The last few hours of the
quarter could make or
break investors

NEW YORK » Like schoolchildren with report cards, fund managers and institutional investors are usually graded on a quarterly basis, which can make for turbulent trading at the end of every third month.

The final hours of the second quarter may be especially wild next Thursday as the market dissects a fresh statement from the Federal Reserve's Open Market Committee, which is widely expected to hike short-term interest rates by another quarter point, to 3.25 percent. It would be the ninth such increase in the fed funds rate -- the rate banks charge each other on overnight loans -- since the group began its tightening cycle a year ago this month.

Professional investors often scramble to adjust their positions at the close of the quarter, and Wall Street always sits up and listens when Fed Chairman Alan Greenspan and his colleagues issue their statement on rate policy, typically at 2:15 P.M. eastern time. Individually, either of these events would create an unusual amount of volatility. That they're happening at the same time almost guarantees a chaotic session. Complicating matters, returns are low so far this year, which lends a heightened significance to end-of-session trading swings.

For professional investors, it essentially means the quarter "could be made or ruined in an hour and 45 minutes," said Richard Bernstein, chief U.S. market strategist at Merrill Lynch. But just because they're under extraordinary pressure to deliver good short-term numbers by 4 p.m. doesn't mean you need to leap into the fray. You have a luxury the big guys don't, Bernstein said: You can take a longer view.

"The key thing for individuals to realize is you shouldn't be paying attention to these quarterly numbers in the first place, and you shouldn't be making rash decisions based on them," said Bernstein, whose 2001 book, "Navigate the Noise: Investing in the New Age of Media and Hype," offers guidance on how to stay focused on your long-term goals in a market with a chronically short attention span.

"Individual investors have a tremendous advantage over the institutions that have to pay attention to these short-term movements in the markets," Bernstein said. "They may not be willing to play it, but they do."

For better or for worse, the Fed statement is likely to have a significant impact on how the quarter shakes out. Wall Street's belief that the tightening cycle will soon come to a close, perhaps as early as the Fed's August meeting, favors more speculative stocks, because everyone wants to be well-positioned for the rally that will come when the rate hikes end. If the Fed statement suggests rates will continue to go up, however, there might be a sell-off in those riskier issues.

There are seasonal pressures on the market, as well. July is a terrible month for stocks, historically, and may be especially bad this year, depending on how the springtime soft spot is reflected in corporate results. August is almost as bad; September is the worst. There are lots of reasons for this, but the primary factor is a lack of trading volume, said J. Taylor Brown, vice president of the Hirsch Organization, publisher of the Stock Trader's Almanac. A quick look at the number of shares traded per session at the New York Stock Exchange over the last six weeks shows the summer doldrums are well under way. For bargain-minded investors, this can be a good time to go shopping.

"With July and August being so weak, there's a lot of great buying opportunities, especially if you're looking for long term investments," Brown said.

"There are more sellers than buyers when the market goes down, so if you want to be a buyer, it's a buyer's market. But you need to be careful."