The Federal Open Markets Committee lowered interest rates by 0.5%, well in advance of its May 15 meeting, after being critized by Wall Street insiders for not reacting to sharp stock market drops in the last month.
Three previous 0.5% cuts -- two in January and one at the regular committee meeting March 20 -- had failed to spark a recovery, and traders, who had agitated for a cut of 0.75% of larger in March, were sharply disspointed when the market tanked after the March meeting. The Fed's statement said the first-quarter slowdown "threatens to keep the pace of economic activity unacceptably weak. As a consequence, the Committee agreed that an adjustment in the stance of policy is warranted during this extended intermeeting period."
The stock market embraced the news heartily; the Dow Jones Industrial Average rose more than 400 points and the Nasdaq was up more than 160 points by noon. Salomon Smith Barney bond analyst Robert Di Clemente headlined his report on the day's events with "The Cavalry Returns!" The Dow closed up 3.90%, to close at 10,615.60, a final gain of 398.90 points for the day; the Nasdaq closed up 8.13%, at 2,079.62 on a final gain of 156.40.
The Fed's news and encouraging earnings reports from General Motors, J.P. Morgan Chase, Intel Corp. and AOL Time Warner canceled the effects of another monthly drop in the Conference Board's consumer confidence index. AOL Time Warner announced it had met earnings expectations (see related story), and Intel stock was up $4.72 to $30.76. The chipmaker today reported first-quarter sales that beat lowered projections, and it expects second-quarter sales to improve, signaling that the PC market may have bottomed out. Several brokerage firms upgraded Intel stock today and the stock rose 19%.
All major ad agency stock bounced higher on the news. American Depository Receipt Shares of WPP Group, Havas Advertising and Cordiant Communications Group were up 10.21%. WPP was up 9.71% to close at $57.60, up $5.10; Havas rose 7.57%, closing up $0.88 at $12.50; and Cordiant rose 6.45% to close up $1 at $16.50. -- Mercedes Cardona
Copyright April 2001, Crain Communications Inc.