Economy cools but it still perks!!!, JMOP Mephisto
Blue Chips Resume Decline After CPI Data
By Haitham Haddadin
NEW YORK (Reuters) - Blue-chip stocks slid some more on Wednesday after the Dow average plunged to levels unseen in two years as the unexpected strength of retail inflation data put a damper on hopes for aggressive interest-rate cuts from the Fed in the future.
A rebound by technology stocks, driven by investors picking up select beaten-down industry bellwethers, had fizzled by late morning.
On Tuesday, stocks sank after the Federal Reserve announced the third interest-rate reduction this year.
Investor sentiment soured more on Wednesday amid a fresh wave of downbeat corporate news, including more layoffs as Corporate America copes with the cooling U.S. economy.
``It is all part of the bottoming process. I counted 14 negative pre-announcements overnight, and there's four companies announcing layoffs,'' said Larry Wachtel, analyst with Prudential Securities. ``It's a difficult environment.''
The Dow Jones industrial average (.DJI) skidded 126 points, or 1.30 percent, to 9,594, after hitting a session low of 9,539.60, levels unseen since March 1999. The Dow plunged 238 points on Tuesday.
The Dow was weighed down by consumer products giant Procter & Gamble Co. (NYSE:PG - news), which lost $2.60 to $63.30, after a report in The Wall Street Journal's online edition said it is considering cutting 10 to 20 percent of its global work force of 110,000.
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``I think what people are doing is a bit of value-hunting and bottom fishing but ... some of these stocks still have hefty price/earnings ratios compared to their growth rate,'' said Richard Babson, president of Babson-United Investment Advisors, referring to the Nasdaq's advance.
``It's also some money sitting on the sidelines coming back into the market and we'll be seeing some of that,'' he said. ``We are telling our clients there are some good individual companies to purchase, but you might still want to keep some powder dry because I don't think we've seen the bottom yet.''
The Consumer Price Index figures for February showed the cost of goods and services paid by U.S. consumers grew at a rate above market expectations.
The February CPI grew 0.3 percent, exceeding an expected rise of 0.2 percent. The core CPI rate, which excludes volatile food and energy prices, also rose 0.3 percent in February, again exceeding the forecast for a gain of 0.2 percent. In January, the overall CPI jumped 0.6 percent, the biggest gain in 10 months, while the core CPI rose 0.3 percent.
``It's a number that is not likely to cause the Fed to alter the course but it's certainly not a number to encourage the Fed to work interest rates lower in the immediate term,'' said Alan Ackerman, chief market strategist at Fahnestock & Co.
On Tuesday, the Fed ratcheted down its bellwether federal funds rate by 50 basis points to 5.00 percent from 5.50 percent and said it would ease more if needed. Wall Street had hoped the Fed would cut rates by three-quarters of a percentage point, or 75 basis points, as the market suffers sell-off after sell-off.
Bear Stearns chief economist Wayne Angell told clients that the statement that accompanied the Fed's rate cut strongly suggested that Federal Reserve Chairman Alan Greenspan is considering a further reduction of interest rates between meetings.
Earlier this month, Angell, a former Fed governor, had said the central bank was likely to move ahead of its March 20 meeting
-- something the Fed did not do.
Among the gloomy corporate news, networking equipment maker 3Com Corp. (NasdaqNM:COMS - news) reported a third-quarter loss that was worse than expected, blaming a downturn in the telecom sector and decreased profit margins. 3Com also said it was cutting jobs. 3COM shares inched up 3/32 to $6-5/16 after falling about 6.5 percent earlier in the day.
Deere & Co. (NYSE:DE - news) fell $3.33 to $37.00 after the heavy equipment maker said it will scale back production, leading to lower second-quarter earnings, because the slowing economy and adverse weather have hurt orders."
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