While Wall Street is mostly confident that the Federal Reserve will leave interest rates untouched when it meets this week, the market is still anxious to learn how the central bank perceives the threat of inflation and the overall economy.
The meeting is the first since the Fed interrupted a two-year string of 17 straight rate increases last month by leaving unchanged the rate that banks charge each other for overnight lending. The Fed and Wall Street don't always agree on how to best shepherd the economy -- in this case, toward a soft landing. Some investors have voiced concerns that the Fed, in its zeal to contain interest rates, had perhaps overreached and slowed growth too quickly by making access to money more expensive.
But there appeared to be little airing of those concerns last week as stocks marched to within sight of this year's highs amid a precipitous drop in oil prices and reassuring figures from the Labor Department. The Consumer Price Index, the key measure of inflation, was in line with forecasts and lent support to the notion that the economy is decelerating smoothly.
The Fed's comments on the health of the economy, while perhaps not detailed generally play an enormous role in shaping investor sentiment on Wall Street.
Scott Fullman, director of investment strategy at Hapoalim Securities USA, contends that if the Fed meeting doesn't bring any surprises the markets could be poised to enter a strong period.
"We are optimistically cautious here going into the next five weeks or so," he said, adding he expects benchmarks such as the Dow Jones industrial average and Standard & Poor's 500 index will show strong performances this year. "The markets are showing some real resilience. I'm looking for new highs with the Dow and the S&P before the end of the year."
Though investors will focus on tomorrow's Fed meeting, there are other reports Wall Street will be eager to examine. Today, the Commerce Department's report on last month's housing starts is expected to provide the latest evidence that the housing sector is cooling. Despite a modest lift on Friday, homebuilder stocks have taken a drubbing on Wall Street lately after several companies issued profit warnings tied to a drop in demand.
Also today, the Labor Department is expected to release last month's producer price index, which measures the wholesale cost of goods.
Tomorrow, before the Fed meeting, comes a weekly report on crude inventories. This week, oil prices briefly moved higher after the Energy Department reported a decrease in the US' crude inventories.
Thursday brings the Labor Department's weekly report on initial jobless claims, a snapshot of how many people seeking work are unable to find it. And also on Thursday, the Philadelphia Fed reports on regional manufacturing activity for this month.
Oracle Corp is the first big company to report, releasing its first-quarter results today. The maker of business software is expected to earn US$0.16 per share. The stock closed on Friday at US$16.33 after setting a 52-week high of US$16.64. Its previous 52-week range was US$11.75 to US$16.49 per share.
Tomorrow, investors will hear from Morgan Stanley as it reports third-quarter results. Investors cheered as several rival investment banks turned in better-than-expected profits, even as some parts of their businesses showed signs of slowing. Morgan Stanley is seen earning US$1.37 per share. The stock closed at US$70.95 on Friday after hitting a 52-week high of US$71.47 earlier in the session. It had traded in a range of US$50.73 to US$70.43 for the previous 52 weeks.
On Thursday, FedEx Corp is expected to report a first-quarter profit of US$1.52 per share. The shares, which have traded at a range of US$76.81 to US$120.01 in the past 52 weeks, closed on Friday at US$105.90.
Companies that could provide insight into how consumers are spending are also due to report on Thursday. General Mills Inc is seen as likely to show a first-quarter profit of US$0.67 per share. The maker of Cheerios, which has traded between US$44.67 and US$54.55 per share in the past 52 weeks, closed at US$52.96 on Friday.
Nike Inc also plans to report first-quarter results; Wall Street expects the shoe and apparel maker will earn US$1.42 per share. The stock closed on Friday at US$82.97. It has traded from US$75.52 to US$91.54 per share in the past 52 weeks.
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