Today's Key Market News: Place Your Bets on the Fed

Stocks in this article: Lehman Brothers (NYSE: LEH), Best Buy (NYSE: BBY), Kroger (NYSE: KR), E*Trade (Nasdaq: ETFC), Northern Rock (LSE: NRK.L), Moody's (NYSE: MCO), Adobe (Nasdaq: ADBE)

Don't miss our weekly market-moving event planner, "The Greek's Week Ahead - The Fed's Dirty Dozen."

In a few hours the anticipation will end, and the Fed will act, we hope. It's become increasingly troubling to us that the economic police have waited until the regular meeting date for this action, and this delay provides some support for the quarter point bet. However, it's also possible that the Fed is a little less than surefooted here, and is hoping to review every piece of available data before taking action. This is what allows for the possibility of a greater action.

We had two important pieces of news this morning, including a better than expected earnings report from Lehman Brothers (NYSE: LEH) and an August PPI report that seems welcoming for a Fed action on the surface of it. The headline PPI figure was reported down 1.4%, versus expectations for a decrease of 0.3%. That's quite a difference, and worth exploring. The decrease was greatly impacted by the period's decline in energy prices. The Core PPI, which excludes food and energy, posted a 0.2% increase, which is greater than the 0.1% increase that was expected. We know oil prices have since risen, so there is no support for the Fed to cut rates. Some naive reports indicated that the PPI data showed soft inflation. This is untrue! In fact, inflation persists, as indicated by the Core figure. The Fed will not like this number, and given the rise in oil prices in September, could now be in favor of a quarter point cut.

If the Fed cuts by just a quarter point, we expect the market to give back ground. On a half point reduction, we see stabilization, not rally. Anything greater will drive strong rally, while no action would likely move the market to retest recent lows.

In the news below, Adobe (Nasdaq: ADBE) and Kroger (NYSE: KR) reported solid quarters, and their respective shares are rising this morning. Lehman Brothers (NYSE: LEH) and Best Buy (NYSE: BBY) reported as well, and appear to be benefiting from expectations for a Fed action. E*Trade (Nasdaq: ETFC) shares are down some 5% as it warned and disappointed investors this morning with its report. ETFC's troubles are tied to its exposure to the mortgage market, which it is exiting. This, H&R Block (NYSE: HRB), and many of the homebuilders' current troubles are proof positive that firms put investor capital at higher risk when they drift from their core competency.

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