COMMENTARY--Wall Street anxiously awaits Tuesday's Federal Reserve Board meeting with no clear indication of just how much the central bank will cut interest rates despite the cataclysmic decline of the U.S. equity market.
Fed Chairman Alan Greenspan finds himself in a predicament this time around because while the stock market desperately needs a catalyst, the economy continues to give mixed signals.
The Nasdaq composite is down 60 percent from its record peak this time last year but the latest data suggests the economy is starting to show signs of life.
On Friday, the Labor Department reported the Producer Price Index, which measures wholesale selling prices, moved up 0.1 percent in February, inline with analysts' estimates. Taking out price increases for food and skyrocketing energy prices, the core index fell 0.3 percent--its steepest decline since mid-1993.
That's a significant improvement considering the index shot up an alarming 1.1 percent in January, indicating inflationary pressures were starting to take root in the economy.
That's why the Fed shocked Wall Street in early January with a half-point cut to short-term interest rates in advance of its scheduled policy meeting later that month.
At that meeting, the Fed cut rates another half-point and said it was inclined to cut them again if necessary ahead of the March 20 meeting. This marked the first time since 1982 that the Fed cut rates twice in the same month.
Those subsequent reductions never materialized and investors kept selling shares, pushing the Dow Jones industrial average below the 10,000-point mark on Wednesday for the first time since October.
Housing starts fell a modest 0.4 percent in February--not as much as most economists had predicted--to a decent clip of 1.647 million units at a seasonally adjusted annual rate.
And the University of Michigan's consumer confidence report checked in at 91.8 in March, slightly higher than expected and better than the 90.6 level registered in February.
"The PPI is a friendly number, but the market is not weighing it too heavily because there are much bigger issues at work in the market," including warnings about earnings from corporations, said Tony Richards, managing director at Brinson Partners.
Disappointing earnings, profit warnings and layoffs are among those issues. The pain is especially acute in the languishing technology sector where titans Oracle (Nasdaq: ORCL) and Compaq (NYSE: CPQ) became the latest bellwethers to cut sales and earnings projections this week.
Pundits are all over the board with their predictions. Some are holding out hope for an optimistic reduction of 0.75 percent. Others think the Fed will stand pat.
"The dynamics are that if the Fed disappoints next week, then the better sentiment numbers will quickly reverse," said Richard Gilhooly, fixed-income market strategist at BNP Paribas. "At this point the market wants at least 75 basis points on Tuesday."
Investors shouldn't count on a reduction of that magnitude considering Greenspan's notoriously circumspect approach to the nation's monetary policy.
Back in 1999 and 2000, the Fed raised rates six times for a total increase of 1.75 percentage points, pushing the Fed funds rate to a peak of 7.25 percent. This was at the tail end of an unprecedented bull market that rampaged for more than 10 years.
"People are looking for ammunition for an aggressive Fed rate cut," Christopher Low, chief economist at First Tennessee Capital Markets, told Reuters. "It's not there."
The Dow Jones industrial average and the S&P 500 Index are both trading at two-year lows but that's no guarantee the Fed's going to deliver the tonic.
Investors will also get a healthy does of earnings reports from key technology firms next week:
Micron Technology (NYSE: MU) will report its second-quarter earnings with analysts forecasting a profit of a penny a share on sales of $1.39 billion.
Micron, like so many other chipmakers, is battling through a major inventory correction and falling dynamic random access memory (DRAM) prices.
Last quarter, Micron missed analysts' estimates when it returned a profit of $352 million, or 58 cents a share, on sales of $1.8 billion.
Trading below $40 a share, Micron is well off its 52-week high of $97.50 set in July.
Micron Electronics (Nasdaq: MUEI), the PC maker, will also check in with its second-quarter numbers.
First Call consensus expects it to earn 2 cents a share, roughly flat from its first quarter.
After peaking at $20.69 a share last March, Micron Electronics has slumped to below $4 a share this week.
Net2Phone (Nasdaq: NTOP), an Internet telephony company, is scheduled to report its second-quarter results.
Analysts are projecting a loss of 29 cents a share on sales of $34.5 million.
Net2Phone lost $14.7 million, or 25 cents a share, on sales of $30.8 million in its first quarter.
Its shares are hovering around $10, down from a peak of $66 a share last March.
Red Hat (Nasdaq: RHAT) is expected to post a fourth-quarter loss of 1 cent a share on sales of $27.8 million.
The developer of Linux-based operating systems software dropped $900,000, or 1 cent a share, on sales of $22.4 million.
The stock is trading below $6 a share after storming up to a 52-week high of $79.56 last March.