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Lou Dobbs Moneyline

Dow Climbs 399.10 to 10,615.83; Nasdaq Rockets 156.22 to 2,079.44; Federal Reserve Cuts Interest Rates in a Surprise Move

Aired April 18, 2001 - 18:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WILLOW BAY, CNN ANCHOR: A billion dollars a minute in market value created today on Wall Street and you can thank the Federal Reserve. This is MONEYLINE for April 18th, 2001.

ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Willow Bay.

BAY: Welcome to MONEYLINE. A scorching rally in the stock market today, sparked by Alan Greenspan, stepping in with an interest rate cut that no one expected. Just before 11:00 a.m. eastern, Federal Reserve policy-makers slashed the benchmark Fed funds rate by a half point to 4.5 percent.

And the element of surprise in the Fed's move weeks ahead of their regularly scheduled meeting sent the bulls stampeding on Wall Street. The Dow soared almost 400 points, the third best point rally ever to close at 10,615. That, of course, was a gain of nearly 4 percent.

The rally was even more remarkable on the Nasdaq, which rocketed 156 points, or over 8 percent. The fourth best percentage gain ever. And the S&P surged 46 points or almost 4 percent, ending at 1238.

Today's Fed decision is the fourth half-point cut in rates since the beginning of the year, the most aggressive easing of the Greenspan era. We have extensive coverage of the move and dramatic reaction with Peter Viles, Terry Keenan, and Greg Clarkin. We begin with Greg who has a play-by-play of what was a memorable day in the markets -- Greg.

GREG CLARKIN, CNN CORRESPONDENT: And Willow, this was a day when Alan Greenspan reclaimed his title as a hero to investors. The Fed chairman engineering a move that hit Wall Street like a thunderbolt and had traders scrambling for superlatives, and even before the trading began, investors had plenty of reason to buy.

(BEGIN VIDEOTAPE)

CLARKIN (voice-over): It was already shaping up as a good day for Wall Street thanks to good news from Intel.

UNIDENTIFIED FEMALE: Intel's upbeat outlook is boosting technology shares across Europe. CLARKIN: Minutes later, more upbeat news from the earnings front. Pfizer easily tops earnings estimates, as does CNN parent AOL Time Warner.

UNIDENTIFIED FEMALE: AOL Time Warner posting a profit, cash earning per share of 23 cents, three cents better than....

CLARKIN: Then Merrill Lynch joins the crowd, posting better than expected earnings. It all sets Wall Street up for a strong opening.

9:30: the opening bell. The Dow soars to a triple-digit gain in the first 1/2 hour of trading, and the Nasdaq jumped sharply. Impressive gains, but nothing compared to what was just around the corner.

10:55.

UNIDENTIFIED FEMALE: Hang on. I've got to interrupt, because according to Reuters, the Federal Reserve has just cut the Fed funds rate.

CLARKIN: Alan Greenspan and company throw Wall Street a surprise party, complete with a half point interest rate cut. Traders go into overdrive.

UNIDENTIFIED FEMALE: There was this huge roar that went up in the floor. You started to see people running, pointing to the ticker here, and those snaps were coming across the wires as they're seen on the trading floor.

CLARKIN: The Dow turns a more than hundred point gain into a 400 point gain in just a matter of minutes. The Nasdaq races to an almost 10 percent gain. The Feds move leaves traders stunned.

JOE CANGEMI, FRANCIS P. MAGLIO & CO.: No one knew what was going on. When the headline came across, the sound just became deafening.

CLARKIN: 2:00 p.m. The Dow and Nasdaq refuse to give up their big gains. And traders were giddy with the boldness of the Fed's move.

SAM GINZBURG, GRUNTAL & CO.: As far as moves go, as rate cuts go, this has to go down in history as the best one ever.

CLARKIN: 4:00 p.m. The closing bell brings the rally to an end. The Dow up 399, almost a 4 percent gain. The Nasdaq soared 156 points or more than 8 percent.

(END VIDEOTAPE)

CLARKIN: This rate cut pumped new life back into many a tired trader. And those staggering gains in the Dow and the Nasdaq had investors hearkening back to a much more bullish time of just a few years ago -- Willow.

BAY: Ah, yes, Greg. Remember those days? CLARKIN: Seems like a long time ago.

BAY: Greg Clarkin, thank you.

The most intriguing question to emerge from today's Fed decision can be summed up in two words: Why now? Peter Viles takes a look.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): With criticism mounting that the Fed hasn't moved quickly enough to stop a recession, Alan Greenspan and colleagues managed to answer critics and surprise the stock market at the same time.

