Stocks finished lower -- with the Nasdaq dropping 2% -- Tuesday, following the decision by Federal Reserve policymakers to leave interest rates at the historically low level of 1%. The Dow Jones industrial average crossed the 10,000-mark twice in the session, which may have inspired some profit taking.
The Dow Jones industrial average lost 41.8 points, or 0.42%, to 9,923.4. The market benchmark reached the 10,000 level in morning trading, and once again in the early afternoon before retreating. The broader Standard & Poor's 500 index was down 9.12 points, or 0.86%, to 1,060.18. The Nasdaq Composite index fell 40.53 points, or 2.12%, to 1,908.32, on weakness in technology stocks. Thrifts/mortgages, and housewares were lower; while commodity chemicals and auto makers were higher, each on positive comments from industry analysts.
The Federal Reserve's Federal Open Market Committee (FOMC) left the funds rate at 1%, as expected, saying that "with inflation quite low and resource use slack, the Committee believes that policy accommodation can be maintained for a considerable period." Analysts were watching closely to see if the Fed would maintain its "considerable period" language.
Such language leads analysts to believe that the Fed won't begin hiking rates anytime soon. "The Fed is showing a glacial movement towards the inevitable tightening that will happen in the next 12 months," says Joe Liro, vice president at Stone & McCarthy Research Associates. Liro expects the Fed to hold rates steady until the summer of 2004.
The Fed's post-meeting press release had a more positive tone than previous statements. "The evidence accumulated over the intermeeting period confirms that output is expanding briskly, and the labor market appears to be improving modestly," according to the statement. "Increases in core consumer prices are muted and expected to remain low."
Analysts hadn't expected the Fed to change interest rates. However, they expected changes in the Fed's statement about inflation and interest rates. The statement said that "the probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," compared to the Oct. 28 release which said, "...on balance, the risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future."
In other economic news, October wholesale sales rose 2% vs. September's 1% rise. October wholesale inventories rose 0.5%, vs. Sep.'s 0.3% rise.
Texas Instruments (TXN ) has raised its fourth quarter guidance to a range of 5 cents to 27 cents including a 7 cents contribution from its Micron sale, up from an upward range of 19 cents (excluding its Micron sale). The company raised its fourth quarter revenue guidance to $2.64 billion to $2.765 billion. S&P reiterates its 'buy' rating. The stock finished 2.7% lower.
Washington Mutual (WM ) ended 8.8% lower after saying that due to fewer home loans, increasingly competitive pricing, and a greater emphasis on origination of adjustable rate mortgages, it will cut its 2003 EPS guidance to a range of $4.15 to $4.25, and 2004 EPS to a range of $4.30 to $4.80. The company says that its mortgage volume in the fourth quarter is expected to dip by about 50% compared to its third quarter. S&P maintains its 'buy' rating of the stock.
Consumer products company Newell Rubbermaid (NWL ) sees lower than expected third quarter earnings between $1.46 and $1.49, excluding items. The company notes a reduction in sales, softness in reorders, and operation margin reductions from tornado damage, and sees a fourth quarter EPS as high as $1.58. S&P reiterates its 'avoid' rating of the stock. The stock fell 8.6%.
General Motors (GM ) skipped 2.7% higher, following a Goldman upgrade of the shares to 'outperform' from 'in-line.'
Akamai Technologies (AKAM ) says it sees fourth quarter revenue as high as $45 million, up from a previous guidance of $42 million to $44 million. The stock dipped 5.9%.
Analogic (ALOG ) lost 4.3% after posting first quarter earnings of 5 cents, vs. $1.48 on a 43% revenue drop. The company says that its record revenue, and income last year was due to the extraordinary sales of its EXACT systems, and notes a substantial increase in research and development expenses.
Comtech Telecommunications (CMTL ) surged 12% after announcing first quarter earnings per share of 37 cents, vs. 7 cents, on a 80% net sales rise. Needham maintains its 'hold' rating.
In retail, Costco Wholesale (COST ) finished slightly lower after posting first quarter earnings of 34 cents per share, vs. 31 cents on an 11% rise in same store sales, and a 14% rise in total sales.
Grocery retailer, Kroger (KR ), has posted third quarter earnings of 15 cents, vs. 33 cents (including charge) despite 3.8% higher total sales. The company says labor disputes have reduced its current EPS by 12 cents, and has withdrawn its fiscal 2004 guidance. Kroger's stock dipped 3.2%.
Companies expected to issue earnings updates Wednesday include homebuilder Toll Brothers (TOL ). Releases from tech names Adobe (ADBE ), Ciena (CIEN ), and Verity (VRTY ) arrive on Thursday.
The bulk of important economic data is due later in the week. Jobless claims, November retail sales and inventories data are due Thursday. An update on producer price index and a preliminary read on the University of Michigan Consumer Sentiment index is due Friday.
Treasury prices finished lower following the FOMC decision to leave the Fed funds target rate steady at 1%. The dollar hasn't shook off its recent lows against the Euro (1.22) and the British pound (1.746), its lowest exchange rate in 11 years.
European bourses ended higher on Tuesday. London's Financial Times-Stock Exchange 100 index gained 19.9 points, or 0.46%, to 4,379.7, as the U.K. trade deficit eased to 4.4 billion pounds in October, down from 4.7 billion in September, thanks to increased exports of aircraft, and precious stones. The pound sterling is at an 11-year high vs. the dollar, on speculation that the U.S. Federal Reserve will leave interest rates at a 45-year low.
In Paris, the CAC 40 index finished up 21.21 points, or 0.62%, to 3,456.12. Gains in shares of EADS and Trigano paced the index's move higher.
Germany's DAX index, which lost 44 points on Monday, added 39.64 points, or 1.04%, to 3,846.18, as the German ZEW survey for December showed that investor confidence rose to a three-and-a-half year high to 73.4, up from 67.2 in November. Infineon Technologies, aided by Texas Instruments' upbeat sales outlook, is trading higher.
Asian stock markets posted gains Tuesday. Japan's Nikkei 225 index added 78.94 points, or 0.79%, to 10,124.28. In Hong Kong, the Hang Seng index moved 216.20 points higher, or 1.78%, to finish at 12,393.64.