Blue Chips Drop 28.32; Bonds Gain --- Rate Cut Causes Stir, But Traders Hoped It Would Be Bigger
Investors were happy that the Federal Reserve cut interest rates yesterday, but sad that the cut wasn't bigger, so they bid stocks through a series of gyrations that finally left them little changed.</br></br>In heavy trading at the time of the Fed announcement at about 2:15 p.m. EDT, the Dow Jones Industrial Average fell nearly 100 points in eight minutes. Then it climbed to its high for the day, only to fall again. The average closed down 28.32, or 0.35%, at 8080.52. On the New York Stock Exchange, however, advancers and decliners were about even.</br></br>Treasury bonds gained, since interest rates on new bonds will be lower than on existing bonds, and the dollar fell.</br></br>Stocks already had gained in broad anticipation of a cut of at least one-quarter point in the federal-funds rate, the rate at which banks lend one another money overnight. Traders had been hoping for a larger, half-point cut. Few were surprised when stocks fell on news of the smaller rate cut, and some said the quick recovery could herald continuing strength.</br></br>"I think it kind of bodes well," said Bill Schneider, head of block trading at Warburg Dillon Read, who noted that some investors have been holding money out of the market. "I think a lot of cash has been raised," he said, partly as "window dressing" for quarterly fund-management reports, to show that mutual-fund managers are being conservative.