Waking With a Higher-Rates Hangover, Market Drops on Low Volume

The reality of further interest-rate hikes to come dampened Wall Street's enthusiasm for stocks, and volume stayed muted.

Author:: Tara Murphy
Publish date:: May 17, 2000 5:36 PM EDT

Yesterday, investors counted on a 50-basis-point rate increase from the Fed to ignite a rally on Wall Street. After all, it was thought to be the worst-case scenario, and most players thought the market was already priced for it. But it wasn't that easy. During the FOMC get-together, Greenspan and friends spouted off cautious comments on future rate increases. Even the optimistic Murphy found out that anything that can go wrong will, and often does.

The Fed's ominous warning of future rate increases left investors today picking up where they left off yesterday. Since the market isn't out of the woods yet, many insiders are just taking a wait-and-see approach before putting any more money to work in stocks.

"It's another low-volume day, no one really in the casinos for the last couple of weeks," said Ronny Kraft, principal at

Merchant Intercapital

. "It's as if they come to see economic numbers but then leave without stopping at the tables."

"Greenspan didn't take any uncertainty out of the market," said Patrick Boyle, director of trading at

Credit Suisse First Boston

. "They sold off the market at the open and it has stayed here all day. The customer base is on the sidelines."

The

Dow Jones Industrial Average finished the session down 164.83, or 1.5%, to 10,769.74, with tech giant

Hewlett-Packard

(HWP)

floundering 5.6% despite posting second-quarter earnings that topped the consensus estimate by a nickel. Its spinoff

Agilent Technologies

(A) - Get Report

fell in sympathy, ending down 10 1/2, or 11.8%, to 78.

H-P's losses weren't shocking to all investors. In fact, Kraft expected the reaction, after seeing many companies trade down after posting strong results. "The reaction to Hewlett-Packard's earnings has been par for the course," he said. "One of the most important qualitative factors of a bear market is that the markets don't rally on good news." Kraft also noted institutional investors' habit of using positive earnings as an exit because "the good news is already factored into the stock."

Dow techs

IBM

(IBM) - Get Report

and

Microsoft

(MSFT) - Get Report

also fell, but

Intel

(INTC) - Get Report

made a comeback, ending up 1 5/16 to 123 3/16, after it set a 2-for-1 stock split.

Elsewhere on the

NYSE, the interest-rate-sensitive retailers were on sale. The

S&P Retail Index

slipped 2.4%. Despite receiving a price-target upgrade from

Credit Suisse First Boston

Tiffany

(TIF) - Get Report

and

Limited

(LTD)

both suffered losses during the session.

Traditionally, the financial stocks trade lower during in higher rate environment. But in today's market, history isn't repeating itself. The financials didn't succumb to yesterdays hike, if fact, some finished the session on the upside. "Institutions aren't really liquidating big positions," said James Maguire Jr., managing director at

LaBranche

, suggesting why financials didn't take too much of a hit.

J.P. Morgan

(JPM) - Get Report

, which spent most of the session up more than 1 point, closed up 11/16 to 132 5/8.

Merrill Lynch

(MER)

also finished in positive territory.

The

Nasdaq Composite Index fell 72.61, or 2%, to 3644.96.

Nasdaq Stock Market

trading,