Many investors had hoped the Fed would slash rates by an
aggressive 0.75 percentage point, but when the central bank
announced in mid-afternoon it was lowering rates by 0.50 for the
third time this year, stocks began to slide.
The decline continued the massive selloff that last week gave
the Dow its biggest one-week point drop ever. Analysts called the
market's mood about as grim as the litany of profit warnings that
have pulled Wall Street's major indexes into bear market territory.
"Negative psychology is increasing and confidence is eroding,"
said Alan Ackerman, executive vice president of Fahnestock & Co.
"It is fair to say, with prices drifting downward, everything
appears to be for sale from Main Street to Wall Street."
The Dow ended a heavily traded session down 238.35 at 9,720.76
The last time the Dow closed lower was March 24, 1999, when it
dropped 154.90 to 9,666.84.
The blue chips were trading at the 10,000 level just before the
Fed announced its decision.
Broader market indicators also turned downward. The Nasdaq
composite index tumbled 93.74 to 1,857.44, a closing low not seen
since November 1998.
The Standard & Poor's 500, Wall Street's broadest indicator,
fell 28.19 to 1,142.62. The last time the S&P; closed lower was
The market was disappointed by the Fed, Ackerman said, because
the central bank needed to "do something dramatic to show that it
recognizes the need for improved confidence," among consumers and
investors. Many investors believed an extraordinarily large rate
cut was needed to prompt consumers and businesses to increase
spending and reinvigorate the economy.
Tuesday's drop left the Dow, which has now lost 1,137.49 over
the past eight sessions, down 17 percent from its high close of
11,722.98, reached Jan. 14, 2000.
The Nasdaq, meanwhile, is off more than 63 percent from its own
high close of 5,048.62, reached March 10, 2000, and the S&P; 500 has
lost more than a quarter of its value since peaking at 1,527.46 a
Investors also sold amid confusion about just how much the
economy is hurting, because data is unclear about the extent to
which growth has slowed, said Ronald J. Hill, investment strategist
at Brown Brothers Harriman & Co. He noted, for example, that while
slumping consumer demand has created big inventory gluts,
employment remains strong.
"The market is sort of groping for a bottom. We haven't had a
real cathartic selloff, but last week felt pretty ugly," Hill
Wall Street's pessimism has been increasing since last week's
debacle that gave the Dow its worst-ever weekly point drop of
The companies whose bleak outlooks helped trigger last week's
selloff also fell sharply Tuesday. Compaq Computer declined 85
cents to $17.75, while Oracle tumbled $1.06 to $14.38.
Last week's blue chip decline, which was also spurred by bad
economic news from Japan, particularly rattled investors because
such routs had been largely confined to the tech-laden Nasdaq.
Investors had bid blue chips higher, believing the broader market
was mostly intact despite the cooling economy.
Now investors are worried about the degree to which non-tech
companies stand to suffer from the slowing economy. Investors
interpreted the slimmer cut by the Fed as reason to punish
economically sensitive sectors such as financial and retailing
stocks, along with consumer cyclicals like auto shares.
General Motors, which is idling two assembly plants this week as
it whittles down inventories, fell $1.10 to $55.19.
Retailing stocks fell as investors bet that consumers would
continue to curb their spending. Electronics retailer Best Buy
plunged $2.40 to $41.60.
Likewise, financial stocks traded lower on the notion that
consumers and businesses will borrow less. Citigroup stumbled $2 to
Declining issues outnumbered advancers nearly 18 to 13 on the
New York Stock Exchange, where consolidated volume was 1.45 billion
shares, ahead of 1.32 billion on Monday.
The Russell 2000 index, which tracks the performance of smaller
companies stock, fell 6.79 to 444.48.
Overseas, Japan's Nikkei stock average slipped 0.3 percent amid
fears that deflation and banking problems would cripple the
However, stocks in Europe moved higher. Germany's DAX index rose
2.2 percent, Britain's FT-SE 100 advanced 1.7 percent, and France's
CAC-40 climbed 1.8 percent.