Alan Greenspan and the Federal Reserve threaded the needle Tuesday.
Now, it’s time for Corporate America to tend to its knitting and repair the damage done to investor confidence by manic-depressive earnings forecasts.
In announcing plans to cut its short-term interest rate target by a half-point, to 5 percent, the Fed bolstered its independence at a crucial moment. Many market commentators had demanded at least a three-quarter-point cut.
“I think the Fed is doing a bit of a balancing act between not wanting consumer confidence to fall further and not wanting to be seen as supporting the stock market,” said Glenn Migliozzi, managing director of fixed income management at Fleet Investment Advisors in Boston. “They’re earning their pay right now.”
According to Stone & McCarthy Research Associates in Princeton, N.J., the half-point rate cut was the biggest disappointment to Wall Street in 10 years of Fed interest rate moves. The firm compared actual rate actions to rate actions anticipated by the financial futures market.
“What is particularly noteworthy is that all of the other sizeable disappointments occurred during periods when the Fed was tightening, such as in 1994,” the firm said.
In deciding against an overly generous rate cut, the Fed made it clear it was not going to be stampeded by Wall Street.
But in saying that economic conditions could “be evolving rapidly,” including a potential erosion of international economic conditions, the Fed left the door open to another rate cut before its next scheduled policy meeting in mid-May.
Nonetheless, Tuesday’s move left major technology companies facing their next round of quarterly financial reports, beginning in early April, without a big Fed safety net.
“Technology is too expensive, and the Fed is accommodating us the best they can,” said fund manager David Klaskin of Oak Ridge Investments in Chicago. “I’m pretty bullish in general, but you have to pick through the excess. We’re getting there, but there’s not enough pessimism.”
In Tuesday’s session, semiconductor giant Intel dropped $2.44, or 9 percent, to $24.62, a new 52-week closing low. Fiber-optics developer JDS Uniphase lost $3.12, or more than 12 percent, to $21.50.
Carol Stone, deputy chief economist at Nomura Securities International in New York, said the Fed cannot ignore declining profits and revenues now being reported by some tech stalwarts.
“That’s something the Fed ought to be very interested in,” she said.
But she agreed that Greenspan diminished the perception that he was targeting stock prices. “They don’t target that specifically, they would tell you, but they are concerned about the impact [of reduced stock market wealth] on consumer demand and business investment and spending,” Stone said.
Tuesday’s action: Stock prices fell sharply in moderate trading. Prices moved sideways immediately after the Fed rate news but sank in late trading.
The Dow Jones industrial average fell 238.35, or 2.4 percent, to 9720.76, the lowest level in nearly two years. Trading volume on the New York Stock Exchange totaled 1.2 billion shares.
Only three of the 30 Dow Jones industrials–Alcoa, International Paper and Wal-Mart Stores–posted gains.
The Standard & Poor’s 500 index dropped 28.19, or 2.4 percent, to 1142.62. Losing stocks outnumbered winners by less than 3-2 among NYSE stocks.
The Nasdaq composite index fell 93.74, or 4.8 percent, to 1857.44, on Nasdaq trading volume of 2.0 billion shares. Losers topped winners 11-7 among Nasdaq stocks.
Treasury securities advanced on the Fed rate cut and stock market slide.
Oil prices closed below $26 a barrel for the first time this year, reflecting concerns about softening demand with economic conditions weakening in many parts of the world.
The April contract closed down 19 cents a barrel, to $25.96.
Stock and bond traders will focus their attention Wednesday on the February consumer price index, which is expected to show a 0.2 percent increase from January in both the overall index and the core index, excluding food and energy components.
Last month, surprisingly strong reports on wholesale and consumer prices in January contributed to fears that the Fed would be less aggressive in cutting rates than some investors had hoped–fears that on Tuesday proved to be justified.
