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Nasdaq hits low for year
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December 19, 2000: 5:18 p.m. ET
Nasdaq falters like it's 1999, hitting worst levels in 16 months
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - The Nasdaq composite index tumbled to its lowest levels in 16 months Tuesday after the Federal Reserve delayed any interest rate cut until next year.
Saying it was concerned about the slowing economy, the Fed declined to lower borrowing costs. The decision preserves some of the highest rates in a decade – rates partially responsible for handing the Nasdaq what could be its worst year on record.
"The market needs to have interest rates cut," said Lewis Borsellino, CEO of TeachTrade.com, told CNNfn's market coverage. "I think the Fed has overdone it."
Though expected, the decision could delay any rate cut until late January, a six-week period when companies could continue warning about the profit shortfalls that have plagued the markets for months.
 "Apparently those Nasdaq traders are feeling a little bit Scrooged," said Richard Yamarone, director of economic research at Argus Research. "They had these visions of an immediate rate cut. It seems they are going to have to wait."
Stocks, which rose ahead of the afternoon decision, retreated steadily toward the close. The announcement, though widely forecast, apparently surprised those who had bid up stocks on optimism for a rate cut.
"The equity market is clearly more vulnerable to the Fed not taking any action," Mike Ryan, senior bond analyst at Prudential Securities, told CNNfn's market coverage.
The Nasdaq fell 112.81 points, or 4.3 percent, to 2,511.71. That's well below the previous low for 2000: 2,597.93 on Nov. 30. The losses also handed the index its worst close since Aug. 10, 1999, when the Nasdaq ended at 2,490.11.
In the span of nine months, the index that was once the proxy for the bull market has lost 50 percent of its value. It's also down 38 percent this year. Tuesday's losses, if they hold for seven trading sessions, would give the index its worst annual performance since the creation of the Nasdaq Stock Market in 1971.
 Non-technology stocks also fell, but not as sharply. The Dow Jones industrial average lost 61.05 to 10,584.37, bringing it annual decline to 7.9 percent.
The S&P 500 declined 17.14 to 1,305.60 and is down 11 percent this year.
Market breadth was mixed. Advancing issues on the New York Stock Exchange edged out declining ones 1,463 to 1,432 on trading volume of 1.3 billion shares. Nasdaq losers topped winners 2,654 to 1,342. More than 2.2 billion shares changed hands.
In other markets, the dollar was little changed the euro but rose versus the yen. Treasury securities fell.
Fed sticks to plan
The Fed's policy-making arm, the Federal Open Market Committee, left the central bank's target for overnight loans between banks at 6.5 percent.
At the same time, the Fed's statement acknowledged that the cooling U.S. economy has hurt corporate profits, consumer confidence and even the stock market. In its so-called policy bias, or inclination, the central bank changed to an "easing bias" from a "tightening bias."
 While this paves the way for a rate cut next year, it came with some frank talk about the economy's weakness.
"The drag on demand and profits from rising energy costs, as well as eroding consumer confidence, reports of substantial shortfalls in sales and earnings, and stress in some segments of the financial markets suggest that economic growth may be slowing further," the central bank said.
Unlike past statements, the bank made no mention of tight labor markets and downplayed any risk of inflation. Still, the Fed decided to wait before lowering the costs of borrowing to spur growth.
"I think this is one time the Fed is behind the curve," Alan Skrainka, chief market strategist at Edward Jones, told CNNfn's market coverage.
With unusual swiftness, the Fed has gone from warning that strong growth could cause inflation and derail a record expansion to cautioning about a slowdown.
"If we are in an economy that is weakening ... that's not good for profits," Diane Swonk, chief economist at Bank One, told CNNfn's market coverage.
That's been the problem for the market for months.
Microsoft (MSFT: Research, Estimates) fell for a third day Tuesday, following a profit warning late Thursday. Shares of the software maker lost $2.75 to $45.06, levels not seen since 1998.
Yahoo! (YHOO: Research, Estimates) tumbled $3.50 to $28.50 and is now at its lowest point in more than two years.
The Fed began raising interest rates in the summer of 1999 to keep an expanding economy from generating the kind of inflation that could derail the good times.
 With companies, investors and consumers feeling the pinch of higher rates, some analysts called for an immediate cut.
"The patient is in need of medicine, fast," Tony Crescenzi, bond analyst at Miller Tabak & Co., said before the Fed decision.
Among the afflicted, SBC Communications (SBC: Research, Estimates), which said it expects 2001 earnings-per-share growth to be at the low end of expectations, or between 11 percent and 14 percent. Shares of the regional phone company, which blamed the shortfall on a slowing economy and delays in offering long-distance services, tumbled $6.75 to $46.56.
Martin Alonso, senior trader at ING Barings, told CNNfn's market coverage that he sees technology stocks doing better in the first quarter of 2001. (387K WAV) (387K WAV)
Engine maker Cummins Inc. fell almost 6 percent after warning that it expects to lose between 35 cents and 45 cents per share in the fourth quarter. Cummins (CUM: Research, Estimates) stock fell $2.13 to $33.69.
Among other losers, investment bank Morgan Stanley Dean Witter (MWD: Research, Estimates) fell 25 cents to $69 after saying fiscal fourth-quarter earnings fell to $1.06 a share, 18 percent below Wall Street forecasts of $1.29 a share.
But there were still some bright spots.
Goldman Sachs (GS: Research, Estimates) rose $3.44 to $89.38 after saying its fiscal fourth-quarter earnings before a charge topped forecasts, even though they fell to $1.50 per share from $1.54 per share earned a year earlier. Analysts surveyed by First Call expected Goldman to earn $1.38 a share.
Investors sought safety in drug shares, among the year's best performing sectors. Merck (MRK: Research, Estimates) rose to $2.19 to $91.50 while Pfizer (PFE: Research, Estimates) climbed 94 cents to $47.44.
In an economic report released Tuesday, the U.S. trade deficit narrowed slightly in October to $33.18 billion from a revised $33.74 billion in September, a record.
The latest tally from the Department of Commerce shows that Americans' appetite for imports remained at a strong $124.4 billion. As usual, that figure far offset the value of American exports, $91.2 billion. The numbers matched expectations. 
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