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Market Insider/Tuesday Look Ahead

Tuesday is shaping up to be one of the busiest earnings days of the quarter so far, but it's likely the markets will continue to focus instead on the Fed.

That was the case in Monday's market when the Dow ran up 176 points or 1.45 percent to 12,383, fired up on optimism that weak new home sales data gives the Fed more reason to cut rates this week. It is largely expected by traders that the Fed will knock another half point off of the target Fed funds rate, after its surprise 3/4 point cut last week.

The Nasdaq rose 23 points or 1 percent, and the S&P 500 was up 23 points, or 1.8 percent,

Fed Focus

Rate cut? "I think they (Fed officials) have to do it," said Art Cashin, director of floor operations for UBS. "They've taken so much criticism over the last several weeks."

If they don't make the expected half-point cut and the market falls, the Federal Reserve building will be mobbed by a crowd "with pitchforks and torches within an hour," said Cashin.

The NYSE floor trader said trading Monday was impacted by the pending meeting of the FOMC, which starts Tuesday and ends with an approximately 2:15 p.m. announcement Wednesday. Traders have been reluctant to add much in the way of new positions ahead of it, he said. Plus, firms appear to be keeping positions small after the Societe Generale trading fraud. That may have made the market less liquid, as does anticipation about the Fed, he said.

"I think the risk is you get the half point that everybody is looking for, and the risk is there's no follow through," Cashin said.

Bear Stearns chief economist John Ryding said he expects the Fed to cut rates, in an interview on "Street Signs" Monday. He said he had seen the Fed's 3/4 point cut coming last week, based on those wild global markets of a week ago. He said the Fed is set on preventing market chaos from having an adverse macro economic impact.

"Given that, and given how the markets now perceive the Fed, is the Fed going to not show up on Wednesday when 50 basis points is all but priced in?" Ryding said.

"Is this a time to start standing up to the markets? I think the answer to that is not," he said. "I think the Fed will deliver and then they will try to use words to get out of this notion they are always going to deliver what the markets want."

Earnings Central

Monday's late day earnings may be a bit of a factor in Tuesday's market. American Express , higher during the trading day, fell after it reported revenues below expectations and said its 2008 outlook is cautious. VMware stock tumbled dramatically in late trading after its revenues fell short of expectations.

Before the bell, reports are expected from Countrywide Financial which will be watched closely for its comment on its financial health and how its deal with Bank of America is progressing. (Countrywide said this weekend that CEO Angelo Mozilo is voluntarily giving up his entire severance package when he leaves the company.)

Dow Chemical, Burlington Northern, EMC, Northwest Air, Valero, Travelers, U.S. Steel and Occidental Petroleum also report in the morning.

Yahoo! reports after the bell, as does Allstate.

In other corporate news, Liberty Media is taking legal action to grab control of IAC/Interactive from IAC Chairman Barry Diller. The Street will also continue to watch the Chicago Mercantile Exchange's takeover talks with NYMEX.

Econorama

Durable goods are reported at 8:30 a.m. New York time and consumer confidence is expected at 10 a.m. S&P/Case-Shiller housing price data is released at 9 a.m., and there should be new foreclosure data available Tuesday.

Investors will also be watching for news affecting the economic stimulus plan, including comments from President Bush during Monday night's State of the Union Address. A House vote on the plan is scheduled for Tuesday though the time is not yet determined.

Web of Deception

There's still a lot of head scratching on Wall Street when it comes to Societe Generale and its former trader, Jerome Kerviel. How could he possibly have conducted his alleged fraudulent trading for so long without detection? It now appears Kerviel, placed under formal investigation for breach of trust, may have begun his risky trading venture in 2005. Kerviel's lawyer said the trader didn't want to rob the bank, just shine in the role of star trader.

The case of Kerviel raises questions of oversight within the French bank and on the part of European regulators, particularly since it appears the unwinding of the trades could have taken world markets on a roller coaster ride.

But even so, there's plenty of people who still want to be Kerviel's friends (at least online). CNBC's Michelle Caruso-Cabrera found a place where 31-year-old Kerviel is becoming a bit of a cult hero. Check out her video on Kerviel.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.