Market ends lower despite Fed rate cut
NEW YORK » A still-anxious Wall Street closed lower yesterday, sacrificing the advance it made after the Federal Reserve cut interest rates half a percentage point. Investors collected profits after nearly three sessions of big gains, unwilling to leave money on the table amid ongoing economic uncertainty.
Anthony Conroy, managing director and head trader for BNY ConvergEx Group, said expectations of more downgrades of bond insurers like Ambac Financial Group Inc. and MBIA Inc. -- as well as uneasiness ahead of today's Commerce Department report on personal income and spending inflation -- was enough to spur people to cash in profits from the market's initial gains.
Key reports on the job market and manufacturing set to arrive tomorrow could also add to investors' concerns about the state of the economy, which has been dragged down by a crumbling housing market and losses at major financial institutions.
"Volatility is here to stay," Conroy said. "People who think these issues will go away overnight in one Fed rate cut are mistaken."
The Federal Reserve lowered the fed funds rate, or the interest banks pay one another for overnight loans, to 3 percent, the lowest level since spring 2005. It also lowered the discount rate, or the interest the Fed charges on loans to banks, by a half-point to 3.50 percent.
Scott Fullman, director of investment strategy for I.A. Englander & Co., said it was unlikely the market's downturn was because of disappointment over the rate cut or the Fed's accompanying statement, which if anything asserted that the central bank is willing to lower rates further if needed.
The Dow, which had been up more than 200 points shortly after the Fed's decision, finished down 37.47, or 0.30 percent, at 12,442.83.
"We're seeing profit taking ahead of the employment report on Friday," Fullman said, referring to the Labor Department's data on job creation and unemployment. "The market has had a really nice run-up this week, and investors are taking advantage of that."
Broader stock indicators also turned lower. The Standard & Poor's 500 index fell 6.49, or 0.48 percent, to 1,355.81, and the Nasdaq composite index fell 9.06, or 0.38 percent, to 2,349.00. The Russell 2000 index of smaller companies fell 9.71, or 1.38 percent, at 695.49.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 1.80 billion shares.
Crude oil rose 69 cents to settle at $92.33 a barrel on the New York Mercantile Exchange.
The dollar was mixed against other currencies, while gold prices dipped.
Government bond prices fell after the Fed announcement, sending yields higher. The yield on the 10-year benchmark note rose to 3.74 percent from 3.68 percent late Tuesday.
And after the market closed yesterday, Standard & Poor's downgraded about $50 billion worth of mortgage-backed securities and placed another $217 billion worth on negative watch. The ratings agency said big losses could be felt soon by smaller U.S. banks and credit unions, and European banks that have not yet revealed large write-downs.