Stocks Plunge on Fed Rate Cut
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Stocks plunged Tuesday despite an interest rate cut by the Federal Reserve, as investors feared that the Fed isn't acting aggressively enough to reverse the credit market meltdown that has roiled financial markets since July.
The Fed cut the fed funds rate and the discount rate by a quarter point each, but investors had hoped for at least a half-point cut in the discount rate that banks use to borrow directly from the Fed. The Fed's accompanying statement acknowledged some of the risks to financial markets and the economy from the credit crisis, but had none of the urgency that traders were hoping for.
The Fed also stuck to its concerns about inflation, a position that investors had hoped the central bankers would abandon. Wholesale and retail inflation data due out later this week are expected to show big increases in inflation readings due to rising energy prices, which aren't included in core readings used to determine long-term inflation trends.
With the Fed not scheduled to meet again until Jan. 29-30, it could be some time before investors get any satisfaction from the Fed.
Some big names in the tech sector lost 3% or more, including Apple, Intel and Dell, but a few tech names managed gains today despite overwhelmingly negative breadth on the major stock exchanges.
Texas Instruments added 0.8% after raising its financial guidance for the current quarter, but the stock finished well off its highs.
Cisco and Juniper gained, apparently on AT&T's plans for TV over fiber and its Internet backbone expansion plans, a contract that went to Cisco. AT&T was up 4% on its strong outlook and buyback and dividend increase.
Genesis Micro soared 57% on a buyout offer from STMicro, sending shares of Genesis rival Trident 12% higher. Lam Research shed 5% on plans to acquire SEZ Group, and Smith Micro gained 12% on a deal to buy PCTEL's mobility solutions group.
The Nasdaq plunged 66 to 2652, the S&P lost 38 to 1477, and the Dow tumbled 294 to 13,432. Volume rose to 4.03 billion shares on the NYSE, and 2.23 billion on the Nasdaq. Decliners led by a 28-5 margin on the NYSE, and 24-6 on the Nasdaq. Downside volume was 93% on the NYSE, and 84% on the Nasdaq. New highs-new lows were 107-118 on the NYSE, and 96-142 on the Nasdaq.