Stocks Turn Negative After Fed Rate Cuts
NEW YORK (Reuters) - Stocks fell in late-afternoon trading on Tuesday after the U.S Federal Reserve (news - web sites) cut interest rates for the seventh time this year but gave little indication the sluggish U.S. economy is rebounding.
``Now what? Everybody wants instant gratification for things to stabilize but there's no reason in the world why it should occur this way,'' said Donna Van Vlack, head of trading of Brandywine Asset Management. ``You still have companies having big problems and you've got a lot of lay-off announcements that has to be worked through. It's going to take time and patience.''
All three indexes turned negative after the central bank brought its key federal funds interest rates, which is what banks charge each other for overnight lending, down to 3.50 percent -- its lowest level since Spring 1994 -- from 3.75 percent in a widely expected move.
``They cited future weakness,'' said Peter J. Blatchford, head of proprietary trading at Miller Tabak & Co. ``The market would have rather seen sort of a shift to neutral, maybe signaling the end of the rate cuts, but (the Fed) saying that they are still on alert (shows) that the economic weakness isn't over yet.'
Fed easing was nearly guaranteed to give the market a jolt in the past, because investors anticipated lower rates would boost corporate profits. But the latest cuts are leaving investors cold as this year's earnings are forecast to show the worst decline in a decade.
Fears over dwindling corporate profits have caused the broad S&P 500 to post its worst sixth-month performance from the start of a Fed easing cycle in some 50 years, according to research firm MarketHistory.com. The S&P 500 fell more than 8 percent in the six months after the Fed began its latest rate-cutting cycle in January.
The blue-chip Dow Jones industrial average (^DJI - news) was down 22.55 points, or 0.22 percent, at 10,297.52, while the broader Standard & Poor's 500 Index (^SPX - news) was unchanged at 1,171.41. The technology-laced Nasdaq Composite Index (^IXIC - news) lost 8.99 points, or 0.48 percent, at 1,872.36.
Among corporate news, youth-oriented apparel chain American Eagle Outfitters Inc. (Nasdaq:AEOS - news) and discount chain Target Corp. (NYSE:TGT - news) were among the latest retailers to announce quarterly results.
American Eagle announced a more than five-fold increase in profits, but said it saw earnings per share for the third quarter at the low end of analysts' estimates. Shares sank $8.34, or more than 25 percent, to $23.93.
Target said its earnings rose 5 percent from a year ago, but a tepid forecast for third-quarter earnings sent shares lower. Target fell $1.72 to $35.38.
Earnings this year are expected to post a decline of 9.6 percent -- their most dramatic drop in a decade -- according to earnings tracking firm Thomson Financial/First Call, with very few signs they are ready to emerge from their slump.
``Even though the Fed has been aggressive with stimulating the economy with monetary policy, we have yet to see it take hold,'' said Arthur Hogan, chief market analyst at Jefferies & Co.
``Until we get a clear signal from economic data that we're seeing stabilization in the U.S. economy, I think it's very difficult for investors to come in off the sidelines and participate in equity markets,'' he said.
Even one of the stock market's best-known bulls, Goldman Sachs chief investment strategist Abby Joseph Cohen, tempered her outlook for the market. Cohen lowered her year-end target for the S&P 500 index to 1,500 from 1,550. Her new forecast still foresees a 28 percent rise in the index for the rest of the year.
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