Stock futures narrowly mixed ahead of Fed meeting

September 21, 2010 4:52:27 AM PDT
Stock futures traded in a tight range Tuesday as investors anxiously waited to see if the Federal Reserve might take actions to stimulate the economy. Traders' uncertainty has put a big September rally on hold, at least momentarily, before the central bank's meeting. Stocks jumped to four-month highs Monday as buying accelerated after the Standard & Poor's 500 index broke out of its recent trading range, adding confidence to the monthlong rally.

Investors want to see if the Fed will announce, or at least hint at, plans to start buying Treasurys and mortgage bonds again to help spark the sluggish economy.

Any changes in language by the Fed about if and when it might try to prop up the economy could have two affects on trading.

If the Fed were to announce immediate action or paint a grim picture about the health of the economy, stocks could retreat because new pessimism from the central bank could make investors pause after the recent run-up.

Stocks rallied this month on signs that the economy, while weak, continues to grow and is less likely to fall back into recession. Immediate actions by the Fed to buy Treasurys and mortgage bonds could be considered a signal the central bank is worried about a second recession.

On the other hand, buying bonds would likely drive interest rates on loans and yields on Treasurys even lower. That would make it cheaper for companies and consumers to get loans, which could bolster the economy through new spending.

It also might drive down the yields on Treasurys so low that investors will have no choice but to invest in stocks to get even a modest return on their investments. Even without further Fed intervention, investors can already get better dividend yields from major companies like Intel Corp., General Electric Co. and Home Depot Inc. than they receive from investing in 10-year Treasury notes.

Ahead of the opening bell, Dow Jones industrial average futures fell 2, or less than 0.1 percent, to 10,669. Standard & Poor's 500 index futures fell 1.00, or 0.1 percent, to 1,135.60, while Nasdaq 100 index futures fell 0.75, or less than 0.1 percent, to 1,981.00.

The Dow has risen 12 of the past 14 days and is up 7.4 percent for the month.

Aside from the Fed's announcement, traders will also get a report Tuesday on home construction that is expected to show the housing market remains weak. Economists polled by Thomson Reuters predict construction of new homes and apartments in August rose less than 1 percent.

Demand remains weak after a home buyer tax credit expired in April. If the Fed moves to buy more bonds it could drive interest rates even lower, which in turn could spark more home buying.

Bond prices rose slightly ahead of the Fed meeting. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.69 percent from 2.70 percent late Monday.

The dollar fell against other major currencies, while gold prices continued to hover near record highs.

Overseas, Britain's FTSE 100 rose 0.4 percent, Germany's DAX index rose 0.4 percent, and France's CAC-40 gained 0.5 percent. Japan's Nikkei stock average fell 0.3 percent.


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