U.S. Stocks Decline as Fed Leaves Interest Rates Unchanged
By Robert Dieterich
New York, Dec. 19 (Bloomberg) -- U.S. stocks declined after the Federal Reserve left interest rates unchanged, disappointing some investors who had bet on a rate cut today.
The Nasdaq Composite Index fell 4.3 percent to its lowest level since Aug. 10, 1999, erasing a 2.8 percent gain after the central bank's announcement. Ciena Corp. and Siebel Systems Inc. led the losses.
SBC Communications Inc. dragged down the Standard & Poor's 500 Index and Dow Jones Industrial Average after saying profit will grow less than expected next year.
``Some optimists had gotten out there thinking we were going to get a rate cut,'' said Timothy Swanson, who helps manages $40 billion for Wachovia Asset Management in Winston-Salem, North Carolina.
The Nasdaq fell 112.81 to 2511.71, its sixth-straight decline. The S&P 500 lost 17.14, or 1.3 percent, to 1305.60. The Dow dropped 61.05, or 0.6 percent, to 10,584.37.
Investors are looking for a rate cut because profit growth has slowed this year as a series of six rate increases since June 1999 lifted borrowing costs.
While some investors were disappointed that the central bank left rates unchanged, policy-makers said for the first time in two years that a slowdown is the greatest risk to the U.S. economy. That change may signal that a rate cut is coming at the Fed's meeting at the end of January.
``It shows a bit more awareness about the slowing and says the Fed is more likely to come in and help,'' said Jim Paulsen, chief investment officer with Wells Capital Management in Minneapolis, which has $80 billion in assets.
After each of its prior meetings this year, the Fed warned of an inflation risk.
Rising and falling stocks were about even on the New York Stock Exchange. About 1.3 billion shares traded on the Big Board, 14 percent more than the three-month daily average.
SBC Falls
SBC Communications fell $6.75 to $46.56. The No. 2 U.S. local- phone company said profit will grow 11 percent to 14 percent next year, below the 14.5 percent average forecast of analysts surveyed by First Call.
SBC's business will be hurt by the slowing economy, a delay in offering long-distance service, service problems at Ameritech, and slower-than-expected rollout of high-speed Internet access, said Chief Executive Edward Whitacre. SBC shares have risen 9.4 percent this year even as the S&P 500 has fallen 9 percent.
Other regional phone companies also fell. Verizon Communications fell $3.94 to $51.88, and BellSouth Corp. lost $2.63 to $41.25.
Ciena plunged $23.19, or 24 percent, to $73.19. The No. 2 U.S. maker of fiber-optic equipment agreed to buy closely held Cyras Systems Inc. for about $2.75 billion in stock and debt. Cyras is a developer of optical-switching systems.
Redback Networks Inc. fell $15.44 to $55.88 as investors bet that Ciena's acquisition of Cyras, a rival of Redback, will make it more difficult for the maker of phone equipment to compete for customers.
Siebel Slide
Siebel slid $15 to $63.38 after Credit Suisse First Boston analyst Brent Thill said growth of its customer-relations software is slowing more than investors expect. Thill kept his ``strong buy'' rating on the shares unchanged.
Merix Corp. fell $12.81, or 51 percent, to $12.31. The maker of circuit boards and integrated circuits said sales will slow in the second half of its fiscal year, which runs through May. Profit in the third quarter will be about a third less than forecast, Merix said.
Sanmina Corp., which also makes circuit boards for electronics companies, fell $6.13 to $66.
Commodity Stocks Rise
Commodity companies, which stand to gain from lower interest rates, gained. USX-U.S. Steel Group, the largest U.S. steel producer, rose 69 cents to $16.75, Alcoa Inc., the world's biggest aluminum maker, gained $1.19 to $33.50. The Morgan Stanley Commodity Related Index gained 2.6 percent.
Solectron Corp. jumped $5.03 to $31.75. The largest contract manufacturer of electronics gear said it will easily exceed its projections of $23 billion in revenue for 2001. First-quarter profit was lifted by strong demand from computer-networking and phone-equipment makers and a relatively small exposure to the personal-computer industry, Solectron said.
Among Solectron's competitors, Flextronics International Ltd. gained 81 cents to $28.06 and Jabil Circuit Inc. advanced 81 cents to $27.81.
Electro Scientific Industries Inc. rose $4 to $26.13. The maker of equipment used to test electronic components said it earned $1 a share in its fiscal second-quarter ended Dec. 2, topping analysts' estimates.
Goldman Sachs Group Inc. rose $3.44 to $89.38 after reporting fourth-quarter profit that beat estimates.
Morgan Stanley Dean Witter & Co. slipped 25 cents to $69 after the company said that fourth-quarter profit fell for the first time in nine quarters. Results were hurt by slumping stock and bond markets that cut into investment banking profits and led to losses from venture capital.
Conseco Rises
Conseco Inc. rose $1.56 to $10.56 after saying it will earn between 90 cents and $1.10 a share next year, versus the 94-cent average forecast of analysts tracked by First Call/Thomson Financial. The insurer, struggling after failed forays into other businesses, also said fourth-quarter profit would be about half of forecasts.
Dollar Tree Stores Inc. fell $15.94, or 44 percent, to $20.44. The owner of discount stores said fourth-quarter earnings will disappoint investors because foot traffic in its stores was hurt by bad weather.
Other discount retailers also fell. Family Dollar Stores Inc. lost $3.31 to $19.50. Dollar General Corp. lost $1 to $16.69 after the company said sales last week were lower than expected. Winter storms in the Midwest were partly to blame, said analyst Dan Wewer of Deutsche Banc Alex. Brown. Low inventory also may have hurt sales, he said.
He lowered Dollar Tree and Family Dollar to ``buy'' from ``strong buy.'' Goldman, Sachs & Co.'s Barbara Miller removed Family Dollar from the firm's recommended list.
Best Regards, J.T. |
