Market Watch

The Associated Press
Tuesday March 20, 2001

NEW YORK — Investors hoping for a big interest rate cut sent blue chip stocks higher Monday, helping Wall Street’s major indexes recover after last week’s beating. But analysts warned that the market’s mood will likely sour again if the Federal Reserve doesn’t deliver the aggressive action the market wants. 

Much of the gains came in the tech sector, which suffered heavy damage last week. A series of earnings warnings and cautionary statements from tech companies left the Dow with its biggest weekly point drop ever and pushed the Nasdaq below 2,000 for the first time in 27 months. 

Financial stocks also rose after Lehman Brothers upgraded its rating on Goldman Sachs, Merrill Lynch and Morgan Stanley just days before the firms report earnings for the three months ending in February. 

But the main driver for the late rise in blue chips seemed to be hopes for a rate cut from the Fed. While a rate cut of some kind has been widely expected from Tuesday’s meeting of the Fed’s Open Market Committee, investors debated how big the cut would be. 

The most optimistic observers said the Fed might make an unusually aggressive cut of three-quarters of a percentage point, or 75 basis points. But others expected the Fed to match the two half-point cuts it made during January, and that, some market watchers fear, could lead to further declines. 

“Equity investors want to be bailed out by the Fed, but there are plenty of reasons for the FOMC not to act as aggressively as investors want,” said Charles White, portfolio manager at Avatar Associates. 

“The real risk here is that there are a lot of people looking for 75 basis points, but the higher probability is that we’ll get a smaller cut,” White said. “The question is how the market is going to react to that. I think people will be disappointed.” 

No matter what the Fed does Tuesday, some analysts warned that other lingering concerns would make a sustained comeback unlikely over the next several weeks. 

— The Associated Press 

A number of companies have announced layoffs and issued warnings about profits for the first quarter, which ends March 31, and there are still signs that the broader economy remains stuck in a slowdown. 

“I don’t see the market running away on the upside when you’ve got all this first quarter news coming out as well as guidance for the rest of the year,” said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee. “On the other hand, if you start to see news that’s better than expected, you could start to see people looking for a bottom.” 

Advancing issues outpaced decliners by 7 to 4 on the New York Stock Exchange, where consolidated volume came to 1.32 billion shares, well off the pace of Friday, when volume was inflated by the expirations of futures and options contracts. 

The Russell 2000 index was up 9.47 at 451.27. 

Overseas, Japan’s Nikkei stock average rose 2 percent during the day on growing hopes that Japanese officials may be able to prevent the country’s financial problems from deepening, but the indicator couldn’t sustain the gains and ended the down 0.34 percent. 

Germany’s DAX index fell 1.35 percent, Britain’s FT-SE 100 was off 0.20 percent, and France’s CAC-40 was down 1.10 percent.