Stocks tumbled to lows unseen since early April on Tuesday after the U.S Federal Reserve
chopped interest rates for a seventh time this year, but gave Wall Street little hope the sluggish economy is rebounding.
``The Fed's comments suggest the economy is crummy,''
said Cummins Catherwood, who oversees $750 million
for money management firm Rutherford Brown & Catherwood. ``The consensus used to be that
the cuts kicked in after six months and here we are in month eight and they're not working.''
Stocks gave back early gains after the central bank cut its key federal funds interest rate, which is
what banks charge each other for overnight lending, from 3.75 percent to 3.50 percent -- the lowest
since spring 1994. The Fed, which was widely expected to cut by a quarter percentage point,
signaled it was poised to trim more because of persistent weakness in the economy.
``They cited future weakness,'' said Peter J. Blatchford, head of proprietary trading at brokerage
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.''
The technology-laced Nasdaq Composite Index (.IXIC) dropped 50.05 points, or 2.66 percent, to
1,831.30, its lowest finish since April 9, and the broader Standard & Poor's 500 Index (.SPX) fell
14.15 points, or 1.21 percent, to 1,157.26. That also marked the benchmark index's lowest close
since April 9.
The blue-chip Dow Jones industrial average (.DJI) was down 145.93 points, or 1.41 percent, to end
at 10,174.14, the lowest since April 16.
Trading activity picked up after the Fed announcement. About 1.02 billion shares changed hands on the Big Board, while 1.3 billion traded on Nasdaq.
In the past, central bank easing was nearly guaranteed to give the market a jolt 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 six-month performance from the start of a Fed easing cycle in some 50 years,
according to research firm MarketHistory.com. The S&P has sunk 9.8 percent, the Nasdaq has lost 20.1 percent, and the Dow has slipped 4.4 percent since the Fed
began its rate cuts on Jan. 3.
``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 layoff announcements that has to be worked through. It's
going to take time and patience.''
Earnings this year are expected to be down 9.6 percent -- their most dramatic drop in a decade -- according to earnings tracking firm Thomson Financial/First Call --
with 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.
One of the stock market's best-known bulls, Goldman Sachs chief investment strategist Abby Joseph Cohen, tempered her outlook for the market, but still foresees a
28 percent rise in the S&P 500 index for the rest of the year. Cohen lowered her year-end target for the S&P 500 index to 1,500 from 1,550.
Retailers declined after youth-oriented apparel chain American Eagle Outfitters Inc. (NasdaqNM:AEOS - news) and discount chain Target Corp. (NYSE:TGT - news)
gave tepid profit forecasts.
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. The
company's stock sank $9.06, or 28 percent, to $23.21.
Target said its earnings rose 5 percent from a year ago, but a tepid forecast for third-quarter earnings sent shares lower. Target fell $1.74 to $35.36.
Agilent Technologies Inc. (NYSE:A - news) was up 36 cents at $26.45, rebounding from lows since it was spun off from Hewlett-Packard Co. (NYSE:HWP - news).
The electronics testing equipment maker said it would slash 9 percent of its work force as it struggles to restructure its business amid persistently soft demand. The
company also posted a quarterly loss and forecast another loss in the fourth quarter. |
