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Thursday January 4 7:06 PM ET
Tech Stocks Rise After Surprise Rate Cut
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Stock Market Rallies After Interest Rate Cut Announcement
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By Haitham Haddadin
NEW YORK (Reuters) - Technology stocks rose in Thursday's aftermarket, gaining back some ground lost in regular trade, after another surprise announcement from the Federal Reserve (news - web sites) that it cut the U.S. discount rate again.
The tech-heavy Nasdaq index futures rose a little on the news, which came after the end of Thursday's regular session, and then inched down. A number of bellwether high-tech stocks rose in after-hours trade, including Web gear maker Cisco Systems (NasdaqNM:CSCO - news), the most actively traded on Nasdaq and in the aftermarket.
``This rate cut is more symbolic, but it also causes a great deal of a psychological benefit to the market,'' said Art Hogan, chief market analyst at Jefferies & Co. ``We see some firmness in the market tomorrow morning, especially with the Nasdaq trying to give back some its gains today.''
Cisco rival Juniper Networks (NasdaqNM:JNPR - news), fiber-optics company JDS Uniphase (NasdaqNM:JDSU - news) and wireless technology company Qualcomm Inc (NasdaqNM:QCOM - news) -- which had led the tech-laden Nasdaq market lower on Thursday, also recovered in the aftermarket.
The central bank said in its latest announcement that it cut the discount rate, the rate it charges commercial banks for emergency loans, by a quarter percentage point to 5.5 percent.
This second surprise came hard on the heels of Wednesday's quarter-percentage-point cut in the discount rate, which was meant to underline an even more aggressive half a percentage point reduction in the key federal funds rate, the rate that banks charge each other for overnight loans. The rate cuts, rare because they occurred between meetings of the Fed's policy-making body, are intended to stop the world's largest economy from slowing more.
The Wednesday rate cuts, which caught traders off guard, had spurred a huge rally that day. But stocks finished Thursday's regular session lower, as investors were caught in a tug of war between the reality of deteriorating corporate profits and rosy expectations for the market after the previous day's rally on the rate cut.
Among the most actively traded issues in Thursday's aftermarket were Cisco Systems, which last fetched $42, up from its Nasdaq close at $41-7/8, while JDS Uniphase rose to $49 from its close at $47-7/8, when it shed $5-3/4.
Juniper Networks fetched $125-13/16, up from its close at $125-5/16 for a loss of $6-11/16, and Qualcomm was last at $80, versus a close at $78-15/15, for a loss of $5-1/8 earlier.
The Fed's second rate-cut surprise in two consecutive days should lift stocks on Friday, Jefferies' Hogan said.
``This is an amazing move by the Fed, for them to do this after hours is relatively shocking ... One would almost guess they've already gotten a look at the employment figures coming out tomorrow,'' he said, referring to the December employment figures due for release Friday at 8:30 a.m. EST (1330 GMT).
``It certainly seems to be a bit covert, and we always assume the worse,'' Hogan added. ``We are going to assume that they got a peek at a terrible (employment) number before it comes out. But I think we will be a bit relieved when we see the numbers.
``I would not read too much into it. The Fed will continue to be diligent and will stay in front of this economy to see that we don't slow down too much.''
Indeed, some experts had argued that Wednesday's rate-cut timing -- a rare inter-meeting intervention by the Fed -- and the extent of the rate reduction suggests the U.S. economy is in worse shape than previously thought.
The Nasdaq Composite Index finished Thursday's regular session down 49.86 points, or 1.91 percent, at 2,566.83. On Wednesay, the Nasdaq surged a record 14.17 percent as investors bet the Fed's half percentage point rate cut will jump-start the slowing U.S. economy.
The blue-chip Dow Jones industrial average (^DJI - news) fell 33.34 points, or 0.3 percent, to 10,912.41, having rallied over 299 points Wednesday for its biggest gain in two months. The broader Standard & Poor's 500 Index (^SPX - news) slipped 14.22 points, or 1.06 percent, to 1,333.34.
Among the big losers in afterhours trade was communications equipment maker Next Level Communications Inc. (NasdaqNM:NXTV - news), which lost more than 35 percent, after it cut its growth outlook through 2001 due to lower sales to Qwest Communications International Inc. (NYSE:Q - news) and slower-than-expected customer development in Korea.
Next Level shares in after-hours activity traded last at $7. That was a sharp drop from its regular Nasdaq close at $10-13/16, which preceded the announcement.
Another laggard was Sapient Corp. (NasdaqNM:SAPE - news), whose shares fell sharply to $10-1/2 from their Nasdaq close at $15-1/16. The E-services consultancy said after Thursday's close its unaudited fourth-quarter earnings fell well short of Wall Street's consensus forecast. It cited slower spending on the part of large, global clients and continued reduction in the proportion of its revenues derived from dot-com clients. |
