WE'VE PARSED Alan Greenspan's words, dissected his syntax and — no doubt someone, somewhere — plotted his blinks on a graph. The upshot: Investors expect another interest-rate cut of half a percentage point on Wednesday, even though the Fed chairman promised no such thing during his Capitol Hill testimony.
The gurus say so, the bond traders say so. Fund managers who are prepared to dump their shares in a flash should the Fed deliver a more modest cut certainly hope so. Then what? Take your pick.
View No. 1: "Stocks are going to continue to respond to increased liquidity coming into the system," says A. Marshall Acuff, equity strategist for Salomon Smith Barney.
View No. 2: "The Fed, in effect, would be pushing on a string. And we think the economy would barely respond, if at all," writes Morgan Stanley Dean Witter economist Stephen S. Roach.
Acuff, who represents the majority viewpoint, adds that he is not absolving individual overpriced stocks, nor is he forecasting a forced march by the indexes back toward their all-time highs. But neither does he expect them to re-test the lows of the past few months. He points to the breadth of the recent advances as an encouraging sign for the markets.
Raymond James strategist Jeffrey D. Saut also likes the gains registered by midcap and small-cap issues in recent weeks. But he draws the line at the "new nifty 50" of the best-known tech names, which he calls "over-loved, over-owned and still overvalued by historical standards."
Saut, who is among the handful of analysts expecting a Fed rate cut of just a quarter of a percentage point, argues that the short term is fraught with dangers beyond a potential sell-off on Fed news. "By the second week of February you are going to start getting just horrendous preannouncements again," he warns.
The Fed, of course, won't be making its decision in a vacuum. It will be especially interested in the consumer confidence index due to be released on Tuesday. Another steep decline would bear out the consensus forecast. That will be followed on Wednesday morning by a preliminary figure for GDP growth in the fourth quarter. As with all economic statistics lately, the markets would like both figures to be grim enough to prod the Fed.
The gurus say so, the bond traders say so. Fund managers who are prepared to dump their shares in a flash should the Fed deliver a more modest cut certainly hope so. Then what? Take your pick.
View No. 1: "Stocks are going to continue to respond to increased liquidity coming into the system," says A. Marshall Acuff, equity strategist for Salomon Smith Barney.
View No. 2: "The Fed, in effect, would be pushing on a string. And we think the economy would barely respond, if at all," writes Morgan Stanley Dean Witter economist Stephen S. Roach.
Acuff, who represents the majority viewpoint, adds that he is not absolving individual overpriced stocks, nor is he forecasting a forced march by the indexes back toward their all-time highs. But neither does he expect them to re-test the lows of the past few months. He points to the breadth of the recent advances as an encouraging sign for the markets.
Raymond James strategist Jeffrey D. Saut also likes the gains registered by midcap and small-cap issues in recent weeks. But he draws the line at the "new nifty 50" of the best-known tech names, which he calls "over-loved, over-owned and still overvalued by historical standards."
Saut, who is among the handful of analysts expecting a Fed rate cut of just a quarter of a percentage point, argues that the short term is fraught with dangers beyond a potential sell-off on Fed news. "By the second week of February you are going to start getting just horrendous preannouncements again," he warns.
The Fed, of course, won't be making its decision in a vacuum. It will be especially interested in the consumer confidence index due to be released on Tuesday. Another steep decline would bear out the consensus forecast. That will be followed on Wednesday morning by a preliminary figure for GDP growth in the fourth quarter. As with all economic statistics lately, the markets would like both figures to be grim enough to prod the Fed.
