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) - Get Report
, which was hurt by a bearish article in
Barron's
, and
Honeywell
(HON) - Get Report
, which dropped after a European advisory committee opposed
GE's
(GE) - Get Report
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) - Get Report
gained 5.7% to $18.51,
Intel
(INTC) - Get Report
advanced 1.1% to $28.58, and
Juniper
(JNPR) - Get Report
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)
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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International
London's
FTSE 100
closed slightly lower Monday after telecom bellwether
Vodafone
(VOD) - Get Report
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)
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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