Investors Watch for End of Fed Interest-Rate Hikes

Are we there yet?

That's the question that will dominate Wall Street's thinking next week as investors look for the Federal Reserve to shed light on when it intends to stop raising interest rates.

The Fed's policy-setting Federal Open Market Committee meets Wednesday and is expected to nudge interest rates up another quarter percentage point to 5 percent, which would be its 16th hike since June 2004.

But paramount to Wall Street is whether the statement that follows the Fed meeting will give any hints of when interest rates may stop rising. U.S. interest-rate futures Friday signaled about a 30 percent chance of a June rate hike that could follow the widely expected increase next week.

Any language that suggests the Fed is done raising interest rates is poised to propel U.S. stocks higher next week, putting the Dow Jones industrial average in sight of a break above its Jan. 14, 2000, intraday record high at 11,750.28, according to analysts.

"Equity investors are looking for signs that the Fed is done with interest-rate increases," said Joe Liro, economist and market strategist at Stone & McCarthy Research Associates.

"If the Fed gives any indication that they are done, investors would find that very reassuring."

Expectations that the Fed could end its nearly two-year campaign of rate increases with just one more hike at its May meeting have underpinned the stock market's steady climb.

On Friday, U.S. stocks rallied, with the Dow registering its fifth straight week of gains. The catalyst Friday was the government's report showing slower-than-expected job growth in April, which suggested the Fed may have reason to pause after raising interest rates for almost two years.

For the week, the blue-chip Dow Jones industrial average rose 1.9 percent, while the broad Standard & Poor's 500 Index gained 1.2 percent and the Nasdaq Composite Index climbed 0.9 percent.

On Thursday, the day after the FOMC meets on interest rates, two Fed officials will speak at a payments industry conference in Chicago: Michael Moskow, the president of the Federal Reserve Bank of Chicago, and Donald Kohn, a governor on the Federal Reserve Board. Little in the way of market news is expected.

Tracking Trade and Consumers

On Friday, two closely watched economic indicators are on tap: the March U.S. international trade deficit and the University of Michigan's preliminary May reading on its consumer sentiment index.

The U.S. trade gap is expected to have widened to $67 billion in March from $65.74 billion in February, according to economists polled by Reuters.

The University of Michigan's consumer sentiment index for May is expected to slip to 86.1 from 87.4, the Reuters poll showed.

Fat Earnings vs. Sky-High Crude

Wall Street's mood also got a lift from first-quarter corporate profits, which were stronger than expected and encompassed a varied range of sectors, including materials and manufacturing industries. That robust round of earnings news helped outweigh worries about crude oil prices, which raced up to a record $75.35 a barrel on April 21.

But if tension over Iran's nuclear program were to escalate in the coming week, any subsequent spike in crude oil prices could spoil Wall Street's party, analysts said.

"I'm relatively optimistic. I think there's a good chance of (the Dow breaking its record high), absent anything happening with Iran or any international incident where the price of oil takes off," said Scott Vergin, portfolio manager at Thrivent Financial. "Oil is the wild card."

U.S. crude oil futures rebounded on Friday after two days of heavy losses. Crude for June delivery settled at $70.19 per barrel, up 25 cents, on the New York Mercantile Exchange.

Besides preoccupation with the Fed, investors will sift through another batch of quarterly earnings in the coming week. They will be watching to see if consumer spending, which accounts for about two-thirds of the U.S. economy, remained healthy in the face of rising gasoline prices.

Companies scheduled to report quarterly results next week, include retailers J.C. Penney Co. (JCP), Kohl's Corp. (KSS) and Federated Department Stores Inc. (FD), the parent of Macy's and Bloomingdale's.

On the technology front, communications equipment maker Cisco Systems Inc. (CSCO) will post its quarterly results after the bell Tuesday.

"You see a lot of people warming up to tech. Cisco is a pretty good bellwether for the tech sector. Their business goes across the spectrum of who is buying technology. That will be a big one to look at," Vergin said.

Tuesday's agenda also calls for results from China's most popular Internet search system, Inc. (BIDU), and Dow component Walt Disney Co. (DIS).

About 70 percent of the 429 companies in the S&P 500 that have reported first-quarter earnings so far have beaten analysts' estimates, compared with 66 percent a year ago, according to Reuters Estimates.