Markets tumble as rate cut fails to calm investors
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Associated Press
NEW YORK — The Dow Jones industrials sank 145 points today and the Nasdaq composite and Standard & Poor's 500 indexes hit four-month lows after the Federal Reserve made its seventh interest rate cut of 2001 but failed to predict a business recovery will occur soon.
Analysts said the quarter-percentage point cut, widely expected, wasn't enough to offset the frustration of investors fed up with poor earnings and the lack of good economic news.
The Dow closed down 145.93 at 10,174.14, according to preliminary calculations, falling back from gains of as much as 58 points before the Fed decision.
Broader stock indicators also tumbled on selling that intensified as the session advanced. The Nasdaq dropped 50.05 to 1,831.30, while the S&P slipped 14.15 to 1,157.26. The closes were the weakest finishes for both indexes since April 9.
"The Fed indicated the economy was weaker than most stock market participants had thought it was, which means a postponement in any earnings recovery," said David Lindsay, a fixed-income portfolio manager at Fleet Asset Management.
In its mid-afternoon announcement, the Fed noted consumer demand still exists, but business spending continues to deteriorate. The central bank expressed concerns about conditions here and overseas "that may generate economic weakness in the foreseeable future."
The worried outlook halted a moderate stock advance that had begun in the morning as investors bet on a more bullish Fed stance or a bigger-than-expected rate cut.
The Dow closed lower with losses particularly concentrated in financial and retail stocks. American Express dropped $1.55 to $36.60, while Wal-Mart lost $1.65 to $49.94.
Technology stocks also fell as investors lost confidence that business spending would pick up anytime soon. Cisco Systems dropped 89 cents, or 5 percent, to $16.01, while Microsoft dropped $1.92, or 3 percent, to $60.78.
Analysts said investors are further disheartened that the Fed's six earlier cuts this year have so far failed to stimulate growth.
Moreover, second-quarter corporate results were dismal and early indications are that the third quarter isn't going to be better, making it hard for many on Wall Street to envision when a turnaround will occur.
"There wasn't anything in the Fed's statement to make people buy stocks, so we've got more of what we've had the last three weeks," said Bill Barker, investment consultant at Dain Rauscher.
