Markets & Stocks
Stocks drop pre-Fed
Investors bail out of equities post-rally while awaiting the start of two-day Fed policy meeting.
June 23, 2003: 5:18 PM EDT
By Alexandra Twin, CNN/Money Staff Writer

NEW YORK (CNN/Money) - U.S. stocks tumbled Monday, with investors taking profits after the latest leg of the rally ahead of the Federal Reserve's two-day policy-setting meeting, which begins Tuesday.

The Dow Jones industrial average (down 127.80 to 9072.95, Charts) and the S&P 500 index (down 14.05 to 981.64, Charts) both lost 1.4 percent, while the Nasdaq composite (down 33.97 to 1610.75, Charts) shed 2 percent.

"The selling today is long overdue after the recent rally," said Tom Schrader, head of listed trading at Legg Mason. "You're seeing a lack of buyers ahead of the Fed. You'll probably see more selling tomorrow as the meeting begins."

In the absence of new economic news, investors focused on the day's corporate developments, and more significantly, the debate over whether the Fed will cut rates by only a quarter of a percentage point or half a percentage point and what the implications would be from either move.

Because a cut of either size is already built into the market, there may not be any strong stock reaction following the announcement Wednesday, said Bill Roe, a portfolio manager at Melhado Flynn & Associates.

Alternately, there could be some selling.

"If it's 25 [basis points] and the bias is neutral, they're going to sell it off. If it's 50 [basis points] and neutral, they'll sell it off," Schrader added. "You'll probably see a smaller bout of selling if it's 50 points, because although that would mean the economy is doing worse than we've thought, it would also signal that the Fed is not going to cut again for a while."

Among the specific corporate issues providing an excuse for the selling Monday: Tenet Healthcare warned about its current quarter and Biogen and IDEC Pharmaceutical announced a multibillion-dollar merger.

Market breadth was negative on both the New York Stock Exchange, where 1.32 billion shares traded, and on the Nasdaq, where 1.68 billion shares changed hands. Decliners on both the NYSE and the Nasdaq outnumbered advancers by more than three to one.

Tenet, Fannie Mae among losers

Although a lot of the selling was seen as a typical bout of consolidation after the recent run up, there were also some specific corporate developments that added to the downward pull.

Shares of Tenet Healthcare (THC: down $4.22 to $12.01, Research, Estimates) fell 26 percent and topped the NYSE's most-active list after the hospital operator warned that second-quarter results would miss estimates by a significant margin amid higher costs and weaker revenue. The stock's decline pressured other hospital operators and healthcare providers.

Fannie Mae (FNM: down $1.88 to $67.97, Research, Estimates) lost 2.7 percent in active trade, following a published report that questioned the mortgage financier's accounting practices. Investors may have been particularly sensitive to such allegations amid the recent earnings restatement from Freddie Mac (FRE: down $0.64 to $49.78, Research, Estimates).

In other news, Alcoa (AA: down $1.17 to $25.07, Research, Estimates), a Dow stock, fell 4.5 percent after Standard & Poor's cut its debt rating on the aluminum maker by one notch late Friday, saying large retiree benefit costs had hurt the company. It was the industrial average's biggest decliner on a percentage basis.

Other big Dow decliners included Honeywell (HON: down $1.28 to $27.18, Research, Estimates), which lost 4.5 percent, and General Motors (GM: down $1.21 to $37.38, Research, Estimates), which lost 3 percent.

Selling on the Dow was fairly broad, with 25 out of its 30 issues trading lower.

The only notable advancer was Altria Group (MO: up $0.84 to $43.85, Research, Estimates), which added just under 2 percent after Morgan Stanley raised its 12-month stock price target for the parent of Philip Morris to $62 from $48 within a broader note on the tobacco industry.

The day's biggest merger news was in the biotech sector, where Biogen (BGEN: down $2.25 to $41.55, Research, Estimates) and IDEC Pharmaceutical (IDPH: down $2.01 to $36.96, Research, Estimates) said they agreed to combine in a stock deal worth about $6.7 billion. Both companies' shares shed more than 5 percent on the Nasdaq.

Bond yields edged down as prices rose, with the 10-year Treasury note yielding 3.32 percent. The dollar hit a new one-month high versus the euro, but declined against the yen.

Light sweet crude oil futures fell 31 cents to $29.17, while the price of gold fell $3.30 to $353.40.  Top of page

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