Stocks plunge
after Fed rate cut

The Dow sinks 146 and
the Nasdaq falls 50 after the
quarter-percentage point reduction

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By Lisa Singhania
Associated Press

NEW YORK >> The Dow Jones industrials tumbled 145 points today and the Nasdaq composite and Standard & Poor's 500 indexes hit four-month lows after the Federal Reserve made its seventh interest rate cut of 2001 but failed to predict a business recovery will occur soon.

Analysts said the quarter-percentage point cut, which was widely expected, wasn't enough to offset the frustration of investors fed up with poor earnings and the lack of good economic news.

The Dow closed down 145.93 at 10,174.14, falling back from gains of as much as 58 points before the Fed decision.

Broader stock indicators also tumbled on selling that intensified as the session advanced. The Nasdaq dropped 50.05 to 1,831.30, while the S&P slipped 14.15 to 1,157.26. The closes were the weakest finishes for both indexes since April 9.

Decliners led advancers 3 to 2 on the New York Stock Exchange, with 1,732 down, 1,341 up and 260 unchanged. Volume came to 1.01 billion shares vs. 886.15 million shares yesterday.

The NYSE composite index fell 4.47 to 598.70, the American Stock Exchange composite index lost 3.91 to 884.01 and the Russell 2000 index slipped 6.63 to 472.24.

"The Fed indicated the economy was weaker than most stock market participants had thought it was, which means a postponement in any earnings recovery," said David Lindsay, a fixed-income portfolio manager at Fleet Asset Management.

In its midafternoon announcement, the Fed noted consumer demand still exists, but business spending continues to deteriorate. The central bank expressed concerns about conditions here and overseas "that may generate economic weakness in the foreseeable future."

The worried outlook halted a moderate stock advance that had begun in the morning as investors bet on a more bullish Fed stance or a bigger-than-expected rate cut.

The Dow closed lower with losses particularly concentrated in financial and retail stocks. American Express dropped $1.55 to $36.60, while Wal-Mart lost $1.65 to $49.94.

Technology stocks also fell as investors lost confidence that business spending would pick up anytime soon. Cisco Systems dropped 89 cents, or 5 percent, to $16.01, while Microsoft dropped $1.92, or 3 percent, to $60.78.

Analysts said investors are further disheartened that the Fed's six earlier cuts this year have so far failed to stimulate growth and the overall business climate remains anemic.

Moreover, second-quarter corporate results were dismal and early indications are that the third quarter isn't going to be better, making it hard for many on Wall Street to envision when a turnaround will occur.

"There wasn't anything in the Fed's statement to make people buy stocks, so we've got more of what we've had the last three weeks," said Bill Barker, investment consultant at Dain Rauscher.

Also today, Goldman Sachs chief market strategist Abby Joseph Cohen lowered her 2001 estimates for the S&P 500. In a research note, Cohen said she now expects the S&P 500 to be 1,500 by year's end, a reduction from her previous estimate of 1,550. For the Dow, she's still predicting 12,500 by the end of the year.

Her projections, though, are still quite bullish. The Dow would have to rise about 20 percent and the S&P nearly 28 percent to meet Cohen's goals.

Overseas, Japan's Nikkei stock average rose 0.2 percent. In Europe, Germany's DAX index rose 0.1 percent, Britain's FT-SE 100 advanced nearly 1.4 percent, and France's CAC-40 gained 0.9 percent.