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Wall St. up on rate hopes
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February 26, 2001: 5:16 p.m. ET
Speculation that borrowing costs will soon fall sends investors into stocks
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - U.S. stocks rose Monday on growing optimism for a fast-approaching interest rate cut by the Federal Reserve.
Financial, industrial and technology shares all gained as investors, hammered by weakening corporate profits, bet the Fed will cut rates before its regular meeting next month.
The next scheduled meeting of central bank policy makers comes March 20. But the lack of a regular gathering didn't stop the Fed from slashing borrowing costs on Jan. 3 to revive the economy. Taken by surprise, the market soared on that news.
 "There's increased speculation that the Fed will be cutting interest rates between meetings," said Chuck Carlson, portfolio manager at Horizon Investment Services.
This speculation has accelerated since Friday afternoon when a former Fed governor upped the odds for an inter-meeting move. On Monday, that same ex-governor, Wayne Angell, who now works for Bear Stearns, put an even higher probability on a surprise rate cut.
At the same time, fresh data Monday showed that home sales took a surprisingly steep tumble last month, giving Fed officials another reason to lower interest rates.
Still, Horizon's Carlson expects the market's gains to be short lived as companies continue to disappoint investors with weakening sales. Both Texas Instruments and Procter & Gamble warned Monday that their quarterly financial results will come up short.
But the broad market, which has fallen for most of February, moved higher. The Dow Jones industrial average rose 200.63 points, or 1.9 percent, to 10,642.53 while the Nasdaq composite index gained 45.99, or 2 percent, to 2,308.50.
 The S&P 500 advanced 21.79, or 1.8 percent, to 1,267.65.
More stocks rose than fell. Advancing issues on the New York Stock Exchange topped declining ones 2,179 to 885 as 1.1 billion shares traded. Nasdaq winners beat losers 2,408 to 1,344 as 1.8 billion shares changed hands.
In other markets, the dollar rose against the euro and yen. Treasury securities edged higher.
Expecting a surprise
Speaking with more certainty than he did Friday, Bear Stearns economist Wayne Angell said there was a four-in-five chance the Fed will cut interest rates by half a percentage point this week.
Financial stocks, ever sensitive to interest rates, rose. J.P. Morgan Chase (JPM: Research, Estimates) gained $1.50 to $48.55 while Citigroup (C: Research, Estimates) advanced $2.10 to $50.30.
Some of the day's most promising corporate news came from Lowe's (LOW: Research, Estimates), which projected higher-than-expected earnings, sending its shares up $4.33 to $58.91.
Competitor Home Depot (HD: Research, Estimates) went along for the ride, rising $3.74 to $43.75, while Wal-Mart (WMT: Research, Estimates) jumped 79 cents to $51.07.
 Other stocks tied to rates also gained. General Motors (GM: Research, Estimates) climbed $2.54 to $55.55 while International Paper (IP: Research, Estimates) advanced $1.37 to $37.20.
Elizabeth Mackay, chief market strategist at Bear Stearns, said that with key economic data on consumer sentiment and manufacturing coming in the days ahead, this week could be a likely time for the Fed to cut borrowing costs.
"I think if they were to make such a move, this would be a logical week," Mackay told, CNNfn's The Money Gang.
Many tech shares also rose two sessions after the Nasdaq fell to its lowest levels in more than two years.
Among them, Microsoft (MSFT: Research, Estimates) gained $2.81 to $59.56. The software maker and its lawyers began arguments Monday before an appeals panel in an effort to overturn last year's antitrust ruling against it.
WorldCom (WCOM: Research, Estimates) rose $1.19 to $17.69.
Housing stalls
The latest economic data suggested that the housing market, like the rest of the economy, is cooling. Sales of existing homes fell 6.6 percent to an annual rate of 4.65 units in January, the National Association of Realtors said. The figures surprised most economists who expected a slight gain.
"If housing is sliding, the Fed will have to step up its aggressiveness," said Mike Moran, chief economist at Daiwa Securities.
The rest of the week brings other important reads on the economy. A key indicator of consumer sentiment, the Conference Board's consumer confidence index, is expected to have fallen again in January as Americans reacted negatively to the falling stock market and growing number of corporate layoffs.
Durable goods orders and new home sales for January also are expected to be down when the government reports separately on those figures Tuesday.
The Federal Reserve cut interest rate twice in January to keep the economy from dipping into recession. The second cut came at the Fed's regular meeting. 
Still, companies are issuing a steady drumbeat of problems.
Among the latest, Texas Instruments (TXN: Research, Estimates), said sales in the current quarter will tumble 20 percent. The company, in its second warning of the year, said the slowing U.S. economy is hurting demand for its semiconductor products.
Texas Instruments fell $1 to $29.15 while Intel (INTC: Research, Estimates), the biggest chipmaker, lost 44 cents to $29.50.
Texas Instruments joined a long list of tech firms warning that quarterly financial results will disappoint Wall Street. But not all of the problems were in technology.
Procter & Gamble (PG: Research, Estimates) tumbled $3.92 to $71.11 after warning its earnings will come up short. Blaming the financial problems in Turkey, the consumer products maker said earnings in its third quarter could come in as much as 3 cents a share below current forecasts on Wall Street.
Problems also persisted for DaimlerChrysler (DCX: Research, Estimates), which lost money in the final three months of 2000 and warned of falling sales and earnings ahead. American depositary receipts of the car maker slipped 68 cents to $48.12.
Corporate profits may get worse before they get better. Analysts surveyed by First Call expect that the average earnings for companies in the S&P 500 will slide by 3.6 percent this quarter.
Lower borrowing costs can take months to affect the economy. As such, Robert Stovall, market analyst at Prudential Securities, sees any rate-cut rally as temporary.
"I think it will be relatively short-lived," Stovall told CNNfn's Street Sweep.
And despite the day's gains, the Nasdaq is still more than 54 percent below its high last March. The S&P 500, a broader index, is off 17 percent from its high in April
Bernie Schaeffer, of Schaeffer's Investment Research, sees another leg downward on the market. Investor sentiment, he contends, remains too bullish, a sign that the bottom has not yet formed.
"As contrarians, the only thing to fear is the lack of fear itself," Schaeffer wrote in his weekly note to clients.
The day's gains also bring another problem. Any lack of action by the Fed this week could lead to selling. So, too, could an actual rate cut if investors conclude that the benefits of lower borrowing costs have already been factored into stock prices. 
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