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US Stocks Fall Despite New Interest Rate Cuts - 2002-11-07

One day after the U.S. Federal Reserve unexpectedly cut interest rates, U.S. stocks fell Thursday following warnings by technology giant Cisco Systems about its earnings.

After a nearly month-long rally, the U.S. stock market closed in the red in all three major indices.

The Dow Jones Industrial Average fell 184 points, closing at nearly 8,586. The technology heavy NASDAQ Composite Index dropped nearly 42 points closing at 1,377. The broader Standard and Poors 500 also fell 21 points.

Analysts say the tumble, which comes one day after the Federal Reserve Board slashed interest rates by a surprise half percentage point, is a response to a warning by Cisco Systems, the major manufacturer of internet traffic equipment. After Wednesday's trading, Cisco, which weighs heavily on the NASDAQ, revealed that it expects little to no growth in in the next quarter.

On Thursday Cisco's shares dropped 4.1 percent to $.61 a share. Retail chain stores also reported weak sales.

"I wouldn't link the markets move today to yesterday's rate cut too closely because the market is absorbing some earnings news from some major companies and also some fresh data on the consumer but it certainly does suggest that the economy is fairly weak," said Edward McKelvey, an economist at the New York investment firm Goldman Sachs. "If the companies can not report strong earnings, if the consumer continues to be weak."

However, Mr. McKelvey says the drop does reveal investor caution after the Federal Reserve Bank's move to help jump-start the economy.

Although it is difficult to predict, he says in a stronger economy, stocks would probably have continued to rally in response to the rate-cut and following sweeping gains by the Republican Party in U.S. elections.

"If you had all those things working and the market had a great deal of confidence in the economy's response, even eventual response, I think the market would be doing a lot better," he said.

Analysts say that investors are reflecting to see where the market and the economy will go next.