Posted at 11:58 a.m., Tuesday, August 13, 2002
Dow drops as Fed disappoints investors
By Adam Geller
Analysts blamed the stock drop on traders who, in the absence of other news, had been focusing for days on the move by the Fed. When the market began to fall shortly after the policy-makers' announcement, computer-generated trading exacerbated the sell-off.
The Dow Jones industrial average closed down 206.50, or 2.4 percent, to 8,482.39.
Broader stock indicators also fell sharply. The Standard & Poor's 500 index was down 19.59, or 2.2 percent, at 884.21, and the Nasdaq composite index was down 37.56, or 2.9 percent, at 1,269.28.
"It's the old story of sell on the news," said Larry Wachtel, market analyst at Prudential Securities. "Today was selling on the news because there's nothing coming along in the dog days of August that's going to change the psychology."
Some investors had bet the Fed would lower rates again, and they sold as the decision to leave rates unchanged was announced. Optimism that the Fed might lower rates contributed to the market's big rally last week, although much of those hopes faded over the weekend.
Analysts said the Fed decision could cause a short-term pullback in stocks as investors with few other obvious reasons to buy questioned the direction of the market.
"Reasons (to buy) at the bottom are never obvious," said Subodh Kumar, chief investment strategist for CIBC World Markets. "Some of those people who were more trading oriented, who were hoping or thinking there might be a rate cut, might move the market lower, but I don't think it will stay that way."
But Kumar said stocks could stabilize and rise as scandal-wary investors begin showing more confidence in the veracity of financial results offered by companies, and as companies report earnings that point to a recovery.
A report Tuesday by the Commerce Department did little to stir the market. The government said sales at the nation's retailers rose 1.2 percent in July, but most of the gains were the result of strong auto sales.
Investors were also keeping their eyes on the approaching deadline Wednesday set by the Securities and Exchange Commission for companies to certify their financial reports. Analysts say that if many companies miss the deadline, that could further undermine investor faith and prompt stock sales.
Gainers included Wal-Mart, up 57 cents at $48.98 after the nation's largest retailer reported a 26 percent rise in its second-quarter earnings.
J.C. Penney fell 69 cents to $16.06 after the company narrowed its quarterly losses, beating analysts' expectations.
AMR, the parent company of American Airlines, rose 38 cents to $8.74 The airline said Tuesday it will eliminate 7,000 jobs and take other cost-cutting moves.
Other airlines were mixed. Delta rose 47 cents to $14.50, while UAL dropped $1.07 to $2.73.
Tech stocks suffered, with Dell dropping 19 cents to $25.71, Intel falling 83 cents to $16.70 and Cisco slipping 4 cents to $13.37.
Declining issues outnumbered advancers by about 5 to 2 on the New York Stock Exchange.
Consolidated volume on the floor of the Big Board came to 1.56 billion shares of 4 p.m., up from 1.26 billion in the previous session.
The Russell 2000 index fell 10.80 to 377.76.
Overseas, Japan's Nikkei stock average fell 0.6 percent. In afternoon trading, Germany's DAX index rose 1 percent, Britain's FTSE 100 was up 1.2 percent, and France's CAC-40 rose 0.8 percent.