Disappointed investors sent stocks down sharply
Wednesday on remarks by Federal Reserve Chairman Alan Greenspan
that suggested an interest rate cut before the Fed's next meeting
Greenspan's comments that the central bank prefers to adjust
rates at scheduled meetings brought sellers back to Wall Street.
Investors had been buying on speculation that the Fed would lower
rates before the March 20 gathering of its policy-making Open
News that the economy grew in the last quarter of 2000 at the
slowest rate in five years futher soured the market's mood.
In late afternoon trading, the Dow Jones industrial average
dropped 197.16 to 10,439.72.
The Nasdaq composite index fell 71.55 to 2,136.27, continuing to
trade at levels not seen since December 1998. The Standard & Poor's
500 index slid 25.99 to 1,231.95.
"The optimism that we had earlier this week that we might get a
pre-emptive cut is going away," said Todd Clark, co-head of
trading at WR Hambrecht. "The market is looking at everything
being negative right now, so we're going to sell off."
Indeed, Greenspan's comments to the House Financial Services
Committee appeared to all but dash hopes of a rate cut anytime
soon. He testified that the central bank will act as necessary to
help the economy, but prefers to act according to its schedule. He
also noted that the economy appeared to be stronger in January and
February than in November and December.
The Fed has cut interest rates twice in the new year.
Financial and manufacturing stocks slid, led by J.P. Morgan
Chase, down $1.64 at $45.96, and General Electric, off $2.14 at
$45.86. General Motors lost $1.46 to $53.14.
Technology stocks also fell. Oracle dropped $2.56 to $19.13 and
IBM, a Dow component, slid $3.25 to $99.34.
The Fed's lack of action was met with disappointment because of
the recent deterioration in the economy and stock markets.
Although the central bank is still expected to cut rates when it
meets March 20, many market observers believe the Fed needs to act
sooner to reassure Wall Street. After weeks of dismal corporate
results and profit warnings, many investors are desperately looking
for a reason to buy instead of sell. A rate cut now might have
provided a to catalyst to rally on and at least temporarily
halted the market's descent.
Also Wednesday, Wall Street got another sign that the economy is
faltering. The Commerce Department reported the gross domestic
product grew at a rate of 1.1 percent in the final three months of
2001, the weakest performance in more than five years.
Declining issues outnumbered advancers nearly 3 to 2 on the New
York Stock Exchange. Volume came to 876.10 million shares, compared
with 867.200 million at the same time Tuesday.
The Russell 2000 index dropped 7.22 to 471.53.