Wednesday's Market: Major Averages End Mixed After Latest Rate Cut - TheStreet

Stocks finished mixed after the

Federal Reserve lowered interest rates by 25 basis points, ending its series of five 50 basis-point cuts.


Dow Jones Industrial Average closed down 37.6 points, or 0.4%, to 10,434.84. The

blue-chips were up 52 points before the Fed's announcement. The

Nasdaq Composite ended up 10.1 points, or 0.5%, to 2074.7. The

S&P 500 finished lower by 5.7 points, or 0.5%, to 1211.1. Trading volume was light throughout the session.

In its statement, the Fed signaled that it was nearly finished cutting rates. "Today's action by the FOMC brings the decline in the target federal funds rate since the beginning of the year to 275 basis points," the Fed said. But the central bank added that it would remain watchful over the economy. "The risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future."

"I think the

Fed pointed out that they have cut interest rates by 275 basis points for no other reason than to tell people we've come a long way," said Ethan Harris, senior economist at

Lehman Brothers

. "They're hinting that we're approaching the end of the easing cycle." Harris expects the central bank to again reduce rates, however, by an additional 25 basis points at its next meeting in August.

Economically sensitive stocks finished mixed today. They usually get a boost when the Fed lowers interest rates. Financial issues fell slightly, while cyclical stocks rose modestly. The

Morgan Stanley Cyclical Index

added 0.7%, while the

Philadelphia Stock Exchange/KBW Bank Index

lost 0.4%. Drug stocks, a defensive group, edged lower. The

American Stock Exchange Pharmaceutical Index

shed 1.4%.

In the wake of today's decision, market analysts aren't holding out for an intermeeting cut. "There was no language in the Fed statement that hinted at a surprise cut, as there was in December and March," said Tony Crescenzi, chief bond market strategist at

Miller Tabak

. (There were intermeeting cuts on Jan. 3 and April 18.) "Either the Fed doesn't want the market depending on them, or it doesn't think the economy warrants it."

Yesterday's reports on

durable goods orders, new home sales and consumer confidence revealed strength in the economy. "The data flow has been better," Harris said. "Consumer confidence and the housing market continue to hold up."

Since January, the central bank has cut the

fed funds rate, or the rate at which banks lend to each other overnight, six times. (The rate stood at 6.5% at the beginning of the year.) This year marks

Alan Greenspan's most aggressive rate-cutting schedule since he was made chairman 14 years ago. At 3.75%, the funds rate is the lowest it has been since May 1994.

Most market observers expected the Fed to pull back from its recent aggressive course. "The market will ultimately take

a 25 basis-point cut to mean the Fed sees the economy picking up," said Peter Coolidge, managing director of trading at

Brean Murray Foster Securities

, ahead of today's announcement.

But Wall Street continues to get mixed signals from corporate America. After the closing bell today, chipmaker


(ALTR) - Get Report

reiterated its lowered revenue guidance for the second quarter, networking systems provider



warned that its second-quarter loss would be wider than expected, and software developer



warned about its first-quarter bottom line.

Back to top

Market Internals

Back to top

Most Active Stocks

Back to top


European markets were mixed today, as they waited on the U.S. rate cut decision. After closing at a 12-week low yesterday, London's

FTSE 100

gained 46.5 points to 5652.2. Across the channel, the Paris


fell 33 to 5057.7. Frankfurt's

Xetra Dax

fell 14.4 to 5833.4.

Asian markets were mixed overnight. Tokyo's

Nikkei 225

fell 1.15%, or 149.84 points, to 12,828.98. Hong Kong's

Hang Seng

gained 42.24, or 0.33%, after a steep decline Tuesday.

Back to top