Stock prices take another tumble

The Associated Press
Wednesday August 22, 2001

NEW YORK — Stock prices tumbled yet again Tuesday, carrying the Dow Jones industrials down 145 points after the Federal Reserve made its seventh interest rate cut of 2001 but failed to predict that a business recovery will occur soon. 

The Nasdaq composite and Standard & Poor’s 500 indexes, which were already trading at levels last seen in April, also fell sharply in a selloff that came late in the session. Analysts said the widely anticipated Fed cut wasn’t enough to offset the frustration of investors fed up with poor earnings and the lack of good economic news. 

“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. “This upset some investors, who had expected an easier turnaround.” 

In its midafternoon announcement, the Fed cut rates a quarter-percentage point and noted consumer demand still exists, but that 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 statement also left the door open to additional future cuts when the Fed next meets in October. 

The agency’s worried tone was enough to reverse a moderate stock advance that had begun in the morning as investors bet on a more upbeat Fed assessment 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 fell 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 Tuesday, 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 nearly 23 percent and the S&P nearly 30 percent to meet Cohen’s goals. 

Declining issues led advancers 3 to 2 on the New York Stock Exchange. Consolidated volume came to 1.24 billion shares, compared with 1.07 billion shares Monday. 

The Russell 2000 index slipped 6.63 to 472.24. 

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. 


On the Net: 

New York Stock Exchange: http://www.nyse.com 

Nasdaq Stock Market: http://www.nasdaq.com