Hit hard: Tech, banks, builders
Stocks tanked and dealt hopes for a year-end rally a big setback, after the Federal Reserve cut its target for short-term interest rates by a quarter of a percentage point, disappointing investors looking for a bigger cut to give the economy a jolt.
The Dow Jones industrial average sank 294 points, or 2.1 percent, to 13,433, for its biggest loss since Nov. 7, when the market was spiraling into its first correction since 2002.
Wall Street's sour reaction stopped cold what had been a steady, 1,000-point recovery by the Dow since Nov. 26, when the market bottomed after losing 10 percent in value from its early October high.
The sell-off showed plain and simple disapproval of the Fed's move, says Oliver Wiener, trader at BTIG. The Dow had been up as much as 40 points just ahead of the Fed's announcement. "It's just not enough," Wiener says, adding traders wanted a half-percentage-point cut.
The market's unhappiness with the Fed's move permeated several key areas, including:
- Banks and other financial institutions. Financial companies, which have suffered billion-dollar losses from subprime mortgages, bore the brunt of the sell-off. Citigroup plunged $1.54 to $33.23 despite naming Vikram Pandit, head of investment banking, CEO, putting him in charge of repairing the bank's bad-investment problems. The Financial Select Sector SPDR exchange traded fund, which tracks the financial industry, fell 5.1 percent.
- Technology stocks. The Nasdaq composite index, the market's bright spot this year, sank 67 points, or 2.4 percent, to 2652. Several tech leaders were dragged down, too. Apple sank $5.67 to $188.54, and Google fell $19.22 to $699.20.
- Home builders. A vicious sell-off in home builders' stocks was the top reason why the S&P 500 fell 38 points, or 2.5 percent, to 1478. The SPDR S&P Homebuilders exchange traded fund fell 7.3 percent as investors had second thoughts about whether the industry is hitting bottom.
The smallish Fed rate cut only worsens that fear, says Stuart Freeman of A.G. Edwards. "It was a weak cut. It doesn't help us a great deal."
Wall Street had more bad news to deal with. General Electric said it expected to earn at least $2.42 a share in 2008, shy of the $2.49 a share in earnings expected by analysts, says Reuters Estimates.
The question now is whether the stock market is headed for another vicious sell-off like it already suffered twice this year.
That could mean more rough weeks ahead for stock investors, says David Joy of RiverSource Investments. "We will have to retest some of the ground we gained over the last few weeks," he says.
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