Fed cuts rates again tonight (Thursday Jan 4-00)...after hours!
Thursday January 4 6:08 PM ET
Stocks Down, But Fed's 2nd Cut May Help
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Reuters Market Report with Francesca Segre for January 4
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Stock Market Rallies After Interest Rate Cut Announcement
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By Haitham Haddadin
NEW YORK (Reuters) - Stocks fell on Thursday 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 monster rally spurred by a surprise interest-rate cut by the Federal Reserve (news - web sites).
But the Fed's second cut of the discount rate, in a surprise move after the close of regular trading on Thursday, could lift stocks' performance on Friday, an analyst said.
The Nasdaq Composite Index (^IXIC - news) ended down 49.86 points, or 1.91 percent, at 2,566.83 after surging 324.83 points or a record 14 percent on Wednesday as investors bet a half-percentage-point rate cut by the Fed in its key fed funds rate, the rate for overnight bank loans, would jump-start the slowing U.S. economy. The Fed also cut the more symbolic discount rate, the rate the Fed charges banks for emergency loans, by a quarter percentage point on Wednesday.
The blue-chip Dow Jones industrial average (^DJI - news) fell 33.34 points, or 0.3 percent, to 10,912.41, after rallying over 299 points on Wednesday for its biggest gain in two months. The broader Standard & Poor's 500 Index (^SPX - news) eased 14.22 points, or 1.06 percent, to 1,333.34.
On Thursday, after the close of regular trading, the Fed cut the discount rate again -- by another quarter percentage point -- to 5.5 percent.
Nasdaq futures moved slightly higher after the Thursday rate-cut announcement. The March Nasdaq futures contract was last up 10 points at 2,497.00. Some of the leading names on the Nasdaq, including
``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.
A number of bellwether high-tech stocks like top gear maker Cisco Systems (NasdaqNM:CSCO - news), fiber-optics company JDS Uniphase (NasdaqNM:JDSU - news) and network computing firm Sun Microsystems (NasdaqNM:SUNW - news) rose in the aftermarket following the Fed's announcement of the latest discount-rate cut.
The Fed's second rate-cut surprise in two consecutive days should lift stocks on Friday, Hogan said.
``We see some firmness in the market tomorrow morning, especially with the Nasdaq trying to give back some its gains today ... We are still up on the week.''
``This is an amazing move by the Fed, for them to do this after hours is relatively shocking ... One would almost guess that they've already gotten a look at the employment figures coming out tomorrow,'' he said, referring to the December employment figures scheduled for release Friday at 8:30 a.m. EST.
``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.''
In Thursday's regular session, the tech-heavy Nasdaq faltered, led by telecommunications companies like Qualcomm Inc. (NasdaqNM:QCOM - news), fiber-optics firm JDS Uniphase and Web gear maker Juniper Networks (NasdaqNM:JNPR - news).
``While the bull in every investor wants to own stocks because you don't want to fight the Fed, the bear can easily make a case for staying on the sidelines because the profit outlook is still rather murky,'' said Charlie Crane, chief market strategist at Key Asset Management.
Investors also chose to offload stocks ahead of Friday morning's key employment data for December, which many fear will supply more evidence that the world's largest economy is slowing.
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, some experts said.
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``This implies the economy may have them worried,'' Dain Rauscher analyst Bob Dickey said. ``The action does not necessarily mean the coast is clear, but more that there may be something unusual going on that we are not yet aware of.''
Market watchers said the theme of the day, however, was the selloff of 'safe haven' stocks by investors switching into riskier sectors after the Fed's rate cut eased some fears over a slowing economy. Still, concern over dwindling corporate profits and the economic outlook loomed over Wall Street.
Trade volume was heavy, with 2.6 billion shares traded on Nasdaq, shy of Wednesday's record of more than 3 billion, while the New York Stock Exchange (news - web sites) had a volume of more than 2.1 billion, topping the previous day's turnover of just under 1.9 billion.
Gains by the Dow's technology components like Hewlett-Packard (NYSE:HWP - news), up 9/16 at $34-5/8, or interest- rate-sensitive financials like J.P. Morgan Chase (NYSE:JPM - news), up $1-3/8 at $52, were more than offset by losses in defensive issues like drug giant Merck & Co. (NYSE:MRK - news), off $4-1/8 at $85, and Big Oil company Exxon Mobil (NYSE:XOM - news), down $2-3/8 at $82-7/8.
As evidence of the rotation into stocks whose fortunes are tied to rebounding economic activity, the Morgan Stanley cyclical index (^CYC - news), jumped 3.10 percent. On the flip side, the Morgan Stanley consumer index (^CMR - news), made up of 30 largely non-cyclical stocks, lost 2.93 percent.
Despite Thursday's pullback, advancers beat decliners about 8 to 7 on the New York Stock Exchange, and 11 to 9 on Nasdaq. But analysts were divided over the extent of the boost from the Fed action.
``The fact that the Fed cut rates does not mean we have solved any kind of problems,'' said Larry Wachtel at Prudential Securities. ``And the rate cut will help in the future. Meanwhile, we will face a wide range of negative (corporate) pre-announcements.''
The latest such warnings came from a batch of high-tech companies, including Inktomi Corp. (NasdaqNM:INKT - news), which makes Internet search and traffic management technology. Its shares slid 25 percent, or $4-5/8 to $13-7/8 after warning its earnings would miss estimates due to slower tech spending.
Other pundits see a rosier picture ahead. Among those, Scott Bleier, chief investment strategist at New York-based brokerage Prime Charter Ltd. said he expects the Dow to hit 11,400 and the Nasdaq to reach 3,200 over the next six weeks.
``Yesterday's Fed action pulled the psychology of investors out of the depth of depression and despair,'' said Bleier. ''The psychology is shifting toward buy-the-dip mentality, and not sell-the-rally mentality,'' he said, adding that although the bleak corporate earnings picture has not changed, the market will start to look to better times, in mid-2001.
The Fed, in its statement on Wednesday, said it was ready to cut the discount rate some more. Many experts expect it to slash rates further when its policy-making body, the Federal Open Market Committee (news - web sites), meets on Jan. 30-31.
The next hurdle for stocks comes on Friday, when December payrolls data, one of the most important numbers of the month, will be released. The monthly unemployment report gives a broad look at labor conditions throughout the economy.
A Reuters survey showed economists expect U.S. payrolls grew by 102,000 in December. The unemployment rate is forecast to rise to 4.1 percent, marginally above November's 4 percent.
On Nasdaq, telecom technology company Qualcomm lost $5-1/8 to $78-15/16, network computing company Sun Microsystems dropped $2 to $31, while Juniper Networks shed $6-11/16 to $125-5/16.
Other laggards included semiconductor equipment maker Applied Materials (NasdaqNM:AMAT - news), off $5-1/4 at $44-3/8, and fiber optics company JDS Uniphase, down $5-5/8 at $47-7/8.
Internet software provider Resonate Inc. (NasdaqNM:RSNT - news) tumbled $7-1/2 to $3-3/4 after warning of sluggish sales, while Vitria Technology Inc. (NasdaqNM:VITR - news), a provider of electronic business platforms, lost $4-1/32 to $3-31/32 after saying it expects to report lower-than-expected results, citing order postponements and cancellations. |
