Street may not need Fed rate cut

NEW YORK – Although the prospects for a late October interest rate cut have dimmed, the chances for a year-end stock rally still seem quite good.

Investors have been feeling more confident since the Federal Reserve cut rates a half percentage point on Sept. 18 and were looking for a repeat at the Fed’s Oct. 30-31 meeting to keep stocks driving higher. But while a strong jobs report from the Labor Department lessened the likelihood of a rate cut this month, there’s growing sentiment that one might not be needed for Wall Street to have its traditional fourth-quarter rally.

Market watchers believe upcoming reports might also point to a healthy economy and might even help offset what is expected to be a sluggish earnings reporting season for U.S. companies.

“The Fed and the markets will be watching all the incoming data very closely, but it really seems unlikely we’ll get enough negative data that will force them to once again lower rates,” said Michael Sheldon, chief market strategist at Spencer Clarke LLC. “It will take an awful lot to bring the Fed off the sidelines, and we’re heading into a historically strong part of the year.”

The current optimism is a turnaround from Wall Street’s mood of just over a month ago, when any rally seemed in jeopardy amid a harrowing tightening of credit, continuing erosion in the housing sector, and escalating energy prices.