Ugly October can't end soon enough
NEW YORK (Reuters) - Whichever way this week plays out on Wall Street, the market is likely to close out an October that stock investors would rather forget.
So far this month, the Dow is off 22.8 percent, the S&P 500 is off 24.7 percent and the Nasdaq is down 25.8 percent -- putting them on track for their worst month since the October 1987 crash. In the S&P's case, this October could wind up being its worst month ever in the post-World War Two era.
Bears are expected to tighten their grip on Wall Street this week unless there are reassurances by the U.S. Federal Reserve and other central banks that authorities have what it takes to reduce the blows from the menacing economic downturn.
But there's likely to be little comfort until the Fed gives its verdict on the economic outlook and the government releases its advance report on third-quarter real gross domestic product (GDP), due on Thursday. The GDP data could be the first negative print since the revised reading for the fourth quarter of 2007. GDP measures the output of all goods and services within U.S. borders.
"The outlook for the market really depends upon what type of action the Fed may take," said Doug Roberts, chief investment strategist for Channel Capital Research in Shrewsbury, New Jersey. "I wouldn't rule out the possibility of something on a coordinated basis globally as well."
In addition to the Fed, the coming week will be packed with numbers -- new home sales, consumer sentiment, a survey on home prices, plus durable goods orders and data on personal income and spending. There also will be a deluge of earnings that could confirm investors' fears that the outlook for profits and economic growth is getting even grimmer.
Investors will comb through the economic data and earnings to assess how deep a recession the United States may face.
ON THE FED'S WAVELENGTH
The Federal Open Market Committee is set to begin a two-day meeting on Tuesday to decide on interest rates. The policy-makers' decision is expected on Wednesday at about 2:15 p.m. EDT (1815 GMT).
Futures fully price in a rate cut of one-half percentage point, or 50 basis points, in the fed funds rate, to 1 percent from 1.5 percent.
The interest-rate futures market also sees a "more than 20 percent" chance that the Fed could cut the fed funds rate more aggressively, to 0.75 percent.
"The anticipation is that the Fed will cut rates. The question is: How much?" said Bucky Hellwig, senior vice president at Morgan Asset Management in Birmingham, Alabama.
"A cosmetic rate cut probably won't have much benefit to the market. Psychologically, a bigger-than-expected cut would confirm that the Fed is actually using every weapon at their disposal to try and make the downturn less painful."
But while the Fed's rate pronouncement will get attention, it is the central bank's assessment of the economic conditions and outlook that investors will zero in on to decide whether they should buy, keep or sell stocks. The benchmark indexes are at their lowest levels since the spring of 2003.
Fed Chairman Ben Bernanke warned during a congressional hearing on October 20 that the U.S. economy could be dogged by an extended period of subpar growth and, as a result, a second economic stimulus plan might be needed. Continued...
