Waffling before the Fed

Stocks can't find direction as investors gear up for expected rate hike from the central bank.

December 13, 2005: 11:53 AM EST

NEW YORK (CNNMoney.com) - Stocks were rangebound just before midday Tuesday morning as investors eyed weaker retail sales, some discouraging earning news and prepared for an expected interest rate hike from the Federal Reserve.

The Dow Jones industrial average (down 1.92 to 10,765.85, Charts) and the S&P 500 (up 0.85 to 1,261.28, Charts) index both hovered near unchanged more than two hours into the session. The Nasdaq composite (down 3.98 to 2,256.97, Charts) lost 0.2 percent.

The major gauges had swayed on both sides of unchanged throughout the morning as investors digested the corporate news and prepared for the conclusion of the Fed meeting.

"Basically, the market is on hold ahead of the Fed decision," said Peter Cardillo, chief market analyst at S.W. Bach & Co. "We had the weaker retail sales this morning, but the focus is really on the statement from the Fed."

Fed officials meeting Tuesday are widely expected to vote to boost the Fed funds rate, an overnight bank lending rate, by a quarter-percentage point to 4.25 percent, at the conclusion of their meeting. It would market the 13th consecutive increase since the central bank began its rate-hiking campaign in June 2004. A decision is expected at around 2:15 p.m. ET. (19:15 em Portugal)

What's of greater interest to investors is whether the bankers hint in the statement that the 18-month rate hiking period is nearing an end. (Full Story.)

Hopes of this were raised by the release earlier this month of the minutes from the November Fed meeting, in which the bankers discussed preparing financial markets for an end to the hikes. However, recent strong economic data have countered that.

"The jury has been out over the last week or so over whether they will indicate that they are going to pause and I think that's what's been holding back the markets," Cardillo said.

Should the Fed fail to indicate a pause is on tap, bond yields would probably run up and stocks would probably selloff, at least in the immediate aftermath of the news today, he said.

Ahead of the announcement, investors took in November retail sales and earnings from a few companies.

November retail sales rose 0.3 percent, the government said Tuesday, short of forecasts for a rise of 0.4 percent. Sales excluding autos fell 0.3 percent, versus forecasts for an unchanged reading.

In corporate news, Lehman Brothers (down $1.65 to $126.52, Research) reported fiscal fourth-quarter earnings and revenue that rose from a year earlier and topped forecasts. However, investors took a 'sell the news' approach and cashed out of the Wall Street brokerage.

Best Buy (down $5.43 to $44.41, Research) reported third-quarter earnings and revenue that fell from a year earlier. Earnings missed analysts' targets, while revenue was in line with forecasts. The electronics chain also forecast fourth-quarter earnings in a range that would either miss or meet forecasts. Shares slipped more than 6 percent.

Hewlett-Packard (down $0.64 to $29.33, Research) lost nearly 3 percent after issuing its fiscal 2006 revenue and earnings per share target, as part of its meeting with analysts Tuesday. The company forecast a revenue range of $89.5 billion to $91.0 billion, which sets the midpoint below analysts' forecasts.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by a narrow margin on volume of 570 million shares. On the Nasdaq, decliners topped advancers five to four on volume of 650 million shares.

U.S. light crude oil for January delivery fell 10 cents to $61.20 a barrel on the New York Mercantile Exchange, after rising through the morning.

Treasury prices gained, lowering the yield on the 10-year note to 4.52 percent from 4.55 percent late Monday. Treasury prices and yields move in opposite directions.

The dollar gained versus the euro and yen.

COMEX gold for February delivery fell $5.80 to $525.70 an ounce.

In global trade, major Asian markets mostly ended higher and European markets were mixed at midday.