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Wall Street throws a tantrum
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September 29, 1998: 3:10 p.m. ET
Stocks drop as Fed cuts rate by 1/4 point, less than market had hoped for
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NEW YORK (CNNfn) - U.S. stocks sold off sharply in late trading Tuesday, as soon as the market learned that the Federal Reserve cut short-term interest rates by 1/4 of a percentage point, giving Wall Street half the rate cut it had hoped for.
Shortly before 3 p.m. the Dow Jones industrial average fell 71.32 points to 8,037.52 On the New York Stock Exchange, trading volume stood at 586 million shares, with declines leading advances 1,696 to 1,313.
The Nasdaq Composite shed 14.08 to 1,725.14 and the S&P 500 index lost 5.48 to 1,043.21. (Click here for a look at today's CNNfn market movers)
"The markets are clearly disappointed," said Maureen Allyn, chief economist at Scudder Kemper Investments.
Concluding a one-day meeting of its policy-making Federal Open Market Committee, the Fed issued a statement that it was easing the fed funds rate by 1/4 of a percentage point to 5.25 percent. The fed funds rate, the one banks charge each other on overnight loans, is often used as a bellwether for other short-term interest rates. The less frequently used discount rate, which the Federal Reserve charges member banks in its role as lender of last resort, was left unchanged at 5.0 percent.
A 1/4 of a percentage point easing of the fed funds rate had been expected on Wall Street since last week, when Fed Chairman Alan Greenspan hinted a rate cut could be in the cards. But the market had hoped to see a cut of 1/2 of a percentage point as a signal to investors that the Fed is really up in arms against the possible damage global economic turmoil could do to the U.S. economy.
Instead, the central bank opted for a more cautious easing, prompting some market analysts to speculate that a second rate cut could be coming shortly.
"At least it's a beginning... They'll do more if they need to," said Allyn.
The bond market turned higher, benefiting more from the negative reaction in stocks than the actual interest-rate cut. The benchmark 30-year Treasury bond rose 12/32 of a point in price, for a yield of 5.11 percent, still trading below the fed funds rate.
The dollar bounced slightly against the Japanese yen and the German mark following the rate cut.
Earnings warnings cool off stocks
Apart from the Fed-induced disappointment, a heavy dose of profit warnings from companies large and small cooled off investors' feelings and hit the respective stocks hard.
Shares of shaving-products maker Gillette (G) plunged 2 to 38. Late Monday the company said it is cutting 4,700 jobs, or 11 percent of its workforce, and closing plants and warehouses in a restructuring effort that will bring on a $350 million charge and practically erase third-quarter profit. The rating of Gillette's stock was downgraded by Merrill Lynch, J.P. Morgan and Bear Stearns.
Sharing the same fate, Dow component Goodyear Tire & Rubber (GT) shed 3-7/8 to 51-7/8 after issuing a profit warning and announcing 800 job cuts early Tuesday.
In the technology sector, the stock of PC Connection (PCCC), a direct marketer of personal computers, plummeted 10-5/8 or 51.5 percent, to 10 after the company also told investors it will make less money in the third quarter than had been expected.
ESC Medical Systems (ESCMF) lost 7-3/4, or almost 53 percent, to 6-7/8 after warning late Monday that third-quarter revenue will fall about 15 percent below the second quarter's $63 million and earnings per share will be disappointing. ESC Medical makes medical devices using lasers for varicose vein treatment. Goldman Sachs, Salomon Smith Barney and Donaldson, Lufkin & Jenrette lowered their 1998 and 1999 earnings forecasts for the Israel-based company.
Finally, Canadian telecommunications-equipment maker Northern Telecom (NT) lost 5-1/4, or almost 13 percent, to 35-1/2 after it told analysts in New York that earnings in the third quarter won't live up to expectations. 
-- by staff writer Malina Poshtova Zang
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