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(March 23, 2002) STOCK INDICES: U.S. stock market fell, sending the Standard & Poor's 500 Index to its biggest loss in a month, on concern rising interest rates may crimp an economic recovery and hinder a rebound in corporate profit growth.

The recent selling indicates how divided investors emotions are about the economy. Investors are confident that business is improving but are also worried its progress could be derailed if interest rates are increased prematurely.

Stocks will be stuck in limbo next week, with the vigor of an economic rebound in question and corporate earnings growth still nowhere in sight.

Investors will be wondering if you can have too much of a good thing amid a barrage of economic data, as they weigh the benefits of an economic rebound against worries a quick recovery could spark higher interest rates.

The holiday-shortened week will mark the heating up of the corporate confession season, when companies offer guidance on what their quarterly results will look like. Ailing corporate profits are not expected to return to health until the second quarter at the earliest, and that will keep the stock market's gains in check.

Growing concerns that higher interest rates are on the horizon are also pressuring stocks. Investors have been anxious to put money to work in anticipation of a return to strong growth. But fresh signs of economic improvement could spark mixed feelings in the days ahead amid fears they will cause the Federal Reserve to put the brakes on by raising interest rates. Tuesday, the Fed left interest rates unchanged, but set the stage for future increases by dropping its long-held recession warning and saying the economy was growing at a significant pace.

Reports on the demand for durable goods, fourth-quarter growth, consumer sentiment and the housing sector will take the spotlight.

Trading could be particularly thin and choppy since Wall Street is set for a four-day week with exchanges closed in observance of Good Friday. Many investors will be on vacation for the Passover and Easter holidays.

The S&P 500 futures contact is in the upper part of the 1,080-1,180 trading range. The 1,180 resistance is very strong. Going short at the current level has a 30 pts risk versus 70 pts potential reward and the odds the market goes down form here are probably 70%.

Jean-Jacques Chenier

www.alterama.com

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