The large Caps to remain rangebound--Mid and Small Caps to Sizzle:
Stocks ended flat Tuesday, after comments from a Federal Reserve official revived concerns about higher inflation and eroded earlier gains.
All three major gauges had gained through the morning yesterday, as investors breathed a sigh of relief that the U.N.'s talks with Iran about its nuclear capabilities look to be moving ahead & giving hopes that Middle East tensions might ease.
However, gains were dwarfed by revived worries about the economy following afternoon from Chicago Fed Bank President Michael Moskow.
The Dow Jones Industrial Average (down 5.21 points to 11,339.84) ended a few points lower, while the Nasdaq composite (up 2.27 points to 2,150.02) and the Standard & Poor's 500 (up 1.30 to 1,298.82) index both closed a bit higher.
The comments by Chicago Fed President Michael Moskow unnerved investors looking to revive last week's rally after having collected profits on Monday. The US retailers and other sectors dependent on consumer spending stumbled after Moskow said, "some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time."
The Fed left interest rates unchanged earlier this month after raising them 17 straight sessions. Wall Street has rallied since then on hopes this would be the end, but one analyst said Moskow's comments could be "putting out a trial balloon" to gauge the market's reaction to a continuation of rate hikes.
But Moskow, is not a voting member of the Fed's policy-making arm and hence his comments that "that upward pressure on inflation could mean that the Fed has to raise rates again" hardly carries too much significance.
"However, that's pretty much akin to what the Fed said in the statement at the last policy meeting", said Joshua Shapiro, chief economist at Maria Fiorini Ramirez, Inc.
"I think what it [the speech] does is remind markets that there is no guarantee that the Fed is finished raising rates," Shapiro said.
That may be contrary to what investors believed following last week's inflation reports, but it is not contrary to what the Fed has been saying, Shapiro added.
"The market has discounted the likelihood of another rate increase by about a 20 % chance for the next meeting" in September, said Scott Merritt, a U.S. equity strategist for JPMorgan Asset Management. "He might want to get that up to 50 percent to get more flexibility. If expectations get too high or low, (Fed Chairman Ben) Bernanke can't really go against it or he'll lose credibility."
Several economic reports issued last week -- including one that showed benign inflation data -- help convinced investors the economy was headed toward a "soft landing."
Wall Street wants the economy to slow so inflation is contained but still grow enough to keep corporate profits strong.
With most of the Asian Large Cap Indices subdued, THE INDIAN LARGE CAP INDICES ARE EXPECTED TO REMAIN RANGE BOUND WITH MOST OF THE ACTIONS ON SMALL AND MID -CAP COUNTERS . A popular financial daily pointed out this week that large caps looks slightly overvaled among the emerging markets, with the Sensex now quoting around 17 times the expected FY07 earnings. It is worth noting that Dow Jones Industrial average, the index of large cap companies in the US is quoting at around 15 times on forward earnings estimates. Germany's DAX is around 13 times forwards earning.
IT IS WORTH MENTIONING THAT FED AT PRESENT DOES NOT HAVE ANY PROGRAMME TO RAISE RAISE BUT IF THERE IS INFLATION IS TOO NAGGING WHICH IS UNLIKELY WITH THE PRESENT SET OF THE US DATA, FED CAN GO FOR THAT RISE. BUT I AM OF THE OPINION, THAT FED WILL NOT RAISE INTEREST RATES AS THE DATA COMING FROM THE US COFFERS CLEARLY POINT OUT THAT THE US ECONOMY IS SLOWING DOWN.
JBF INDUSTRIES LTD AND J K PAPER LTD BOTH ACHIEVED THEIR TARGETS LAST WEEK. TODAY'S RECOMMENDATION WILL BE GIVEN WITHIN A SHORT TIME AND THE AFTERNOON "DHAMAKA" PICK AT AROUND 12 NOON IF THERE IS NO POWER FAILURE.
Best wishes,
Suman Mukherjee
India.
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