Stocks sink after
Fed’s half-point rate cut

Star-Bulletin news services

NEW YORK -- Stocks fell sharply today after the Federal Reserve disappointed Wall Street with a half-point interest rate cut. Skeptical that the move would be enough to help the economy and corporate earnings recover soon, investors quickly sold off shares.

Many investors had hoped for a more aggressive 0.75 percentage point rate cut, believing a cut of that size was needed to prompt consumers and businesses to increase their spending and reinvigorate the economy.

In heavy trading, the Dow Jones industrials fell 238.35, or 2.4 percent, to 9,720.76. The blue chips were trading at the 10,000 level just before the Fed announced its decision about 2:15 EST.

The Nasdaq composite index fell 93.74, or 4.8 percent, to 1,857.44, its lowest close since Nov. 13, 1998. It has lost 25 percent this year. The index's decline came on concern the rate cut, which left the 5 percent overnight target for lending among banks at its lowest level since June 1999, won't revive the economy enough to reverse a decline in corporate profits. The Nasdaq is now down 63.2 percent from its record a year ago. The Standard & Poor's 500 index declined 28.19, or 2.4 percent, to 1,142.62, down 25 percent from its March 2000 record.

The NYSE composite index fell 9.63 to 586.54, the American Stock Exchange composite index lost 5.32 to 876.22 and the Russell 2000 index dropped 6.79 to444.48.

The Treasury's 10-year note rose1132 to 1012632; its yield fell 4 basis points to 4.77 percent. The 30-year bond gained1232 to 1012132; its yield fell 3 basis points to 5.26 percent.

Decliners beat advancers on the New York Stock Exchange, with 1774 down,1,324 up and 211 unchanged. Volume was 1.4 billion shares vs. 1.1 billion yesterday.

Solectron Corp. became the latest technology company to say earnings will disappoint investors, sparking losses among contract- electronics makers including Sanmina Corp. and Celestica Inc.

Some investors were "hoping for more than 50 points based on the perception the Fed would bail out the stock market, and that's not the Fed's job," said Robert Christian, chief investment officer for Wilmington Trust Corp., which oversees $25 billion in Wilmington, Delaware.

The market was disappointed by the Fed because the central bank needed to "do something dramatic to show that it recognizes the need for improved confidence," among consumers and investors, said Alan Ackerman, executive vice president of Fahnestock & Co.

"It is fair to say with prices drifting downward everything appears to be for sale from Main Street to Wall Street," Ackerman said.

Investors were also confused about how much the economy is hurting, because economic data is unclear about the extent to which growth has slowed, said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co. He noted that while slumping consumer demand has created big inventory gluts, employment remains strong.

"The market is sort of groping for a bottom. We haven't had a real cathartic selloff, but last week felt pretty ugly," Hill said.

Wall Street's pessimism has been growing since last week's debacles, giving the Dow its worst-ever weekly point drop of 821.21.

Overseas, Japan's Nikkei stock average slipped 0.3 percent amid fears that deflation and banking problems would cripple the economy.

However, stocks in Europe moved higher.