NEW YORK – The Federal Reserve's (search) stance on interest-rate hikes and the price of crude are set to call the shots in the market next week.
While higher oil prices could pull industrial and transportation stocks lower, interest-rate worries could weigh on financial and homebuilders' shares, strategists said.
"What the Fed says will be on the minds of investors next week, as will be the cost of oil," said Alex Motola, portfolio manager at Thornburg Investment Management.
In a four-day week, the markets will be closed next Friday for the Good Friday holiday.
Carmakers' stocks could continue their slide after General Motors Corp. (GM) warned Wall Street Wednesday that it expects a first-quarter loss.
Crude oil futures vaulted to a record intraday high of $57.60 a barrel Thursday. April crude rose 32 cents Friday to settle at $56.72 on the New York Mercantile Exchange (search).
High oil prices hurt the market as a whole by crimping corporate profits and consumer spending.
FedEx Corp. (FDX) offered evidence of the negative effect of higher oil prices on profits. The world's largest air-express carrier Thursday gave a current-quarter forecast toward the low end of analysts' estimates, citing rising fuel costs as a concern.
On Friday, stocks finished almost unchanged. The blue-chip Dow Jones industrial average (search) rose 3.32 points, or 0.03 percent, to 10,629.67. The broad Standard & Poor's 500 Index (search) edged down 0.56 or a point, or 0.05 percent, to 1,189.65. The tech-laced Nasdaq Composite Index (search) slipped 8.63 points, or 0.43 percent, to 2,007.79, a closing low for the year. In the afternoon, the Nasdaq briefly dipped below the psychologically important 2,000 mark.
For the week, the Dow fell 1.34 percent, while the S&P 500 slipped 0.87 percent and the Nasdaq dropped 1.66 percent.
The Producer Price Index (search), which gives a reading of inflation at a wholesale level, will be closely watched when it's released Tuesday morning -- several hours before the Fed's announcement on interest rates.
The Federal Open Market Committee (search) is expected to raise its benchmark fed funds rate target by another quarter percentage point to 2.75 percent. It also could signal the pace of future rate increases. This would be the Fed's seventh rate hike in this credit-tightening cycle, which began last June.
"There's a lot of speculation that they may take out the term 'measured' from their statement, which will open the door for a more aggressive move in interest rates," said Walter Todd, portfolio manager at Greenwood Capital. "The short-term impact of such a move will be increased volatility, followed by a downside."
Rising rates hurt banks, such as Citigroup Inc. (C) and Bank of America Corp. (BAC), as they make it trickier for them to earn money on lending. Homebuilders also take a hit amid climbing rates as they translate into higher mortgage rates, which could crimp the housing boom.
The Consumer Price Index (search), a gauge of inflation at the retail price level, will get Wall Street's attention Wednesday.
Other economic data on the week's calendar include the durable goods orders for February on Thursday. Weekly oil inventory data and jobless claims figures will also get attention.
On the earnings front, homebuilder KB Home's (KBH) first-quarter results will be in focus Monday, a day before the Fed's announcement.
Oracle Corp. (ORCL) will report its quarterly results Tuesday in the week ahead.
Thursday, Oracle raised its offer for Retek Inc. by 25 percent, topping German software maker SAP AG's sweetened bid for the U.S. retail automation software company.
Investors could be drawn towards the software sector amid merger activity and strong earnings from software makers such as Adobe Systems Inc. (ADBE), which gave a better-than-expected outlook Thursday.
However, investors may steer clear of automakers. General Motors, the world's largest automaker, Wednesday warned its 2005 earnings will be as much as 80 percent below its previous forecast due to slumping North American auto sales, sending its shares down 14 percent to a 12-1/2-year low.
"General Motors' comments on its business puts a spotlight on similar mature carmakers," said Robert Lutts, chief investment officer of Cabot Management Inc. "Investors are probably going to be asking themselves, 'Do I own a company like GM? Are they innovating? Are they a low-cost carrier?' Companies like Ford and GM are in trouble. They are not healthy at all."