While there's lots of important economic and earnings news Wednesday, we all know what matters most to the markets. That is whether the Fed cuts a quarter point or a half point from its target Fed funds rate.
Also important is what it says in its statements, including comments about inflation and growth. The news will be released at roughly 2:15 p.m. eastern time, and traders expect the markets to trade in a similar pattern to Tuesday ahead of the news.
The market has priced in a half point cut in the current 3.5 percent Fed funds target rate. If there's just a quarter point cut, traders expect to see stocks sell off in response.
"If you see 50 (basis points), it signals that the government is still very much aware of what's going on and they're being proactive, instead of reactive," said Peter Costa of Eckhart and Co.
"I think they're going to go 50 and just lay it out there," he said.
Without the Fed, Wednesday would still have been a pretty active day for the markets with lots of earnings and economic news. In the morning, advance fourth quarter GDP is released. It is expected to come in at 1.2 percent. Also important is the ADP employment report, expected at 75,000. The ADP report is being closely watched as a kind of preview of Friday's jobs report.
It does not always correlate to the jobs data, but economists pay close attention to it.
Investors will continue to watch Washington Wednesday, beyond the Fed news. The Senate should be marking up its stimulus package and there will certainly be interest in the results of the Florida primary. Also, Treasury Secretary Hank Paulson speaks at 2:30 p.m. on the economy and the fiscal growth package at the Real Estate Roundtable's State of the Industry Meeting in Washington.
It's another big day for corporate earnings. Before the bell, big Dow stocks Altria,Boeing and Merck report numbers. Food companies Kraft and Kellogg also report, as do UPS,Constellation Energy,Southern Co and Eastman Kodak. Amazon.com reports after the bell, along with Starbucks, Legg Mason, Pulte Homes and AFLAC.
Other corporate news to watch could come from Citigroup's financial services conference in midtown Manhattan. Merrill Lynch CEO John Thain is on the agenda. Other companies to watch there are BlackRock,Wachovia, Wells Fargo and Bank of New York.
Another Day, Another Rumor
The problem with stupid rumors is they sometimes are true, or some form of them turns out to be. For that reason, they burn up a part of every day for traders and the media.Since the summer, the focus of much rumor mongering has been the financial sector, the part of the market feeling the most pain from the credit crises. They can easily move the market and we take great care in reporting them, and deciding when to report them.
Before it was revealed that Societe Generale had issues with that rogue trader, there were very serious market rumors that the bank was taking a massive writedown. Rumor had it that it was subprime related. The same day rumors another European bank was having trouble also surfaced. We reported the story as generic rumors of an issue with a European bank because it was clearly seen as a factor moving the stock market. But we did not say which one. As you know, it later turned out that Societe Generale was in the news but with that $7.2 billion loss caused by the trader and much smaller amounts of writedowns.
Repeatedly, there are rumors that hedge funds are in trouble and on the brink of melt down. Rumors like that circulated all day Friday and continued on Monday. Periodically, different Wall Street banks become the targets of rumors. Goldman Sachs , for a period of time, was the focus of rumors that it would take a massive writedown. In a departure from its strict tradition of not commenting, Goldman publicly said the rumors were untrue several times.
Tuesday was JPMorgan's turn. There were rumors that it was taking writedowns from derivatives losses.A wire service reported the rumor and named the bank, but it was untrue. That's not the case today, a well placed Wall Street source told me. David Faber also shot down the rumor in his reporting, shortly after the rumors circulated (and temporarily hit the stock market).
8:15 am EST: Jan. ADP Employment Report (expected +75,000)
8:30 am EST: Q4-Adv. Real GDP (expected +1.2 percent, previous Q3, up 4.9 percent)
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