A day after a surprise interest rate cut from the Federal Reserve sparked a record rally, cautious investors secured those gains by taking profits off the table late in the session, pushing stocks to finish lower.
Earlier in the session, the markets struggled to find direction and then edged into positive territory. There was hope the Federal Reserve would cut rates again to further boost a slowing economy and companies hit by lower earnings. The Fed's next monetary policy meeting is scheduled for Jan. 31.
But Art Hogan, chief market analyst at Jefferies & Co., was upbeat, adding the market kept most of its gains by session's end. He also said profit-taking was only natural after Wednesday's gains.
On Friday, the markets are expected to get more clues on the economy - and how the Fed subsequently may react -- when the government releases its monthly employment report for December. Hogan of Jefferies said he expects data to show the labor market is not as tight as it was a year ago.
Another market watcher noted the absence of long-term investors in the session Thursday. "First, the traders react to a blockbuster announcement, such as the Federal Reserve's rate cut, and next, we wait for long-term investors," Al Kugel, chief investment strategist at SteinRoe, told AdvisorInsight.
Kugel added he expects the economy will accelerate to faster growth in the second half of this year after slowing in the first two quarters.
On Wednesday, the Fed lowered the Federal Funds rate -- the rate at which banks loan money to each other overnight -- by 50 basis points to 6%. The discount rate was also cut 0.25%. It was the first rate cut in two years, propelling the tech-heavy Nasdaq to its largest gain ever.
Despite the rate cuts and buoyant mood Wednesday, the parade of lower profit warnings continued. The latest casualty: Inktomi Corp. (INKT), an Internet technology company, which warned of lower earnings after the closing bell Wednesday. Shares of Inktomi ended down 4-5/8 at 13-7/8.
Also, jeweler and luxury goods retailer Tiffany & Co. (TIF) said it expects a fourth-quarter earnings shortfall because of disappointing holiday sales. Shares of Tiffany finished down 6-7/16 at 30-11/16.
Among the blue chips, economically-sensitive bank stocks posted gains, including Citigroup Inc. (C) and JP Morgan Chase & Co. (JPM). Both are Dow components.
Shares of Lehman Brothers Holdings Inc. (LEH) also were trading higher after it reported a 33% climb in quarterly profits, exceeding estimates. Lehman Brothers ended up 15/16 at 77-1/6.
In contrast, retail stocks were lower, including Dow components Home Depot Inc. (HD)and Wal-Mart Stores Inc. (WMT)
Meanwhile, Merck & Co. (MRK) and other drug stocks finished down.
In technology, chip stocks and Microsoft Corp. (MSFT), among others, ended higher.
The Nasdaq composite index, home to many tech heavyweights, ended down 49.85 points, or 1.91%, or 2,566.84. The Dow Jones industrial average closed down 33.34 points, or 0.30%, at 10,912.41. The Standard & Poor's 500 index, a broad stocks gauge, ended down 14.22 points, or 1.06%, at 1,333.34. Trading was heavy.
Treasuries ended higher, amid continued volatility in equities. Earlier in the session, a new report showed November factory orders rose 1.7%, more strongly than expected.
Stocks in the News
Sears Roebuck and Co. (S) said December sales at its domestic stores open at least a year fell 1.1 percent from a year ago, and that it plans to close 89 underperforming stores.
Retail giant Wal-Mart Stores Inc. (WMT) on Thursday cut its forecast for fourth-quarter same-store sales, but said it expects higher earnings for the period.
Hospital operator Tenet HealthCare Corp. (THC) said on Thursday its fiscal second-quarter earnings rose nearly 30%, beating Wall Street's expectations, as results were helped by strong growth in patient admissions and gains in reimbursement.
Global market reaction to the lowered Federal Funds rate was varied. In Europe, markets ended on a mixed note. The London Financial Times-Stock Exchange 100 index finished up 119.70 points, or 1.98%, at 6,159.60. In Germany, the DAX Index finished down 20.69 points, or 0.32%, at 6,414.27. Meanwhile, France's CAC 40 ended up 127.50 points, or 2.24%, at 5,811.55.
In Asia, Japan's Nikkei 225 Index closed down 94.20 points, or 0.68%, at 13,691.49. Hong Kong's Hang Seng index, meanwhile, ended up 645.45 points, or 4.42%, at 15,235.03. By Heesun Wee