Greenspan’s Remarks Send Wall Street Lower

From Times Staff and Wire Reports

Stocks turned in a disappointing performance Tuesday after Federal Reserve Chairman Alan Greenspan hinted that interest rates may not fall by as much as Wall Street hopes.

Tech stocks bore the brunt of the selling. The Nasdaq composite index tumbled 61.94 points, or 2.5%, to 2,427.72. Losers outnumbered winners 21 to 16 on Nasdaq, where 1.7 billion shares traded.

The Dow Jones industrial average fell 43.45 points, or 0.4%, to close at 10,903.32. The broader Standard & Poor’s 500 index dropped 0.9% to 1,318.80, though the number of advancing stocks outnumbered losers by an 8-7 margin on the New York Stock Exchange amid moderate volume.


Greenspan’s remarks before a Senate committee followed a retail sales report that indicated the economy isn’t quite as weak as the market has feared. Investors are worried that the Fed now might opt for smaller rate cuts in coming months.

Wall Street had been expecting the Fed, which in January twice dropped rates a half-point, to lower rates by another half-point in March. But analysts said the market is now concerned that the Fed might implement only a quarter-point cut, giving the economy less stimulus.

“Investors are just a little less convinced that we are going to get the [economic] recovery that he is forecasting,” said Hugh Johnson, chief investment officer for First Albany Corp.

A positive sign for the economy came earlier from the Commerce Department’s report that retail sales rose 0.7% in January, slightly ahead of analysts expectations and the biggest jump in four months. Consumers spent on a wide variety of goods, from cars to clothes to building supplies.

The retail report “was an important piece of evidence to show the economy is not spiraling down into a recession,” said Charles H. Blood Jr., analyst at Brown Bros. Harriman & Co.

The increase in consumer spending drew investors back toward some retailers, including Gap, up 79 cents to $28.80; Kmart, up 26 cents to $9; and Home Depot, which rose 58 cents to $46.31.


But many blue chips fell as the retail spending news couldn’t compensate for investors’ disappointment over Greenspan’s testimony and their fears about the anemic economy. Citigroup slipped 86 cents to $54.59, and Coca-Cola lost 86 cents to $59.96.

Most market analysts have been expecting lower borrowing costs to boost economic growth in the second half of the year, especially in the long-battered tech sector, where many companies have warned of weaker than expected sales and earnings.

Selling in the tech sector Tuesday left the Nasdaq index down 1.7% year to date. It had been up more than 12% at the end of January.

Losers Tuesday included Intel, down $2.13 to $32.44; Broadcom, down $5.50 to $74.94; Ixia, down $3.75 to $25.25; and Nokia, down $1.55 to $28.10.

But data storage firm Emulex rebounded a bit after plunging $37.13 on Monday on a warning of flat sales growth. Shares of the Costa Mesa company rose $1.89 to $42.27.

Tech investors were further rattled after the market’s close when Applied Materials, the biggest maker of equipment used to build semiconductors, said it expects fiscal second-quarter profit to fall short of analysts’ forecasts.


Among Tuesday’s highlights:

* Profit-taking hit drug stocks. Merck was the biggest loser among the Dow blue chips, falling $2.23 to $80.75. Fellow drug maker Bristol-Myers Squibb lost $2.12 to $63.04.

* Telecom giant Lucent Technologies fell $1.26 to $13.54 after debt-rating agencies Moody’s Investors Service and Standard & Poor’s cut the company’s credit rating to one notch above junk status.

* Consumer-related stocks rising with the retail sector included Vans, up $1.22 to $22.06; Nike, up $1.66 to $56.14; Mattel, up 54 cents to $16.90; and California Pizza Kitchen, up $1.13 to $31.

Market Roundup: C8, 9