New York – In the aftermath of Hurricane Katrina, investors who are trying to figure out where Wall Street is headed are likely to find that it is an impossible task.
As the human toll mounted and the government struggled to respond to the Katrina disaster, the stock market had a volatile week, with some of the heaviest trading volumes ever seen in August. Stocks ended the week higher as investors shifted portfolios to protect their assets.
Many unanswered questions remain. Will the economy be able to withstand the loss of jobs and disposable income from millions of people in Gulf Coast states? Which companies will suffer most from the loss of their buildings and people, let alone loss of business? And of course, Americans want to know when – or if – gasoline prices will come down.
If people end up spending $3 or $4 per gallon for gas for an extended period of time, economic growth could stumble.
Yet in the face of these concerns, Wall Street showed optimism last week, with the Dow Jones industrial average rising 0.48 percent, the Standard & Poor’s 500 index climbing 1.07 percent and the Nasdaq composite index adding 0.96 percent. Oil prices peaked near $71 per barrel but were back under $68 by Friday – where they were before Katrina hit.
And some analysts – though not all – say the Federal Reserve will have to stop raising interest rates for fear of pushing a slowing economy into a recession. Stable interest rates mean loans for individuals and capital for corporations will remain relatively inexpensive – a positive for an economy that, at least in the South and perhaps throughout the country, will need that capital to rebuild.
The market’s direction ultimately lies with the Fed, which is scheduled to meet Sept. 20. Until then, it’s anybody’s guess where stocks will trade on a day-to-day basis.
Wall Street’s uncertainty won’t be helped by a raft of economic data in the week ahead, with only a handful of releases scheduled and few likely to take Katrina’s impact into account. But there’s growing evidence showing the economy was already slowing before the hurricane, and more data pointing to a slowdown probably will churn stocks.
The Institute for Supply Management’s service index, due today, was expected to increase to 61.3 in August from a 60.5 reading the previous month. However, with the ISM manufacturing index posting a surprise drop last week, the service index could be poised to follow suit.
The Fed will release its “beige book” assessment of the economy Wednesday at noon MDT. This report, released eight times per year, breaks down economic activity in each of the 12 Federal Reserve Bank districts. Again, Wall Street will look closely for signs of sluggishness.
With just a month left to go in the third quarter, there are few earnings reports due in the week ahead. However, companies will be issuing updates and guidance on their earnings. Some of these reports are scheduled, but most are issued at the discretion of the company – in many cases to deflate analysts’ heightened expectations.
Technology will be in focus Thursday as Dow industrial Intel Corp. and fellow chipmaker Texas Instruments Inc. issue mid-quarter updates after the session. Intel traditionally does not issue guidance in the form of earnings per share but will update its projected revenues. Texas Instruments does give earnings guidance, however, and both will move tech stocks the following day.
