar slipped against the yen and was flat versus the euro. Brent oil futures rose 4 cents to $25.09 a barrel.

General Motors (GM: Research, Estimates)  could draw some interest Tuesday. The No. 1 automaker fell $3.47 to $56 Monday after analysts lowered their earnings estimates, and some believe that GM could announce a warning sometime this week.

After Monday's close, technology testing equipment maker Agilent Technologies (A: Research, Estimates)  reported a narrower-than-expected loss for its third quarter, but warned that the loss for its fourth quarter will be much wider than previously forecast and plans to reduce its work force by about 4,000, or 9 percent. Agilent fell $2.34 in after-hours trading Monday to $23.75 after a 36-cent drop during the regular session.

Discount department-store chain Target (TGT: Research, Estimates) reported second-quarter earnings of 30 cents a share, matching Wall Street expectations. Target rose 48 cents Monday to $37.10.

No. 2 office supplies retailer Staples (SPLS: Research, Estimates) posted lower fiscal second-quarter earnings in line with expectations Tuesday. The company's shares fell 21 cents to $16.01 in before-hours trading Tuesday after rising 24 cents Monday.

Other merchants who reported results before the opening were Talbots (TLB: Research, Estimates) and Gadzooks (GADZ: Research, Estimates), and BJ's Wholesale (BJ: Research, Estimates) .

After trading ends, data transmission products maker Sycamore Networks (SCMR: Research, Estimates)  reports its fiscal fourth-quarter results. The company is expected to report a loss of 12 cents a share, compared with earnings of 8 cents a year earlier. Sycamore fell 20 cents to $5.50 Monday.

Also due is Intuit (INTU: Research, Estimates) , the maker of the Quicken bookkeeping software. Analysts are looking for a 10-cent-a-share loss, compared with a 4-cent loss a year earlier. Intuit gained $1.11 Monday to $31.20.  graphic


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