Lower-than-expected sales at Cisco Systems sent tech stocks tumbling Wednesday, while the overall market was little changed after the Federal Reserve announced a widely expected interest rate hike. A jump in oil prices contributed to mild profit taking.
The Fed’s Open Market Committee nudged interest rates up a quarter-point, bringing the federal funds rate -- the interest banks charge each other on overnight loans -- to 2%. The market had little reaction to the rate hike, though investors closely read the Fed’s policy statement for hints of what lies ahead. Analysts took it as a good sign that the language in the statement was largely unchanged from the previous meeting.
“This gives a very positive tone to their outlook on the U.S. economy, despite higher energy prices,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. “There’s nothing to fear on the inflation front from where they sit, and they see flexibility in the labor market, which suggests they will allow faster job growth to show itself without having to move any quicker on rate changes.”
The Dow Jones industrial average fell 0.89 of a point, or 0.01%, to 10,385.48.
The broader gauges were narrowly mixed. The Standard & Poor’s 500 index fell 1.17 points, or 0.10%, to 1,162.91. The Nasdaq composite index fell 8.77 points, or 0.43%, to 2,034.56, reflecting investors’ disappointment with Cisco Systems.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange.
Cisco shares shed $1.31, or 6.6%, to $18.44, after the company issued fiscal first-quarter results late Tuesday that met profit expectations but missed sales forecasts. Growth at the world’s leading maker of routers and switches that move data over computer networks remains strong despite cautious spending by its corporate customers, but management warned that it could face increased competition, particularly from Asia-based rivals.
Despite relatively good economic news, overall trading was tepid, particularly in the face of volatile oil prices. The government’s weekly report on petroleum inventories showed another decline in the nation’s supply of distillate fuels, which includes heating oil. Crude rose $1.49 a barrel to $48.86 in New York trading.
Still, traders noted that the stock market was holding up extremely well, particularly after several weeks of strong gains.
“The market is kind of meandering today,” said Todd Leone, managing director of equity trading at SG Cowen Securities. “We’ve had a tremendous rally over the last three weeks, so now I think the market is feeling just a little overdone.”
Meanwhile, the Commerce Department said the U.S. trade deficit shrank to $51.6 billion in September, a 3.7% drop from August as exports posted their best month on record.
The latest snapshot of trade activity showed exports of goods and services grew to a record $97.5 billion in September. Exports were helped by a weaker dollar, which makes U.S. goods cheaper to foreign buyers, and by improving foreign demand.
In other market highlights:
* Semiconductor shares slid after an analyst said 2005 sales growth would be about 5%, down from a previous forecast of 8% to 12%. National Semiconductor dropped 66 cents to $15.86 and Intel declined 22 cents to $22.86. KLA-Tencor, the world’s biggest maker of semiconductor-inspection gear, declined $1.68 to $43.45.
* Dell and Hewlett-Packard fell after a UBS analyst cut his rating on the two largest makers of personal computers, citing slowing demand. Dell slipped 58 cents to $36.85, while Hewlett-Packard lost 73 cents to $18.97.
* Banking shares climbed on speculation that borrowing demand would increase as consumers sought loans before interest rates rose more. Bank of America gained 30 cents to $46.23 and Wachovia added 14 cents to $51.72.
* Pixar Animation Studios fell $2.04 to $77.26. Pixar, which will report third-quarter earnings today, has another hit on its hands with “The Incredibles,” but some analysts say its shares are overvalued.
* El Segundo-based Big 5 Sporting Goods added $1.65 to $28.01 after a UBS analyst upgraded it from “neutral” to “buy.”
* U.S. Treasury yields rose slightly on the Fed’s decision to raise interest rates and the suggestion in its post-meeting statement that further tightening was likely. The yield on the benchmark 10-year note inched up to 4.24% from 4.23% on Tuesday.