Monday's Market: Dow Sheds 100 Points as Fed Meeting Looms

(Updated from 4:11 p.m. EDT)

Just two days ahead of an expected interest-rate cut, investors sat this session out, sniffing around to see if the Federal Reserve will cut interest rates by 25 or 50 basis points. Meanwhile, they got an unpalatable whiff of more negative earnings news after the close.

Trading volume was very light on both the New York Stock Exchange and the Nasdaq .

"The market will be directionless until the Fed announces its decision," said Seth Tobias, hedge fund manager at Circle T Partners. Tobias expects the central bank to cut the fed funds rate , or the rate at which banks lend to each other overnight, by 50 basis points. "Consumer spending is holding up, but credit spreads are widening." That indicates concern about the ability of borrowers to service their debt.

Today, the Dow Jones Industrial Average fell 100.37 points, or 1%, to 10,504.22, weighed down by weakness in components Home Depot (HD Quote), which was hurt by a bearish article in Barron's, and Honeywell (HON Quote), which dropped after a European advisory committee opposed GE's (GE Quote) purchase of the company.

The Nasdaq Composite edged up 16 points, or 0.8%, to 2050.8, bolstered by its top-name components. Cisco (CSCO Quote) gained 5.7% to $18.51, Intel (INTC Quote) advanced 1.1% to $28.58, and Juniper (JNPR Quote) rose 5.2% to $30.50. The S&P 500 , however, fell 6.8 points, or 0.55%, to 1218.6.

Shortly after the closing bell, Applied Micro Circuits (AMCC Quote) reduced its fiscal first-quarter outlook. The chipmaker said that revenue in the June quarter would be almost half of what analysts had been expecting. It also expects to post a loss for the quarter. Analysts had expected the company to break even. Ahead of its announcement, Applied Micro closed up 2.5% to $14.20. In after-hours trading, the company was off 8.5% to $13.

Today's mild session was dominated mainly by speculation about the Fed. The market is mixed in its expectations for monetary policy: Currently the fed fund futures contract, which imply expectations for the fed funds rate, is pricing in 100% odds of a 25 basis point cut and a 54% chance of a 50 basis point cut. Currently, 15 of the 25 primary bond dealers who work with the Fed expect a 25 basis point cut, while 10 of them are forecasting a 50 basis point cut. Short-term interest rates are now 4%.

On an overall basis, some market analysts are optimistic: "The market is getting ready for a nice summer rally," said Michael Palazzi, managing director of trading at CIBC World Markets. "There are large cash reserves on the sidelines. Investors are looking for a reason to buy stocks."

In economic news, existing home sales rose in May. Some 5.37 million new units were sold on an annual basis through May, compared with the 5.12 million forecast for the month and the 5.20 million sold on an annual basis through April. Housing starts began to decline in May, marking the first sign of easing in what has been one of few strong areas in the slowing U.S. economy.

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Market Internals

Market Internals
Exchange	Advancers	Decliners	New Highs	New Lows	Volume
New York Stock Exchange	1,302	1,780	83	41	1 billion
Nasdaq Stock Market	1,893	1,882	116	84	1.4 billion

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Most Active Stocks

NYSE Most Actives
Company	Shares Traded
General Electric (GE Quote)	26.8 million shares
Lucent (LU Quote)	23 million shares
Homestake Mining (HM Quote)	21.6 million shares

Nasdaq Most Actives
Company	Shares Traded
Worldcom (WCOM Quote)	60.70 million shares
Cisco (CSCO Quote)	54.5 million shares
Exodus (EXDS Quote)	46.4 million shares

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International

London's FTSE 100 closed slightly lower Monday after telecom bellwether Vodafone(VOD Quote) deflated early gains. It dropped 0.07% to 5661.90. The Paris CAC-40 closed stronger, however, up 0.57% to 5213.46.

In Frankfurt, weakness in German drugmaker Schering(SHR Quote) put pressure on stocks. The Xetra Dax closed off 0.24% to 5927.32.

The euro was lately trading at $0.8608. The greenback was at 123.91 yen.

Asian markets swooped lower overnight, with a 1.14% slide on Tokyo's Nikkei 225. Markets were closed for holiday in Hong Kong overnight.

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