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Inflation,stock market and company profits
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It is evident that inflation is still above comfort zone and there is no sign enough to show it is going to have a soft landing. As I repeated several times in my columns,I think the right decision for Fed to increase the rates during the 21 March meeting.I believe the priority should be controlling inflation.When Fed decrease the rates in the beginning of 2008, Fed can avoid a recession.However they do not have the courage to do so..
From my point of view, they will leave the rates steady to avoid economic risks, ignoring the right decision.Wall Street lobby is strong and they are scared of having a recession.We can expect a higher inflation for this year.I stil think that American economy is strong enough to handle another rate hike( except housing and mortgage markets)
Past week we had an artificial panic sceneraio for sub prime mortgage market.As I told my readers, invesment banks’ liability do not exceed 3 percent of their total portfolios in sub prime issue.The week was full of opportunities. I agree with Greenspan that subprime issue is going to have a broader impact on economy (however successfully contained impacts.)
Company profits will start to increase less from the second quarter but still highly profitable companies we will have in U.S.I specially expect a great come back from Microsoft and tech companies during the second half of the year.
For this week, the anxiety level on Wall Street may escalate next week with several indicators due on the housing sector and a Federal Reserve meeting that most agree will end with no change in short-term interest rates.
The week begins with nationwide demonstrations by war protesters marking the fourth anniversary of the Iraq war. One of those protests is planned for outside the New York Stock Exchange before the opening bell.
A key piece of data will be February housing starts, due Tuesday morning one hour before the start of regular trading.
Any bad news about the housing sector has the potential to roil the stock market some more after this week's steady drumbeat of headlines about problems in the subprime mortgage market, which caters to borrowers with weak credit.
For the week, stocks fell. The blue-chip Dow Jones industrial average lost 1.4 percent for the week, while the S&P 500 fell 1.1 percent and the Nasdaq Composite Index slipped 0.6 percent.
EXISTING HOME SALES ON TAP
On Friday, the National Association of Realtors reports on sales of existing homes. The median forecast in the Reuters poll is a drop to an annual rate of 6.31 million units in February from 6.46 million in January.
On Monday, the National Association of Home Builders is scheduled to report its latest survey of market conditions.
The NAHB/Wells Fargo Housing Market Index is expected to fall to 38 in March from 40 in February. The index has climbed back from a 15-year low of 30 in September 2006.
A big change in the housing picture has been the deterioration in subprime mortgages, which are loans to borrowers with shaky credit.
That deterioration pushed the proportion of mortgages in the initial stages of foreclosure to the highest rate on record, according to a report this week from the Mortgage Bankers Association.
The problems in subprime lending, exacerbating an already weak housing picture, have helped bring down stocks of home builders, certain retailers, and financial services companies.
One of the biggest U.S. home builders, KB Home reports earnings for its fiscal first quarter on Thursday.
Do not expect Fed rescue
Even as the housing slump has become a cloud over the stock market, few are expecting the Federal Reserve to put out any fires out next week.
The Fed meets for two days and will announce its decision at the conclusion Wednesday afternoon.
The Fed has kept the benchmark federal funds rate target at 5.25 percent after last raising interest rates in June 2006.
I suggest the investors if you're going to be invested in equities, you need to be invested in higher quality issues that have solid balance sheets, dividends that will be stable, and produce a return even if the market is flat.
Earnings announcements of interest next week include Morgan Stanley on Wednesday. Several Wall Street firms have recently reported solid quarterly results, but investors have been cool to their stocks due to concerns that the subprime woes could spread through the financial system.
Adobe Systems Inc. and Oracle Corp.report on Tuesday.
FedEx Corp reports earnings on Wednesday and food company General Mills Inc. releases results on Thursday.
I wish you a good business week. |
| Tarih
: 19.03.2007 |
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Copyright
© 2006 Mert TOKER All Rights Reserved. |
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