US Market loses steam in the final hour

Market makes a great start after a positive GDP report but drops after Fed rate cuts

US Market started off the day strongly today, Wednesday, 30 April, 2008 but ended the day on a negative note after Federal Reserve decided to slash overnight lending rate and discount by another quarter percentage point to 2% and 2.25% respectively. Market traded in sideways fashion for most part of the ay. A stronger than expected GDP report failed to keep its impact for long on the market. Three of the major economic sectors finished the session in positive ground, ie energy, materials and telecom.

The Federal Open Market Committee announced today that it cut the fed funds and discount rates by 25 basis points. This left the fed funds rate at 2% and the discount rate at 2.25%. The Fed said economic activity remains weak, while inflation expectations are picking up.

The market was up by 176 points at one point in the day. Even, after Fed’s decision, market was trading higher. But it lost all steam in the final hours of trading. At the end, The Dow Jones industrial Average ended with a loss of 11.8 points at 12,820.18. The Nasdaq Composite Index, finished lower by 13.3 points at 2,412.3. S&P 500 finished lower by 5.3 points at 1,385.5.

Sixeen out of thirty Dow components ended in the red today. Citigroup was the main Dow loser. The stock slipped by more than 4% today.

The majority of earnings reports were better than expected. Colgate-Palmolive, General Motors and Procter & Gamble - all topped expectations.

On the economic report front, advance first quarter GDP rose by 0.6%, topping the consensus estimate of 0.5%. Separately, the ADP Employment Report, a measure of nonfarm private employment, showed an increase of 10,000 jobs in April, easily beating the consensus estimate that called for a decline of 60,000.

The April Chicago Purchasing Managers' Index - the regional manufacturing survey came ahead of expectations at 48.3, which were up from the previous reading of 48.2 and also ahead of expected 47.5. Because the number is below 50, it reflects contraction in manufacturing activity in the Chicago region.

Crude prices dropped by more than $2 today as the weekly inventory report by the Energy Department showed that crude supplies rose more than forecast. Crude-oil futures for light sweet crude for June delivery closed at $113.46/barrel (lower by $2.17/barrel or 1.9%) on the New York Mercantile Exchange.

EIA reported today that U.S. crude oil imports averaged 10.2 million barrels per day last week, up 174,000 barrels per day from the previous week. Traders had anticipated that U.S. crude-oil supplies advanced 950,000 barrels in the week ended 25 April. Crude inventories were boosted by increasing imports. U.S. refineries operated at 85.4% of their operable capacity last week, down 0.2% from the last week.

In the currency market today, the dollar fell against major counterparts after the Fed decision. The dollar index, which tracks the performance of the greenback, dropped 0.5% to 72.54.

Volume on the New York Stock Exchange topped 4.4 billion, while nearly 2.2 billion shares were traded on the Nasdaq, with advancing stocks ahead of those declining by 8 to 7 on the NYSE and decliners edging just ahead of advancing issues on the Nasdaq.

For tomorrow, April's vehicle sales data are due tomorrow, as are March's personal income and spending figures. The weekly jobless claims figure is also due prior to the market's open followed by the ISM Manufacturing Index for April and construction spending data for March. On the earnings front, Exxon Mobil is the Dow component along with a few other companies to report before market opens