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Wall St. cheers Fed news
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August 22, 2000: 4:54 p.m. ET
Dow and Nasdaq struggle to hold gains after Fed leaves rates unchanged
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - U.S. stocks held gains Tuesday as investors breathed a sigh of relief after Federal Reserve policy makers announced they would leave interest rates unchanged.
The Dow Jones industrial average rose nearly 60 points while the Nasdaq composite index gained just over 5 points. Both major indexes rallied after the Fed news but investors employed the "buy on the rumor, sell on the news" tactic, which analysts said was expected.
 The major indexes moved steadily higher ahead of the highly anticipated Fed decision as investors waited to hear what the accompanying statement would say.
"We think we're probably going to end up in a profit-taking phase," said Harry Laubscher, market analyst at Tucker Anthony. "What the Fed did was expected - it continued its bias toward tightening and the market just got ahead of itself by running up in advance of that news, so we think we're going to sell off for a while."
The Dow Jones industrial average, led higher by J.P. Morgan, gained 59.34 to 11,139.15. The Nasdaq composite index -- bolstered by positive analyst comments about business-to-business Internet stocks - gained 5.12 to 3,958.27. The S&P 500 was little changed, slipping 1.35 to 1,498.13.
Market breadth was mixed. On the New York Stock Exchange, advancers beat decliners 1,443 to 1,333 as more than 819 million shares changed hands. On the Nasdaq, losers nudged out winners 2,008 to 1,986 as more than 1.4 billion shares were traded.
In currencies, the dollar rose against the euro but was little changed versus the yen. Treasurys were mostly higher.
Fed leaves interest rates alone
The Federal Open Market Committee opted to keep the influential fed funds rate -- the target rate at which banks borrow from each other overnight -- at its nine-year high of 6.5 percent. This is the first time since June 1999 that the FOMC has left rates unchanged for two consecutive policy meetings.
Policy makers did say they were on inflation watch but people basically have decided the Fed would never raise rates so close to a presidential election - the next Fed meeting is October 3 - Ehrenkrantz King Nussbaum's chief market strategist Barry Hyman said. "Net-net, the commentary was positive - I liked the productivity understanding."
Analysts mostly agree that interest rate hikes may be done for the year but a Goldman Sachs analyst cautioned investors to remain watchful of economic news because the Fed may return to its tightening tactics at the start of next year.
"The Fed is on hold at least through the election but I think we'll get a little more tightening at the start of next year," William Dudley, chief U.S. economist at Goldman Sachs, told CNN's Street Sweep. "I think, for the time being, we have a soft landing. But I think the reality is the stock market rally will probably add a little fuel to the economy and the tightening will return next year."
After six rate increases since June 1999, most of the incoming economic data has been pointing to a slowing economy. This has calmed some of the skittishness harbored by investors who worried that more rate hikes could hurt their investments.
In a note to clients, Merrill Lynch chief economist Bruce Steinberg cited other factors that support a steady Fed. "Aside from productivity, there are three key economic indicators that matter to the Fed - employment, retail sales, and the CPI. We expect inflation to remain well behaved."
Investor focus returns to fundamentals
Analysts said investors will now turn their attention back to corporate profit and revenue growth going forward.
"I think what people will begin to focus on is earnings going forward," said Alan Kral, portfolio manager at Trevor Stewart Burton.
Looking ahead, Todd Eberhard, stock strategist for Eberhard Investment Associates and guest co-host of CNNfn's Market Call, sees stocks, and hard-hit tech shares in particular, moving higher during the remainder of the year (413K WAV) (413K AIFF).
Ehrenkrantz's Hyman agreed. "I think the market is setting itself up for continued upside behavior. The only thing keeping me from being ebullient is it's nearing September and September usually brings a little pain but I think there's little downside to the market."
Financials, B2B attract buyers
Interest rate-sensitive financial issues boosted the Dow. The biggest gainer was J.P. Morgan (JPM: Research, Estimates), rising 3-9/16 to 148-1/2 while Citigroup (C: Research, Estimates) rose 5/8 to 77-1/2.
Explaining the interest in Morgan and other financial issues, Jefferies & Co.'s chief market analyst Art Hogan said, "Today's the kickoff of the interest rate environment getting friendlier."
Business-to-business Internet stocks attracted buyers and bolstered the Nasdaq.
Ariba (ARBA: Research, Estimates) gained 2-1/2 to 142-3/4 after Bear Stearns initiated coverage with a "buy" rating, citing its ability to develop significant distribution channels. Credit Suisse First Boston expected better-than-expected third-quarter results from Ariba and has a "buy" rating on the stock.
Other B2B stocks also rose after getting "buy" ratings from Bear Stearns. They include Commerce One (CMRC: Research, Estimates), Clarus (CLRS: Research, Estimates), FreeMarkets (FMKT: Research, Estimates), Global Sources (GSOL: Research, Estimates), and Opus360 (OPUS: Research, Estimates).
 Large-cap tech issues also rose. Sun Microsystems (SUNW: Research, Estimates) gained 1/8 to 122-3/16, Intel (INTC: Research, Estimates) gained 1/16 to 72-1/8, and Microsoft (MSFT: Research, Estimates) moved up 5/8 to 71-1/4.
"The big-cap technology leaders are doing reasonably well," said Joseph Battipaglia, chief strategist with Gruntal & Co. "I still believe technology companies will provide leadership. They will be followed alongside by pharmaceuticals and financials."
Ford rises despite estimate reductions
In other company news, Ford Motor (F: Research, Estimates) shares gained 1/4 to 27-1/2 despite warnings from two brokerages that the Firestone tire recall involving Ford trucks and sport utility vehicles will affect results. Merrill Lynch cut its earnings estimate for Ford by 3 cents a share to $4.53, citing a 6 cents a share negative impact for Ford's third quarter. Paine Webber also expects Ford's third-quarter earnings to be impacted but reiterated its "buy."
 The nation's No. 2 automaker announced late Monday it will halt production at three truck assembly plants for two weeks starting Aug. 28 to free up 70,000 tires for use as replacements in the Firestone recall. 
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