NEW YORK – Investors should see stocks snap back next week and resume their September rally as long as any comments from the Federal Reserve (search) on inflation and the economic effects of Hurricane Katrina (search) are relatively benign.
Also, quarterly results expected next week from companies in financial services, transportation and retail will be scrutinized for any hints the hurricane, one of the nation's worst natural disasters, has affected consumer spending.
Stocks ended down for the week, but remain on track to end the month with gains. For blue chips, ending the month in positive territory would break a striy-setting committee is largely expected to raise rates by a quarter percentage point to 3.75 percent when it meets next Tuesday, but its comments could indicate whether it plans to continue raising rates.
The central bank has increased rates by a quarter-point 10 times in the last 15 months to control inflation as the economy expands. Rate increases are considered negative for stocks because they increase borrowing costs for companies and consumers.
"The (Fed's) statement is going to be critical. But the Fed needs to send the message that the economic recovery is on track and sustainable, that Katrina is not going to derail it," said John Waterman, chief investment officer at Rittenhouse Asset Management.
Fund managers and analysts said this week that investment in stocks should stay high, even if the Fed raises rates next week, because of better value in equities than in bonds and currencies.
Also, a median forecast of 27 stock strategists in a recent Reuters poll showed the Standard & Poor's index is still on track for a third year of gains and it may rise 3 percent by the end of December.
For the week, all three major stock indexes ended lower, with the Dow Jones Industrial average down 0.3 percent, the Standard & Poor's 500 Index down 0.3 percent and the Nasdaq Composite Index down 0.7 percent.
For the month, however, the Dow is up 1.5 percent, the S&P up 1.4 percent and the Nasdaq is up 0.4 percent.
Government reports on weekly oil inventory data Wednesday and jobless claims Thursday also could influence stocks, strategists said.
"Anything labor-related will matter," said Waterman.
Among the companies reporting earnings next week are Circuit City Stores Inc. (CC), Goldman Sachs Inc. (GS), FedEx Corp. (FDX) and Nike Inc. (NKE).
"Anything that shows that energy is having an impact on consumer spending will hurt the market," Waterman said.
Crude oil prices on the New York Mercantile Exchange (search) rose to a record $70.85 a barrel Aug. 30 in the aftermath of Katrina, which damaged oil rigs and refineries along the U.S. Gulf Coast. Prices have since eased and were trading at $63 on Friday.
Results from transportation company FedEx could be important in terms of Katrina's effects on its industry.
"We'll see what impact, if anything, the hurricane had on them, and it may be a harbinger," Joy said.
"All of corporate America is going to use Katrina as an excuse for all of their problems," said Cummins Catherwood, managing director, Walnut Asset Management.
The Goldman results follow strong results from other financial companies this week, including Lehman Brothers Holdings.
Lehman reported its quarterly profit rose a stronger- than-expected 74 percent on the back of robust stock and bond underwriting and a surging mortgage bond business.
"We'll see if Goldman can keep that string going," Joy said.
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