Coming Week: All Hopes on the Fed and VMWare

The Federal Reserve's meeting is expected to result in a reduction of 50 basis points in the fed funds rate, now down to 3.5 percent. Just think if it Fed comes up short, when will the pain stop?

The Federal Open Market Committee's announcement is expected on Wednesday, at the conclusion of a two-day meeting.

John Praveen, chief investment strategist for Prudential International Investments Advisers LLC in Newark, New Jersey, said investors will study the wording of the Fed's announcement. Indications that further rate cuts are possible will cheer the markets, while signs of future restraint or a "wait- and-see" attitude would be disappointing, he said.

On Monday evening, President Bush will elaborate on his views of the U.S. economy in his annual State of the Union address.

Investors on Wall Street and Main Street are likely to pay more attention than usual to the president's remarks following this week's decision on a tax-rebate plan.

The central bank's announcement will come only eight days after the Fed took emergency action on Tuesday and cut rates by 75 basis points. The move was surprising -- not only for its size -- but also because it came outside of a scheduled policy meeting. The Fed acted as stocks were falling worldwide and about an hour before the U.S. market opened on Tuesday after a three-day holiday.

Monday we hear earnings from from McDonald's (MCD), Halliburton (HAL),  American Express (AXP) and of course VMWare, Inc. (VMW).

The rest of the week shapes up with some big Tech names:

Yahoo! (NASDAQ: YHOO) on Tuesday; Amazon.com (NASDAQ: AMZN) on Wednesday, and Google (NASDAQ: GOOG) on Thursday. 

The Street expects VMware Inc. to post solid fourth-quarter results Monday, though competition is looming for the virtualization software maker from Microsoft Corp., which is expanding its presence in the market.

Virtualization allows a computer to act like multiple machines, each with its own operating system and software. VMware, which went public last August in the one of the technology sector's most anticipated initial offerings since Google Inc.'s in 2004, dominates the market.

Analysts, on average, are expecting VMware to post earnings of 24 cents per share on revenue of $417.4 million, according to a poll by Thomson Financial.

RBC Capital Markets analyst Thomas Curlin expects VMware to beat Wall Street's consensus estimate.

"Management has yet to issue any formal guidance and we expect a similar approach on the call," he said in a client note. "The tone, however, should be positive on customer demand and defiant with respect to competitive alternatives."

Jefferies analyst Katherine Egbert said 2007 "seemed to close strongly" for the company, with a strong pipeline of new and renewed orders. She also noted a growing list of "small but meaningful acquisitions," including virtualization services companies Foedus, Thinstall and Sciant.

Shares fell 20 cents to $80 in afternoon trading. The stock has traded between $51.50 and $125.25 since its initial public offering. Data storage company EMC Corp. holds a majority stake in VMware.

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