Can Fed Revive The Bull?
As expected, the Fed cut interest rates by 50 basis points Wednesday
following an ice cold Gross Domestic Product report, and that led to a
‘sell-the-news’ reaction on the Nasdaq, which ended the day down 2.3%. Blue
chips fared better, though, as the Dow finished flat and the S&P 500 posted
a 0.6% decline.
Fourth-quarter GDP trailed off to an ice cold 1.4%, which was significantly lower than the 2.1% analysts had expected and is also the slowest rate since the
second quarter of 1995. The weak number is yet another clear sign of the rapid
economic slowdown that Fed critics say was caused by an overzealous Fed that
reacted too slowly in cutting rates.
Volume picked up by about 10% from Tuesday’s level, as 2.36 billion shares
traded on the Nasdaq and 1.25 billion shares changed hands on the NYSE.
While most traders anticipated the market to sell off following the 50 basis
point rate cut, most remained fairly optimistic for the intermediate term.
“Broadly speaking, I think the market is going to be raggedly okay for
awhile. It recently had gotten quite overbought, and it’s trying to work that
off a little bit now. But overall I think the market’s going to be okay for a
number of weeks ahead,” said Robert Wibblesman,
Portfolio Manager, Strome Investment Management.
According to preliminary numbers, the Nasdaq fell 65.42 to 2772.93, the Dow
added 7.14 to 10,888.34, and the S&P 500 slipped 7.74 to 1365.99.
Top sectors were retailers
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up 3.0%, and chemicals
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Under pressure were technology
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down 4.4%.
One of the day’s few tech winners was San Jose,Calif.-based New Focus
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which gained 10 13/16 to 60 3/16. The optical component maker earned 4 cents per
share, which thoroughly beat the 3-cent loss analysts had expected.
Despite the pressure in tech-land, the semis
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0.5% gain. The top chip in the SOX was Lattice Semiconductor
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gained 1 9/16 or 6.4% to 25 15/16.
Top Dow stocks were Wal-Mart
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Boeing
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was AT&T
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Looking ahead, all eyes will be on the National Association of Purchasing
Managers report which is due out Thursday at 10:00 AM ET. Street estimates look
for a reading of 43.6%. Keep in mind that anything below 50% is considered a
slowing economy, so the message from the NAPM will likely foretell additional
rates cuts in the months ahead.