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Wall St. takes a break
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January 4, 2001: 5:12 p.m. ET
A rate-cut rally gives way to mild retreat as investors consider Fed's move
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - The Nasdaq composite index lost ground Thursday as investors, sticking to a familiar pattern, digested a recent, record-setting rally by selling stocks.
Applied Materials, JDS Uniphase and Sun Microsystems all pulled back as investors unloaded Wednesday's winners. And drug, oil and tobacco stocks, which soared last year, also retreated as the New York Stock Exchange recorded its busiest day in history.
The day's technology dip follows the script. Nine of the Nasdaq's 10 biggest gains have come in the past 12 months; all followed with losses.
 But none of those gains topped Wednesday's, when the Nasdaq surged more than 14 percent after the Federal Reserve slashed interest rates to revive the economy.
That surprise rate cut was still affecting the markets Thursday, as investors unloaded defensive stocks such as Merck, Philip Morris and Exxon Mobil that generally rise as the economy cools.
But J.P. Morgan and Citigroup, down in recent days, rose as investors bought companies that may profit from lower rates.
"People are putting that money into some of the cheaper stocks," Patrick Boyle, trader at Credit Suisse First Boston told CNNfn's market coverage. (370K WAV) (370K AIFF).
The mixed action comes as investors handicap the Fed's sudden shift in the interest rate environment. Another potential curveball comes early Friday, when the government released last month's closely watched jobs figures.
On Thursday, the Nasdaq lost 49.86 points, or 1.9 percent, to 2,566.83, taking back a fraction of Wednesday's 324.82 gain. The Dow Jones industrial average fell 33.34 to 10,912.41, while the S&P 500 shed 14.28, or 1 percent, to 1,333.35.
 Despite these losses, more stocks rose than fell. Advancing issues on the New York Stock Exchange edged declining ones 1,601 to 1,370 as a record 2.1 billion shares traded. Nasdaq winners topped losers 2,189 to 1,792. More than 2.5 billion shares changed hands.
In other markets, Treasury securities rose. The dollar fell against the euro but advanced versus the yen.
A new rate landscape
On the Nasdaq, JDS Uniphase (JDSU: Research, Estimates) lost $5.63 to $48 following a gain of more than $14 Wednesday. Applied Materials (AMAT: Research, Estimates), which rose nearly $11 in the previous session, sank $5.25 to $44.38.
 Investors also fled many of last year's winners, betting that their recent run may be over. Philip Morris (MO: Research, Estimates), the Dow's best performer in 2000, shed $1.75 to $40.50, Merck (MRK: Research, Estimates) declined $4.13 to $85, and Exxon Mobil (XOM: Research, Estimates) fell $2.38 to $82.88.
The selling comes amid a starkly different interest rate landscape than existed when the trading year began Tuesday.
The Federal Reserve Wednesday slashed a key interest rate by a half-percentage point, calming a market plagued by concern about a slowing economy. On Thursday, stocks sensitive to interest rate changes rose.
J.P. Morgan Chase (JPM: Research, Estimates) advanced $2 to $52.88, while Citigroup (C: Research, Estimates) rose 81 cents to $55.63.
Lehman Brothers (LEH: Research, Estimates) gained 94 cents to $77.06 after saying fiscal fourth-quarter profit rose 33 percent to $1.46, beating forecasts.
Rival brokerage Bear Stearns (BSC: Research, Estimates) said its fourth-quarter income fell 6 percent to $195 million, or $1.36 a share. But that was still above Wall Street forecasts of $1.11 a share. Bear Stearns rose $1.56 to $55.50.
While several banks lowered their own borrowing rates Wednesday, Fed rate cuts moves often take months to spur the entire economy.
"They put a Band-Aid on it yesterday," said Joe Cangemi, a NYSE specialist with Francis P. Maglio, told CNN's Street Sweep. "You've got to let that do some work."
In a nod to that work, a fresh round of corporate revenue warnings emerged Wednesday. Meanwhile, some of the nation's biggest retailers posted discouraging holiday sales. And a surprisingly large number of Americans filed for unemployment benefits last week.
The weakness raised questions about whether the Fed needs to lower interest rates further.
"They still have to cut more, frankly," Jim Glickenhaus, portfolio manager at Glickenhaus & Co., told CNNfn's In the Money.
Economy still shaky
One of the day's biggest losers, Inktomi (INKT: Research, Estimates), tumbled $4.63 to $13.88 after the software maker warned that its fiscal first-quarter revenue and earnings will come in below its previous expectations.
At the same time, three of the nation's largest retailers, Wal-Mart (WMT: Research, Estimates), Kmart (KM: Research, Estimates) and J.C. Penney (JCP: Research, Estimates), posted disappointing holiday sales.
Wal-Mart fell $2.25 to $56.19, Kmart lost 19 cents to $30, and J.C. Penney, which has fallen 39 percent over the last 52 weeks, climbed 56 cents to $12.56.
"I think you have a satiated consumer," Michael Exstein, retail analyst at Credit Suisse First Boston, told CNNfn's Before Hours.
The latest figures on the job market suggested weakness. The number of Americans filling for unemployment benefits rose by 16,000 to 375,000 last week, above forecasts.
"Things will likely get worse before they get better," said Ian Shepherdson, chief economist at High Frequency Economics, referring to the labor market.
Meanwhile, Challenger Gray and Christmas Inc., the outplacement firm and jobs consultancy, said the number of job cuts tripled in December from the previous month as U.S. employers slashed 133,713 jobs.
The most comprehensive look at employment situation comes Friday, when the Labor Department releases the December unemployment rate and nonfarm payroll figures.
Economists surveyed by Brieifing.com expect that unemployment ticked higher to 4.1 percent from 4 percent in November. Payrolls are seen growing by 133,000, a faster pace than the 94,000 jobs created in the prior month. 
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