Blue-Chip Stocks Finish Lower
In a move that caught few on Wall Street by surprise, the Federal Reserve trimmed a key short-term interest rate Tuesday afternoon in response to concerns of slowing U.S. economic growth.
Share prices, which stood little changed just prior to the Fed's announcement, wobbled on the news, eventually closing flat to slightly lower. The Dow Jones Industrial Average declined 28.32 points, or 0.3 percent, to 8,080.52.The central bank's policy-setting Federal Open Market Committee voted to lower the federal funds rate to 5.25 percent from 5.50 percent. The federal funds rate is the rate commercial banks charge each other for borrowing funds on an overnight basis. The Fed last lowered the rate on Jan. 31, 1996.
"The U.S. economy is slowing and [Federal Reserve Chairman] Alan Greenspan is quite properly less concerned with inflation and more concerned with financial fallout from the global economic crisis," said Hugh Johnson, chief investment strategist at First Albany Corp.
"He wants to make sure we have a strong enough domestic economy, which is also an export destination for other countries," he said. "Today's rate cut was sort of an insurance move."
Many on Wall Street had looked for stocks to sell off in a "buy-the-rumor, sell-the-news" reaction to the announcement in light of the market's dramatic run-up since the Sept. 1 lows in major averages.
That stocks held their own was evidence, for now, of the market's strong bullish undertones.
Interest-sensitive utility shares stood in positive territory for the entire day, with the energy and healthcare segments also climbing into the plus column following the Fed's announcement.
Small-company shares, which often perform better than larger stocks in periods of shrinking interest rates, lagged behind their bigger counterparts.
In Tuesday's market indicators:
- The Standard & Poor's 500 Index was basically unchanged.
- New York Stock Exchange winners outnumbered losers by 30 shares.
- On the Big Board floor, turover amounted to 748 million shares, a 9 percent pick-up from Monday.
- The Nasdaq Composite declined 0.3 percent. Advancing issues trailed decliners by 11 to 8 in the Nasdaq Stock Market. Volume totaled 775 million shares.
- The Russell 2000 Index of small-capitalization stocks sank 0.6 percent.
- In the bond market, the 30-year Treasury advanced 21/32, to yield 5.095 percent.
Among the stocks in the news:
- Micron Technology (MU) fell 2 1/4 to 31 5/8. The manufacturer of dynamic random access memory chips recorded a loss of 42 cents a share in its fiscal fourth quarter, down from its profit of 33 cents in the year-ago period. Wall Street had looked for a 54-cent deficit.
- Gillette (G) took a 2 3/8-point cut to 37 5/8. The personal care products maker will lay off 4,700 workers, or about 11 percent of its total global work force, and will shutter 26 plants and warehouses. Gillette will incur a $350 million after-tax charge in the third quarter in connection with the restructuring. It will likely post break-even results in the quarter vs. estimates of a 40-cent-a-share profit.
- Dow component Goodyear Tire & Rubber (GT) shed 3 3/4 to 52. It warned analysts to expect third-quarter operating earnings to be between $1.15 to $1.20 a share. Most on Wall Street had forecast $1.22. The company said poor economic and financial climates in Asia and Latin America and a strong U.S. dollar will crimp profits.
- Northern Telecom (NT) slipped 4 7/8 to 35 7/8. The Canadian telecommunications equipment maker said it will undercut most Wall Street forecasts for 1998 and 1999 revenue growth.
- Other telecommunications stocks eased. Lucent Technologies lost 2 7/8 to 74 5/8, Nokia 1 9/16 to 80 7/8, and Ericsson 3/4 to 19 1/4.
- ESC Medical (ESCMF) cratered 8 1/8 to 6 1/2. The medical products manufacturer guided analysts to expect third-quarter earnings to come in from 20 cents to 25 cents a share. The Street had looked for 50 cents. Slowing business in Europe and South America contributed to the downward revision.
- PeopleSoft (PSFT) picked up 2 3/16 to 33 1/2. The stock will replace First Chicago NBD (FCN) in the S&P 500 Index after the close of trading on Thursday. Money managers attempting to replicate the S&P 500 added the stock to their portfolios. PeopleSoft develops enterprise software to manage critical corporate functions, such as human resources, customer service, and accounting.
- Another enterprise software provider, BMC Software (BMCS), was added to the S&P 500 Index. Its addition will be effective after the close of trading on Wednesday. The shares tacked on 2 5/8 to 59 1/16.