Archive for Wednesday, August 22, 2001

Wall Street recoils on forecast of continued ‘economic weakness’

August 22, 2001

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— Stock prices tumbled yet again Tuesday, carrying the Dow Jones industrials down 145 points after the Federal Reserve made its seventh interest rate cut of the year but failed to predict that a business recovery would occur soon.

The Nasdaq composite and Standard & Poor's 500 indexes also fell sharply in a selloff that came late in the session. Analysts said the widely anticipated Fed cut wasn't enough to offset the frustration of investors fed up with poor earnings and the lack of good economic news.

The Dow closed down 145.93 at 10,174.14, a decline of 1.4 percent, falling back from gains of as much as 58 points before the Fed decision.

The Nasdaq fell 50.05 to 1,831.30, a 2.7 percent loss, while the S&P; 500 skidded 14.15 to 1,157.26, a 1.2 percent decline. The closes were the weakest for both indexes since April 9.

"The Fed indicated the economy was weaker than most stock market participants had thought it was, which means a postponement in any earnings recovery," said David Lindsay, a fixed-income portfolio manager at Fleet Asset Management. "This upset some investors, who had expected an easier turnaround."

The Fed cut rates a quarter-percentage point, noting that consumer demand still exists but that business spending continues to deteriorate. The central bank expressed concerns about conditions here and overseas "that may generate economic weakness in the foreseeable future." The statement also left the door open to additional future cuts when the Fed next meets in October.

The agency's worried tone was enough to reverse a moderate stock advance that had begun in the morning as investors bet on a more upbeat Fed assessment or a bigger-than-expected rate cut.

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