(Updated from 3:49 p.m. EST)
Federal Reserve did not hike rates when its latest meeting concluded this afternoon. But a rate cut is increasingly likely, even as early as January, now that the Fed says the risk of recession outweighs the risk of inflation.
And the markets reacted to the news quite strongly. The
Dow Jones Industrial Average fell from triple-digit gains to a loss of 61.05, ending the day at 10,584.37. The
Nasdaq Composite Index, which had been up modestly before the announcement, closed down 113.4 to 2511.1, a new 52-week low.
When the results of the
Federal Open Market Committee meeting were first released at 2:15 p.m. EST, Wall Street didn't know what to make of the results -- or even what the results were.
initially said the Fed had not changed its outlook on the economy when, in fact, it had moved away from thinking inflation was the greatest risk toward viewing recession as the biggest concern.
The Nasdaq took a massive beating in the last two hours of trading. Think of the Comp, as the Nasdaq is known, as a three-legged stool, comprised of biotechnology, semiconductors and telecommunications.
For much of the day, the Comp had gains, standing on two legs -- biotechs and chips. But, as the Fed news circulated through tech stocks like chickenpox in a nursery school, the Nasdaq found itself without a leg to stand on.
Philadelphia Stock Exchange Semiconductor Index
, was earlier gaining strength from news that
Advanced Micro Devices'
three-year supply contract with
would be doubling the company's output. But all that changed. The SOX, as the chipmaker index is informally known, closed down 0.9%.
The American Stock Exchange Biotechnology Index was also far lower.
Meanwhile, that which was worse got progressively so. Telecommunications, dot-coms and large-cap technology all sank as the closing bell approached.
On the Dow, old-tech names
powered out gains, however.
were higher, too. IP's gain came despite last night's earnings warning from
helped raise the sector's profile in a positive way, initiating coverage on five paper companies, starting them all at buy. As a result, the
Philadelphia Stock Exchange Forest & Paper Products Index
rose 1.9%. Coke was it, gaining for a second day, still feeling the goodwill after
reiterated its rating on the company yesterday.
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Overall, drillers and oil service stocks have had a pretty good year. But, since hitting a better-than-two year high in September, these guys have fallen from grace. The
Philadelphia Stock Exchange Oil Service Index
, which closely tracks the industry, had fallen 31% from Sept. 12's peak to its close on Nov. 30. It closed up 2.2%.
In the past few weeks, the drillers have been rebounding mightily, and that trend continued today after a pair of
analysts issued a bullish joint call on the sector. In a note to investors this morning, James Crandell and Angeline Sedita said that spending in exploration and production, which is conveniently shortened to E&P hereafter, is set to increase 19.1% in 2001 vs. the same period in 2000.
That's a good thing for the drillers and oil service stocks that depend on this spending for income.
Lehman's top oil service picks include
. Its picks for drillers:
Transocean Sedco Forex
Santa Fe International
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Treasury prices are down after the
Federal Open Market Committee said the risks of recession outweigh the risks of inflation, moving it closer to cutting rates in the near future.
The benchmark 10-year
Treasury note closed down 5/32 at 104 5/32, yielding 5.196%.
In economic news, the
) report showed that the trade deficit narrowed to $33.2 billion in October from $33.7 billion in September. Imports and exports both fell.
BTM-UBSW Weekly Chain Store Sales Index
chart ) fell 0.6%, its third consecutive decline. The
Redbook Retail Average
chart ) found December sales running 0.2% behind November after three weeks, widely missing the target of a 1% gain. These numbers indicate that consumer spending is slowing.
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