RPT-Wall St Week Ahead: Stocks hope for a Halloween rate cut
(Repeats column initially transmitted late Friday)
NEW YORK, Oct 28 (Reuters) - Wall Street expects a two-day Federal Reserve meeting this week to end with another cut in interest rates as financial firms struggle with losses tied to subprime mortgages and related securities.
Trading in November fed funds futures show a 25-basis- point cut in the benchmark rate to 4.5 percent is fully priced in, with only a small chance that there will be a bigger cut to 4.25 percent.
Should the Fed decide to leave rates unchanged, clearly there will be disappointed investors when the announcement comes on Wednesday, which happens to be Halloween.
At the last meeting, on Sept. 18, the Fed cut the fed funds rate 50 basis points to 4.75 percent and lowered the discount rate by 50 basis points to 5.25 percent. It was a bigger cut than the market expected, and stock prices rocketed higher with the Dow industrials gaining 2.5 percent.
Michael Cuggino, president and portfolio manager of the Permanent Portfolio Funds in San Francisco, said the Fed's decision next week "could go either way" -- a 25-basis-point cut -- or no cut at all.
He said some argue that an October cut would provide insurance that the economy will avoid recession. But others say standing pat gives the Fed time to analyze the effects of the September cut.
When the announcement does come, he said, "What they say is going to be as important as what action they take."
Although the Fed meeting looms large, Wall Street also has to contend with corporate earnings, which are not as robust as in previous quarters, oil prices at record highs and the crucial monthly jobs report at the end of the week.
At Friday's close, stocks wrapped up the week with gains.
For the past week, the Dow Jones industrial average .DJI rose 2.11 percent, the Standard & Poor's 500 Index .SPX added 2.31 percent and the Nasdaq Composite Index .IXIC> gained 2.90 percent.
The market's gains came even as the subprime credit crisis continued to play out among financial firms. Merrill Lynch & Co. Inc. MER.N shocked Wall Street with an $8.4 billion write-down, which resulted in the biggest quarterly loss in the firm's history.
For the year so far, the blue-chip Dow average is up 10.78 percent, while the S&P 500 is up 8.25 percent and the Nasdaq is up 16.10 percent.
CONFIDENCE MAY SLIP MORE
On the data front, Tuesday brings the Conference Board's survey on consumer confidence for October. According to a Reuters poll of economists, the median forecast anticipates a drop in the index of consumer confidence to 99.0 in October from 99.8 in September. The September reading was not only worse than expected, but it left the index at its lowest level in nearly two years. Continued...
