Inflation Fears Not 666 Spooked Investors Today
Tuesday, June 06, 2006SUSIE GHARIB: More heavy selling on Wall Street today, as inflation fears continued to spook investors. The Dow tumbled as much as 122 points, but thanks to a wave of late-day buying, the blue chips closed down 46 points. The NASDAQ lost 6. As Erika Miller reports, Wall Street experts are still assessing what Federal Reserve Chairman Ben Bernanke`s latest views on the economy mean for the markets.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market has been taking a beating, but many Wall Street analysts are not nervous. They say recent worries about inflation and interest rates are overblown.
KEVIN BANNON, CHIEF INVESTMENT OFFICER, THE BANK OF NEW YORK: Our market outlook remains fairly positive. The economy, to us, seems like it is moving forward at a pretty steady, sustainable pace, clearly going to be slower, but still moving forward. We don`t think inflation is going to become a big problem.
MILLER: Stock investors have been fretting about the possibility the Fed will raise interest rates at its next policy meeting June 28 and 29. Bond market futures are placing 80 percent odds of a quarter point hike at that meeting. But some Wall Street pros still believe the Fed could pause, igniting a stock market rally.
BANNON: I`m still of the opinion that the Fed is very likely to pause, because we are clearly seeing evidence of cooling in housing, cooling in the labor markets. The Fed is forward-looking.
MILLER: Bannon recommends investors use current weakness to buy technology and business services stocks, areas which he expects will rally if business spending picks up. Harder to predict is the reaction in the stock market if the Fed does raise rates at the end of the month.
SCOTT FULLMAN, CHIEF INVESTMNET STRATEGIST, HAPOALIM SECURITIES: I think you could even expect a rally. I think you could even expect a rally if the Fed only goes 25 basis points, because I think it brings some relief into the market that that`s what they`re doing.
MILLER: Fullman recommends investors start loading up on utility and financial stocks, sectors which could benefit when the Fed ends its tightening cycle. Some bulls say the biggest risk to the stock market is the statement accompanying the Fed`s decision. If it hints at the possibility of an August rate hike, experts say that would raise concerns about the economy and corporate profits. But if the Fed signals it could pause in August, some experts predict the market will soar to new highs.
FULLMAN: We think there is still an opportunity for that to happen, but we think the market has to work out some of the short-term to intermediate-term problems that it has been facing.
MILLER: After this month`s Fed meeting, the market`s focus is expected to shift to second quarter earnings. Some strategists predict stocks will rally in early July in anticipation of another quarter of double-digit earnings growth. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
