Fed shadow on stocks

Strong Google earnings could lift techs, but Wall Street awaits rate decision, Bush speech.

February 2, 2005: 6:43 AM EST

NEW YORK (CNN/Money) - Stronger-than-expected results from search engine Google could give an early lift to stocks Wednesday while investors await the latest pronouncements from both the Federal Reserve and President Bush due later in the day.

U.S. stock futures were up in early trading, indicating a positive opening for stocks. The tech-heavy Nasdaq futures were showing more strength than the blue chip Standard & Poor's 500 futures following the much higher-than-forecast earnings report after the market Tuesday from Google (Research).

Shares of Google surged nearly 10 percent in after-hours trading.


The Fed is widely expected to hike interest rates by a quarter percentage point for the sixth time since June, but investors will be looking for clues in the accompanying statement about the pace of future hikes and the central bank's outlook on the threat of inflation.

John Silvia, chief economist for Wachovia Securities, said that he's expecting the Fed's statement not to signal any new worries about inflation or the possible need for more aggressive rate hites ahead.

"I would expect the market to be relieved because I think it'll be a bland statement," he said.

But if the Fed does drop the talk of a "measured" pace of rate hikes ahead, or if gives any signal about inflation concerns, Silvia would expect a sharp sell-off in both stocks and bonds after the 2:15 p.m. ET statement.

"This market is not set up for anything more than a 25-basis point hike each month for next two months," he said.

Wednesday evening, President Bush is set to give his State of the Union address, with his proposals on taxes and private Social Security accounts expected to get a lot of attention.

Major markets in Asia closed mixed Wednesday, as were major European markets in early trading. U.S. markets saw stocks rally for a second straight day Tuesday.

Oil prices, which lost more than a dollar a barrel Tuesday, were lower again in early trading Wednesday ahead of the report due later this morning on fuel inventories.

The March light crude contract lost 22 cents to $46.90 a barrel in electronic trading, while Brent crude fell 23 cents to $44.59.

Bond prices were little changed in early trading ahead of the Fed meeting, leaving the yield on the 10-year Treasury at 4.14 percent. The dollar slipped against both the euro and the yen.