Stocks Fall on Eve of Fed Meeting
Wall Street faltered Monday, sending stocks sharply lower as investors locked in their gains from the market’s recent rally and waited to see if the Federal Reserve would lower interest rates again when it meets today.
The Dow Jones industrials fell back below 10,000 after closing above the milestone last week for the first time since before the Sept. 11 terror attacks. Analysts weren’t too concerned, though, saying some pullback was inevitable after the market’s recent advance.
The Dow closed down 128.01 points, or 1.3%, at 9,921.45, its third consecutive down session. Broader stock indicators also fell. The Standard & Poor’s 500 index lost 18.38 points, or 1.6%, to 1,139.93. The Nasdaq composite index fell 29.14 points, or 1.4%, to 1,992.12, after finishing above 2,000 last week for the first time since August.
Market breadth was broadly negative, with losers outnumbering gainers by more than 2 to 1 on the New York Stock Exchange and by 11 to 7 on Nasdaq. Volume was light.
“You’ve had a huge run here over the last 10 weeks,” said Steven Goldman, market strategist at Weeden & Co. in New York.
“This is just a pause, so the market can rest. But I think we’re going to be going back and forth from here for a while. After advancing so much, we can’t keep going straight up,” he said.
Indeed, stocks have rallied sharply since late September and some of the recent losses reflect concerns that some of the gains are premature--particularly with the period just starting when companies will issue warnings about their fourth-quarter earnings.
Since Sept. 21, when the indexes hit their lows for the year, the Dow has risen more than 20%, while Nasdaq has gained 40%.
On Monday, even news that General Electric expects to achieve double-digit earnings growth next year failed to cheer investors. GE dropped 35 cents at $36.80.
The market’s main focus was on today’s Fed meeting and what many hope will be the 11th interest rate reduction of the year.
The cut is widely expected, although there is some debate over how big it will be. There also is some thought that the reduction could be the Fed’s last, because rates are already at a 40-year low and companies including Cisco Systems and Oracle have issued relatively upbeat forecasts.
In any case, investors were unwilling to make any big moves ahead of the Fed’s decision.
“People are waiting to see what the Fed does and what their tone is,” said John Forelli, portfolio manager for John Hancock Core Value Fund.
“My guess is that their tone will be that they will continue to cut rates if necessary. To some degree, that’s already factored in stock prices, but I think the market will still be pleased,” Forelli said.
Among Monday’s highlights:
* Bond yields fell as investors regrouped from last week’s sharp route. The rally was fueled by speculation that the Fed may accompany a rate cut today with a statement indicating it may lower rates again in January.
The Bond Market Assn. predicted that the yield on the benchmark 10-year Treasury note would fall to about 4.5% in the first quarter of next year.
On Monday, the 10-year T-note yield fell to 5.10% from Friday’s close of 5.16%. A month ago the yield was at 4.18%.
* The dollar rose to an eight-month high against the yen after a report showed Japanese machinery orders unexpectedly fell in October, suggesting that Japan’s third recession in a decade is deepening.
The yen sank as far as 126.40 to the dollar in New York trading--its weakest level since April--before rebounding to 126.14. The Japanese currency is less than one yen from a three-year low against the greenback.
* Shares of a wide range of U.S. companies, from media giant Viacom to Bubble Wrap maker Sealed Air, dropped on talk they could face bigger-than-expected asbestos damage claims.
The asbestos scares started when oil services company Halliburton on Friday lost 40% of its market value after a Baltimore jury awarded $30 million in asbestos damages against one of its subsidiaries.
After Halliburton said its exposure was limited, its stock rose $2 on Monday to $14. But Viacom’s stock dropped $4.09 to $41.51 and Sealed Air dropped $4.22 to $38.07.
* Shares of fiber-optic parts maker JDS Uniphase fell 58 cents to $9.95 and helped push down other tech shares after the company said it expects quarterly sales to sag as the industry-wide downturn shows no signs of easing.
* Compaq Computer fell $1.62 to $9.70 after a key Hewlett-Packard shareholder Friday announced opposition to the planned merger between the two companies. HP lost 52 cents to $23.
* Retailing and financial sectors suffered on worries that the sluggish economy would continue to hurt their business for a while. Home Depot dropped $1.15 to $48.26, while American Express fell 70 cents to $34.
* Tyco fell $1.90 to $56.94. Legg Mason Wood Walker analyst Barry Bannister said the stock’s 40% gain since Sept. 21 had made shares of the biggest maker of electronic controls too expensive, given the likelihood of an anemic economic rebound.
He cut the stock to “market perform” from “strong buy.”
