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Markets look to the Fed
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September 30, 2001: 7:00 a.m. ET
FOMC meeting and other economic numbers hold key to sustaining rally
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NEW YORK (CNNfn) - Wall Street ended a dismal third quarter on a high note last week and the trend could continue if a little help from the Federal Reserve can keep profit-takers at bay.
Economic news will dictate the trend of U.S. stock markets this week, according to experts, with earnings warnings pushed into the background by Tuesday's interest-rate decision by the Federal Open Market Committee.
"The only gauge we have here is the economic numbers, and if anything happens concerning Afghanistan," said Peter Cardillo, director of research for Westfalia Investments. "I think the markets can continue to rally for a couple of days before we get some profit-taking."
U.S markets all ended in positive territory on Friday, buoyed by positive readings on second-quarter GDP growth and manufacturing index, which beat economists' expectations.
The Dow Jones industrial average closed up 166.14 on the day to 8,847.56, and up 7.4 percent on the week. The weekly rise is the best percentage increase since the week of August 3rd, 1984, when the average closed up 7.8 percent.
The Nasdaq Composite index finished up 38.09 on the day to 1498.80, and up 5.3 percent on the week.
The Standard & Poor's 500 closed up 22.33 on the day to 1040.94, and up 7.8 percent on the week.
"Essentially we're just completing a week where there appears to be some market stabilization starting to surface," said Alan Ackerman
"We're starting to find that investors in particular are measuring their risks carefully and are not afraid to put their money to work at this time," Ackerman said.
Fed expected to cut again
Federal Reserve policy makers are meeting Tuesday and the consensus view is that Federal Reserve Chairman Alan Greenspan and company will take interest rates below 3 percent for the first time since 1963.
The Fed cut interest rates by 0.5 percent just six days after the terrorist attacks on New York and Washington, bringing rates down to 3 percent.
But according to futures contracts on the fed funds rate -- which give a sense of what investors expect the Fed to do – investors are betting heavily on the Fed will cutting by a further half percentage point to 2.5 percent.
"Looking ahead we've got the National Association of Purchasing Managers numbers on Monday, Friday we've got the unemployment numbers, but I think all eyes are going to be on the Fed," Mike Murphy, head of equity trading for CIBC World Markets, told CNNfn's Street Sweep.
"The futures boys have a half a point cut priced into it right now," Murphy said. "I think we'll probably have a quiet Monday going into Tuesday."
"If the government can give us some reasons to buy stocks they're going to do that going forward," he added.
"From a strictly 'economic' point of view, a good case can be made for only a 25 basis point cut, since it will be only two weeks since a 50 basis point reduction," said Sam Bullard, economist with First Union, in a commentary note. "However, given the still fragile state of the stock and corporate bond markets, plus the psychological aspects of the current situation (i.e., not allowing the terrorists the 'victory' of permanently damaging the U.S. economy), it still looks like another half point 'emergency' cut is most likely."
Friday morning the government will release numbers on unemployment, with the consensus estimates for the unemployment rate at 5 percent, according to Briefing.com.
Last Thursday, new claims for unemployment benefits surged to their highest levels since 1992, reflecting the impact of the terrorist attacks on the economy and particularly the airline sector.
Cardillo said he expects the unemployment rate to come in at the consensus number, but does not think the data will give the true picture of the impact of the attacks.
The NAPM manufacturing index for September, which enjoyed an unexpected boost for August, is expected by economists to fall to 45 percent from 47.9 percent, according to Briefing.com.
Enough with the warnings
While a steady stream of earnings warnings has flowed from all sectors, experts say the markets may be at the saturation point, with disappointing results already priced in.
Companies from Redback Networks (RBAK: Research, Estimates) to CNNfn-parent AOL Time Warner (AOL: Research, Estimates) to clothing and footwear company Vans (VANS: Research, Estimates) all said results would miss previous guidance.
"We're almost worn out with earnings," Ackerman said. "So many have surfaced of late."
He said the majority of warnings had already been discounted in the markets.
The only big-name companies scheduled to release earnings this week are Alcoa (AA: Research, Estimates) and Marriott International (MAR: Research, Estimates), both of whom report on Thursday. 
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