Stocks Fade After Dow 10,000 - TheStreet

Updated from 4:02 p.m. EST

Stocks closed lower Tuesday afternoon, with the

Nasdaq Composite

posting its worst loss in six weeks, following the

Federal Reserve's

decision to leave interest rates unchanged while softening its view on the risk of disinflation. Earlier in the session, the

Dow Jones Industrial Average

briefly topped the 10,000 mark for the first time since May 31, 2002.

The Dow lost 41.85 points, or 0.4%, to 9923.42 after hitting a new 18-month high Monday. At one point early in the session, the Dow hit a high of 10,003.12. The

S&P 500

dipped 9.12 points, or 0.9%, to 1060.18, and the Nasdaq slumped 40.53 points, or 2.1%, to 1908.32. It's the largest decline for the Nasdaq since it fell 42 points on Oct. 22.

Volume on the

New York Stock Exchange

was 1.42 billion shares, while 1.81 billion shares changed hands on the Nasdaq. Decliners beat advancers on the NYSE at about 3 to 2 and at more than 2 to 1 on the Nasdaq.

"The Nasdaq has been retracing ever since it topped 2000 a few days ago," said Barry Berman, head Nasdaq trader at Robert W. Baird. "When buyers didn't step in after the Fed announcement, sellers stepped in and tried" to beat one another to the punch. And market leaders suffered the most.

Cisco Systems

(CSCO) - Get Report

fell $1.06, or 4.4%, to $23.23, and

Intel

(INTC) - Get Report

dipped $1.39, or 4.4%, to $30.25.

As expected, the Fed left interest rates unchanged at 1%, and maintained its policy language about keeping interest rates low for a "considerable period." The Fed committee, however, altered the statement slightly to reflect improving economic trends, paying special attention to the once important risk of disinflation. They wrote: "The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation." Previously, they viewed the risk of disinflation as greater than that of inflation.

Dow 10,000

Early in today's session, the Dow briefly topped 10,000, but quickly retreated, just as the Nasdaq did last week after flirting with the key 2000 level. However, there is a growing consensus among market experts that the Dow and Nasdaq will easily top 10,000 and 2000, respectively, in the coming months.

"There was resistance at 10,000, similar to what happened at Nasdaq 2000," said Sean Martin, head trader at A. Gary Shilling. "But the path of least resistance is still higher, and there are a lot of shorts who are getting nervous and don't want to get blown out of the water."

"The economy is going to be better than expected, therefore earnings will be better than expected," said Paul McManus, fund manager at Independence Investment. "The Dow and the Nasdaq should have no trouble topping those levels."

However, the chances look better for the Dow to not only breach its key psychological level, but to remain above that level heading into year-end. Portfolio managers are likely to favor the Dow over the Nasdaq as they close their books and lock in gains, because it consists primarily of companies with stable businesses and is more diversified.

"Companies like Cisco,

Microsoft

(MSFT) - Get Report

and

Dell

(DELL) - Get Report

make up a significant portion of the Nasdaq," said McManus. "I would prefer to own an index with more cyclical sectors like chemicals and papers; that gives the Dow an advantage."

In other economic news, wholesale inventories grew by 0.5% in October; economists were expecting the growth rate to remain unchanged at 0.3%.

Other Markets

The benchmark 10-year Treasury note fell 21/32, its yield rising to 4.35% after the Fed said that the risk of disinflation was equal to the risk of inflation.

The Fed decision pushed the dollar slightly weaker vs. the Japanese yen and the euro, "reflecting the notion that persistently low interest rates erode the greenback's reward potential," said Ashraf Laidi, chief currency analyst at MG Financial Group. One euro will currently fetch $1.226, near an all-time high vs. the dollar.

Overseas markets finished higher. Germany's Xetra DAX rose 1% at 3846 and London's FTSE 100 gained 0.5% to 4380. In Asia, Japan's Nikkei improved 0.8% to 10,124, and the Hang Seng rose 1.8% at 12,394.

Movers

An area of the market where rates play a big role was under pressure after home lender

Washington Mutual

(WM) - Get Report

said its mortgage origination volume fell by 50% from the third to fourth quarter. WaMu, which also lowered 2003 earnings guidance, dropped $3.88, or 8.9%, to $39.97, while rivals

Countrywide Financial

(CFC)

fell $5.10, or 4.7%, to $103.20, and

Golden West

(GDW)

lost $2.42, or 2.4%, to $99.13.

Costco

(COST) - Get Report

reported first-quarter earnings of 34 cents a share, which was 3 cents ahead of analysts' consensus estimate of 31 cents a share. The stock fell 14 cents, or 0.4%, to $36.00.

Goldman Sachs upgraded

General Motors

(GM) - Get Report

to outperform from in-line. The broker thinks the strong financial markets have helped GM settle its pension issues, creating upside potential for 2004 earnings. GM shares rallied $1.27, or 2.7%, to $48.41.

Morgan Stanley upgraded shares of

International Paper

(IP) - Get Report

to equal weight from underweight, citing improving demand for paper products and an attractive valuation. The company's shares improved 38 cents, or 0.9%, to $40.61.

The New York Times Co.

(NYT) - Get Report

updated earnings guidance for the fourth quarter and full year 2003. The company said it expects to earn 69 cents to 72 cents per share in the fourth quarter, and $1.94 to $1.97 for the full year; this compares to the consensus estimates of 71 cents and $1.93, respectively. The Times also said it expected advertising revenue to improve in 2004. The shares fell 33 cents, or 0.7%, to $45.30.

Texas Instruments

(TXN) - Get Report

was upgraded by JMP Securities. The company also raised its fourth-quarter guidance after the close Monday. Despite the news, the shares dipped 75 cents, or 2.7%, at $27.49.

Also,

BEA Systems

(BEAS)

was upgraded at U.S. Bancorp Piper Jaffray to strong buy from outperform. The company's shares fell 9 cents, or 0.8%, to $11.48.

Looking ahead, there are no major economic releases on tomorrow's calendar.