Stocks Reconsider Fed Cut, Pare Losses

N E W  Y O R K, June 27, 2001 -- Stocks were mostly lower after gyrating on both sides of unchanged asinvestors offered a muted reaction to the Federal Reserve'sinterest-rate cut and warning that the U.S. economy remains atrisk for a slowdown.

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The Fed announced in mid-afternoon it was lowering short-termrates by 0.25 percentage point, half of what the market felt wasnecessary to restart the economy. It was the sixth cut this year.

Soon after the decision, the Dow Jones industrial average fell45.29 10,427.19 after rising about 25 before the announcement.

The broader market also fell. The Nasdaq composite index fell9.51 to 2,055.11, while the Standard & Poor's 500 index was off7.63 at 1,209.13.

"I think the market is a little disappointed, but a quarterof a point is winning the derby anyway — the consensus wasleaning that way," said Milton Ezrati, senior economicstrategist at Lord Abbett & Co. "But this shows the Fed is notas afraid as it might have been about the economy. It leavesthe Fed some dry powder for another cut should it becomenecessary."

The Dow finished with a loss of37.30 points, or 0.36 percent, at 10,435.18, and the Standard & Poor's 500 fell 5.69 points, or 0.47 percent, to 1,211.07. The Nasdaq closed 10.11 points, or 0.49 percent higher, at 2,074.73.

High Expectations

Investors have been anxiously awaiting signs that the five priorreductions — each 0.5 percentage point — have helped business pickback up. But so far, corporate earnings announcements haveindicated that business remains weak in many sectors.

Analysts did not expect a rally to follow this latest increase,regardless of its size.

"I think the market is looking for real fundamental guidepostsfor true traction for a turnaround," said Philip S. Dow, managingdirector of equity strategy at Dain Rauscher Wessels inMinneapolis.

Dow said that evidence would include positive signs aboutcorporate earnings, companies announcing they are hiring or openingnew plants, or encouraging government reports on the state of theeconomy.

"Those just aren't coming," he said.

"The cumulative amount of the easing has been large and nowis the time to begin tempering that," said Carl Tannenbaum,chief economist at LaSalle Bank in Chicago.

"The fundamentals aren't as bad as we thought and there isnot the sense of impending doom as there was earlier thisyear," he said. "The stock market would have certainlybenefited from a bigger cut because that would have improvedearnings, but it is not the Fed's job to give us boomingmarkets."

Stocks to Watch

Among the session's biggest losers was CVS, which plunged $7.18to $36.92. The nation's second-largest drugstore operator warnedthat its earnings for the second quarter and for the year will belower than expected because weak sales.

But most of the market's gains and losses were more moderate.

Lucent fell 13 cents to $5.87, on a report in The Wall StreetJournal that the company might lay off an additional 10,000 workersbecause of continued restructuring.

General Mills rose 25 cents to $42.55 after the maker ofWheaties, Cheerios and Chex reported earnings that met analysts'expectations.

The Russell 2000 index, the barometer of smaller company stocks,rose 2.74 to 493.56.

Advancing issues outnumbered decliners 3 to 2 on the New YorkStock Exchange, where volume was 676.98 million shares.

Tuesday’s Trading

Stocks ended mixed for the second day in a row Tuesday,as Wall Street held its breath before the Fed meeting andMerrill Lynch walloped Wall Street with aprofit warning.

The Nasdaq Composite Index rose 13.5 points, or0.66 percent, at 2,064.37. The blue-chip Dow Jones industrialaverage finished with a loss of 31.74 points, or 0.3percent, at 10,472.48. The broad Standard & Poor's 500 Indexfell 1.84 points, or 0.15 percent, at 1,216.76.

The Associated Press and Reuters contributed to this report