Stocks Fall; Dow at Two-Year Low
By Denise Duclaux
NEW YORK (Reuters) - Stocks sank on Wednesday, pushing the blue-chip Dow to its lowest close since March 1999, after a surprise uptick in inflation damped hopes for a near-term interest-rate cut to kick-start the economy.
Wall Street also was suffering from a hangover one day after the U.S. Federal Reserve fired off a rate cut that many felt was disappointingly small. Investors also are loath to place cash into a stock market routinely pummeled by fears over slowing corporate earnings in the sluggish economy.
``There are people who think if only the Fed would cut rates enough, everything would be OK. But there may be more people coming to the conclusion that short rates are not really what the market's problem is,'' said Jay Mueller, economist and portfolio manager at Strong Capital Management Inc., which oversees about $45 billion. ``The problem is earnings. That's what we need to have turn around and it takes time.''
The Dow Jones Industrial Average (.DJI) tumbled 233.76 points, or 2.40 percent, to 9,487, spiraling down to its lowest close since early March 1999. The Dow now is only 112 points away from bear territory, defined as a 20 percent drop from its peak of 11,722.98 on Jan. 14, 2000.
Procter & Gamble Co. (NYSE:PG - news) weighed on the Dow with a $2.70 drop to $63.20 on some executives' expectations the maker of Tide laundry detergent and Crest toothpaste will make large staff cuts in the flagging economy.
The technology-dominated Nasdaq Composite Index (.IXIC) slumped 27.22 points, or 1.47 percent, to 1,830.22, after rallying earlier in the day by more than 2 percent. The broad Standard & Poor's 500 Index (.SPX) fell 20.49 points, or 1.79 percent, to 1,122.13. Both the Nasdaq and the S&P are deep in bear territory.
The strength of February's Consumer Price Index, the government's main inflation gauge, chilled Wall Street's mood. Boosted by rising costs for clothing, medical care and airline tickets, the CPI rose a higher-than-expected 0.3 percent in February, the Labor Department said. The ``core'' CPI, which strips out volatile food and energy costs, also rose 0.3 percent.
Most economists said they did not see signs of a broad inflation threat, but many investors felt the figures would keep the Fed from cutting interest rates in between its regularly scheduled meetings.
``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.
Bear Stearns chief economist Wayne Angell told clients that the statement that accompanied the Fed's cut on Tuesday strongly suggested Chairman Alan Greenspan is considering a further reduction between meetings. Earlier this month, Angell, a former Fed governor, said the central bank was likely to move ahead of its March
20 meeting -- something the Fed failed to do.
Stocks sank on Tuesday after the Fed announced the third interest-rate reduction this year. That rate cut of 50 basis points, or half a percentage point, disappointed investors who had been hoping for a 75-basis-point reduction in borrowing costs to rejuvenate the economy.
Many U.S. corporate icons need a stronger economy to keep profits up.
Networking equipment maker 3Com Corp. (NasdaqNM:COMS - news) reported a worse-than-expected loss, blaming a downturn in the telecom sector and decreased profit margins. 3Com, which also said it was cutting jobs, shed 7/32 to $6.
Deere & Co. (NYSE:DE - news) dropped $2.16 to $38.17 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.
But chip leader Intel Corp. (NasdaqNM:INTC - news) rose 15/16 to $25-9/16 after its Chief Executive Craig Barrett said he continues to hope for a recovery in demand for personal computers in the second half of 2001, despite the industry's slump.
Jabil Circuit Inc. (NYSE:JBL - news) rose $1.64 to $19.76, after the leading contract electronics manufacturer posted quarterly earnings that beat Street estimates. The company also announced job cuts as it lowered its outlook for the next two quarters due to weaker demand.
``You can't define cheapness because there is no confidence in the earnings,'' said Dick Schmaltz, director of investment at J. & W. Seligman Inc., which oversees about $34 billion. ``It looks to me as though we are slightly below average value. I don't think people think things are cheap, but they are decent. It's not a screaming
buy.'' |
