Wall Street is searching for direction in the face of data suggesting an acceleration of US economic growth, a situation likely to mean higher interest rates than anticipated, analysts said.
The market closed out a mixed week on Friday, with the blue-chip Dow Jones Industrial Average losing 0.36 percent over the five days to 11,021.59.
The broad-market Standard & Poor's 500 index dipped 0.17 percent for the week to 1,287.23 but the tech-heavy NASDAQ composite index rose 0.68 percent to 2,302.60.
The market has been struggling, alternating rallies with losing sessions, as investors positioned in the face of apparently strong economic data including surveys showing healthy factory activity and services.
Analysts say the data cut both ways -- keeping growth on track but also encouraging the Federal Reserve to lift interest rates to a point where it could crimp profits and choke off economic activity.
Deutsche Bank economists said they see a "5 and 5" scenario for the economy -- economic growth at a 5 percent pace that leads to a 5 percent federal funds rate, up from the current level of 4.5 percent.
"The data this week still suggest to us that GDP will grow 5.0 percent in the first quarter and that the Fed will reach 5.0 percent on fed funds in May," they wrote.
"Despite the good news on core inflation, the overall strength of the economy in the near term is likely to be impressive enough that the Fed will want to take out additional insurance against an overshooting of sustainable levels of resource utilization," they said.
Lehman Brothers economist Ethan Harris sees an even more robust economic picture and that this is likely to be confirmed with Friday's report on February US job growth, which he pegs at 250,000 or greater.
"Thus we are bumping up our growth and Fed call. We now expect the funds rate to peak at 5.5 percent at either the August or September FOMC [Federal Open Market Committee] meeting," Harris said in a note to clients.
"The economy is showing more underlying strength than we had expected," he said.
The bond market gyrated in response to the stronger outlook.
The yield on the 10-year US Treasury bond jumped to 4.684 percent from 4.567 percent a week earlier and that on the 30-year bond rose to 4.660 percent from 4.515 percent. Bond yields and prices move in opposite directions.
Other analysts say the economic data may be giving false signals, with warm weather in January boosting activity, and worry that the Fed under new chairman Ben Bernanke may be too aggressive in attacking inflation.
"Our concern we have about the economy is that the Federal Reserve may overdo tightening," Wachovia Securities strategist Rod Smyth said.
Smyth said Bernanke "is likely to err on the side of tightening in order to establish his inflation-fighting credentials with financial markets."
The analyst added that because of the lag time of the impact of rate hikes of a year or more, "the chances have increased for a policy mistake by the Fed ... We believe consumers will succumb to a slowdown in the housing market and thus additional tightening in the next few months may ultimately lead to a sharper economic retrenchment."
Merrill Lynch chief investment officer Bob Doll said that he sees a slowdown later this year to bring overall growth to around 3.0 percent.
"Likewise, we expect earnings growth to continue to slow," Doll said, but he too is concerned about the Fed reaction.
"The Fed appears determined to wait until it is clear that consumption growth has cooled before halting its rate-tightening campaign," Doll said.
"Hopefully, that will happen soon and higher rates will not trigger a significant economic slowdown or cause too heavy a drag on earnings growth and equity prices," he said.
purpose: Tesla’s CEO sought to meet senior Chinese officials to discuss the rollout of its ‘full self-driving’ software in China and approval to transfer data they had collected Tesla Inc CEO Elon Musk arrived in Beijing yesterday on an unannounced visit, where he is expected to meet senior officials to discuss the rollout of "full self-driving" (FSD) software and permission to transfer data overseas, according to a person with knowledge of the matter. Chinese state media reported that he met Premier Li Qiang (李強) in Beijing, during which Li told Musk that Tesla's development in China could be regarded as a successful example of US-China economic and trade cooperation. Musk confirmed his meeting with the premier yesterday with a post on social media platform X. "Honored to meet with Premier Li
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Dutch brewing company Heineken NV on Friday announced an investment of NT$13.5 billion (US$414.62 million) over the next five years in Taiwan. The first multinational brewing company to operate in Taiwan, Heineken made the statement at a ceremony held at its brewery in Pingtung County. It also outlined its efforts to make the brewery “net zero” by 2030. Heineken has been in the Taiwanese market for 20 years, Heineken Taiwan managing director Jeff Wu (吳建甫) said. With strong support from local consumers, the Dutch brewery decided to transition from sales to manufacturing in the country, Wu said. Heineken assumed majority ownership and management rights
Microsoft Corp yesterday said that it would create Thailand’s first data center region to boost cloud and artificial intelligence (AI) infrastructure, promising AI training to more than 100,000 people to develop tech. Bangkok is a key economic player in Southeast Asia, but it has lagged behind Indonesia and Singapore when it comes to the tech industry. Thailand has an “incredible opportunity to build a digital-first, AI-powered future,” Microsoft chairman and chief executive officer Satya Nadella said at an event in Bangkok. Data center regions are physical locations that store computing infrastructure, allowing secure and reliable access to cloud platforms. The global embrace of AI