Stocks End Down After Greenspan Comments
Stocks ended down Wednesday after many investors interpreted comments from Federal Reserve Chairman Alan Greenspan to mean more interest rate cuts -- to help boost the slowing economy and depressed corporate earnings - may not be on the horizon.
Earlier this week, there was some speculation that the Fed was considering an inter-meeting interest rate cut in the near-term. On Tuesday, Wayne Angell, a former Fed governor who is now chief economist at Bear Stearns in New York, predicted there was an 80% chance of a rate cut prior to the March 20 meeting. But the prediction, so far, hasn't materialized.
"We got set up by Wayne Angell," said Brian Finnerty, head trader at CE Unterberg Towbin. The expectation and disappointment did not sit well with investors. "They killed him. The market hates that." Finnerty predicted that "we've got a little more on the downside before we go up."
Though economic reports are due tomorrow on personal income and unemployment claims, Finnerty points to the February update on the National Association of Purchasing Manager's index expected Thursday at 10 am ET, as the key data to watch. The index is expected to be lower than last month's level of 41.2%. In January this measure of product inventory - and future growth - was said to be the catalyst that prompted the Fed to lower interest rates 50 basis points on Jan. 31.
On the corporate news front, Veritas (VRTS ), which makes data storage management products, will be reporting earnings this evening. Its results could set a tone for equities markets' performance Thursday.
Greenspan said Wednesday the central bank prefers to make interest rate moves at regular meetings, but has not hesitated to act outside them when necessary. In additional prepared remarks to the House Financial Services Committee, Greenspan said even after the U.S. central bank's two January rate cuts, the economy was still at risk of a below-par performance, according to news reports.
His remarks in an updated version of key monetary testimony to Congress sent the clearest indication yet the Fed intends to follow through on the rate cuts of Jan. 3 and Jan. 31 -- totaling a full percentage point -- with more cuts. But he did not give any hints about the timing of possible moves.
The comments join a growing pile of evidence of a slowing economy. On Tuesday, the government reported consumer confidence for February came in at 106.8, the lowest level since 1996.
"For now, it appears the Fed is not in a hurry to lower rates," said Alan Ackerman, senior vice president and market strategist at Fahnestock & Co. "A quick easing may be more wishful thinking in the investment community than it appears at the Federal Reserve," he added.
Ackerman added many investors are keeping a firm grip on cash and remaining cautious, especially in the technology sector.
The Dow stumbled 141.60 points, or 1.33%, to 10,495.28. Among the Dow's losers were interest rate-sensitive financial services companies. The Nasdaq ended off 55.99 points, or 2.54%, to 2,151.83. And the broader-based S&P 500 finished down 21.13 points, or 1.68%, to 1,236.81.
U.S. treasuries ended higher on weakness in the stock market. There was little reaction to the fourth quarter gross domestic product, which was revised lower to a 1.1% gain from the previous 1.4%. The revision generally was in line with expectations. The GDP measures the value of all goods and services produced within U.S. borders.
Stocks in the News
Online bookstore Amazon.com denied market rumors that the company is planning to file for bankruptcy, but shares in the online retailer fell 10% in trading Wednesday: Inside.com.
Internet retailer Buy.com Inc. (BUYX ) said it plans to restructure its operations and will eliminate about 125 jobs from the company's California headquarters: Reuters
Walt Disney Co. (DIS ) and Coca-Cola Co. (KO ) said they agreed to market children's beverages worldwide under the Disney brand. The first products launched will be juices and juice drinks from the Minute Maid Co. operating group of Coca-Cola: Reuters
European markets closed lower. The London Financial Times-Stock Exchange 100 index ended down 23.30 points, or 0.39%, to 5,917.90. In Germany, the DAX Index ended down 12.24 points, or 0.20%, to 6,208.24. Meanwhile, France's CAC 40 Index finished down 70.28 points, or 1.29%, to 5,367.48.
In Asia, the markets ended lower. Japan's Nikkei 225 Index closed down 176.32 points, or 1.35%, to 12,883.54. Hong Kong's Hang Seng index, meanwhile, finished off 46.86 points, or 0.32%, to 14,787.87.
President George W. Bush sets off on a two-day trip around America to sell his plan for a swift tax cut to boost the slowing economy: Reuters
Four new UK outbreaks of foot-and-mouth have been confirmed, as the first signs of the disease are detected in Europe: BBC News
The Supreme Court on Tuesday unanimously and decisively rejected an industry attack on the Clean Air Act in one of the court's most important environmental rulings in years: the New York Times
By Heesun Wee and Amy Tsao in New York
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