Stock markets were relatively calm Thursday, with the Dow and Nasdaq both closing slightly down one day after Wednesday's Fed-propelled rally. The Dow closed down 47.07, or 0.43 percent, at 10,898.68; the Nasdaq ended down 42.18, 1.61 percent, at 2574.51; and the S&P; 500 closed down 15.46, 1.15 percent, at 1332.10.
Beth A. Keiser/AP
|Wednesday: Traders keep an eye on their computer screens as the closing bell nears at the New York Stock Exchange.
To read more about Wall Street today, click here.
In a further, if largely symbolic, boost to the markets' confidence, the Federal Reserve cut its discount rate a quarter-point after the market close Thursday, to 5.5 percent. The discount rate is what the Fed charges banks that borrow from it, but it is seldom used.
Both indices gained almost 300 points Wednesday, when the Fed took the bull by the horns and announced it would lower interest rates to boost a floundering economy.
The central bank made the dramatic decision to cut interest rates a half percentage point, giving the market an almost immediate boost of confidence. Investors responded enthusiastically, taking the move as a sign that the nation's chief monetary policymakers won't let the U.S. economy plummet.
Many predicted Thursday would be a day of energetic trading and profit-making on Wall Street.
Some See Long-Term Benefit
The lower interest rates will make it easier for consumers and
businesses to borrow if necessary. Consumer spending and
capital investment have been the engines of the nation's economic
expansion, currently in its 119th month and the longest in U.S.
Investors also will benefit, at least in the short run, as
demonstrated by exuberant gains on stock markets Wednesday after
the Fed's unexpected action. Mortgage rates may come down, giving a
kick to would-be home buyers and the construction industry.
Savers might consider putting money into certificates of deposit
and other short-term accounts sooner rather than later, experts
say, because rates are likely to fall.
The Fed cut its target for the federal funds rate the interest
banks charge each other on overnight loans to 6 percent from 6.5
percent. That had been a nine-year high.
It also cut its discount rate, the interest rate the Fed charges
banks for loans, by a quarter point to 5.75 percent. The Fed said
it was prepared to cut the discount rate by another quarter point
at the request of Federal Reserve banks.
Commercial banks quickly responded by announcing a
half-percentage-point reduction in their prime rate, which is the
interest they charge their most creditworthy commercial customers.
Southwest Bank of St. Louis led the cut to 9 percent, followed
by J.P. Morgan Chase, Wells Fargo and Dollar Bank. Other banks were
expected to follow suit Thursday morning.
Fed: Cuts Prompted by Slowing Economy
"These actions were taken in light of further weakening of
sales and production and in the context of lower consumer
confidence, tight conditions in some segments of financial markets
and high energy prices sapping household and business purchasing
power," the Fed said in a statement.
Perhaps the strongest signal went to the stock markets, which
ended 2000, and began 2001, in the doldrums.
"I think they were trying to send a message to the markets that
there is not going to be a recession," said Stephen D. Slifer,
chief U.S. economist at Lehman Brothers brokerage in New York.
"They had to act quickly and aggressively to restore confidence,
not only from investors but from consumers and businesses as
Joel L. Naroff, an economist who runs a private consulting firm
in Holland, Pa., put it another way. Just as Fed Chairman Alan
Greenspan warned about "irrational exuberance" when the market
appeared to be overheating, Naroff explained, Wednesday's surprise
rate cut "in essence said that 'irrational despondence' is just as
After the Fed's announcement, the Dow rose strongly, ending the
day at 10,945.75, up 2.8 percent.
The Nasdaq, which lost 7 percent of its value on Tuesday, jumped
324.83, or 14.2 percent, Wednesday, to end at 2,616.69. The surge
gave the Nasdaq its biggest one-day point and percentage gains
Wednesday's session also was a record-setter in terms of volume,
with U.S. stock markets registering their first day ever with a
combined volume of more than 5 billion shares.
But Weiss, the State Street investment officer, warned that the
market still could face some rocky sessions.
"There's already been damage to the economy and to growth in
corporate profits," he said. "There will be volatility as the
market grapples with earnings. That's still a very important
Gary R. Thayer, chief economist at A.G. Edwards & Sons in St.
Louis, expects further Fed rate cuts in the spring. He believes the
cuts will be necessary to spur the economy from middling growth of
about 2 percent in the first half of the year to a more respectable
3 percent to 3.5 percent in the second half.
The Associated Press contributed to this report