DIANE SWONK, BANK ONE: This was a complete surprise, no one was expecting a intermeeting move. So, why not move when they're not expecting it.

VILES: The surprise cut is the Fed's fourth half point cut this year, reducing the federal funds rate to 4 1/2 percent, its lowest level in six and a half years. Since the Fed last cut rates on March 20, Greenspan and his colleagues have seen numerous signs of deepening economic weakness.

The economy shed 86,000 jobs in March. First time jobless claims hit a five-year high. Retail sales fell in March, and Cisco CEO John Chambers said business had slowed as if hit by a hundred-year flood.

ROBERT BARBERA, THE HOENIG GROUP: The simplest explanation is the economy is weak by anybody's measure, there's no inflation and the funds rate is high. You ease.

VILES: Others saw the Fed timing the move to coincide with a stock market rally for maximum impact.

JOSEPH LAVORGNA, DEUTSCHE BANK SECURITIES: I think this means, that the Fed waited for the stock market to go up a little bit and then cut rates and effectively reinforce the price action, and therefore, set a bottom on stocks.

VILES: For its part, the Fed said: "consumption and housing expenditures have all held up reasonably well." But voiced several worries about business spending. Saying: "capital investment has continued to soften, and could weaken further because business has faced an erosion in profitability and rising uncertainty about the business outlook."

(END VIDEOTAPE)

VILES: The Fed today kept in place its bias toward future rate cuts, and the betting on Wall Street tonight is that the Fed will in fact cut rates again on May 15th. The questions on investors' minds already: will the next rate cut be another half a point, or only a quarter point?

BAY: You said it, Pete, "already." Peter Viles, thanks. Wall Street today was a sea of green and let's take a quick look at some of the big-cap winners. On the Nasdaq: Intel, Microsoft, Cisco, Dell, and Oracle all jumped 6 percent or more.

Big Board winners cut across all sectors: AOL Time Warner -- parent of this network -- GE, GM, EMC, and AMD. They all soared 5 percent or more.

Impressive gains, but does today's buying spree signal any sort of turning point? Let's go to Terry Keenan at the New York Stock Exchange.

Now, Terry, we've seen several explosive rallies like this so far this year, but the gains haven't stuck. Did you get the sense that this one was any more convincing?

TERRY KEENAN, CNN CORRESPONDENT: Well, traders would certainly like it to be, Willow. They were calling this divine intervention on the part of the Fed Reserve. I took a look back at that monster rally we got on January 3 -- that of course was when we got the Fed's last surprise rate cut. The rallies look remarkably similar.

Back then, we had record volume of just about in line of what we had today. About 1.86 billion shares, today we had 1.9 billion shares trading here on the Big Board. But, if you look at today's rally, it actually was a bit less impressive than on January 3. Back then, the Nasdaq rallied 14 percent, today, the Nasdaq was up today 8 percent.

Advancers did beat decliners on the Big Board by 2 to 1. But, back on January 3, advancers beat decliners by a margin of 3 to 1. Of course, we know that rally didn't have legs. We'll have to see if this one could amount more sustained momentum -- Willow.

BAY: And that we will. Terry, we'll check back with you in the next half hour. Thanks.

Today's bold move, as we've said, caught nearly everyone by surprise. Joining us now from Princeton with insight onto why now? Former Fed Vice Chair Alan Blinder. Alan, welcome.

ALAN BLINDER, FORMER FED VICE CHAIR: Thanks.

BAY: Let's start with that question: Why now?

BLINDER: My answer is, why not? Why not last Thursday? I actually thought they had a great opportunity to do it last Thursday.

BAY: Why? Why last Thursday? What was going on last Thursday?

BLINDER: You had two things. You had a weak report on the economy, the retail sales, which had followed the employment report. Those are the only two really bad numbers I think we've had in recent days. And you had the stock market rising, which gave the Fed an opportunity to cut rates and not give the impression it was trying to put a bottom on the stock market or prop the market up, because the market was doing fine. BAY: So, you actually think that the Fed was looking for, if not a rising, at least a stabilizing market environment?

BLINDER: Yes, I think that -- this is just a question of timing. What prompts the cut is a concern about the economy for sure. But the exact timing, I think, the market gave them very nice timing.

BAY: What about the economy? What data do you suspect prompted the Fed's move?

BLINDER: It's very clear in the statement that the concern has rolled from a short term inventory correction, about which they're not that worried any more, you could see in the statement, to a concern about a longer run weakness A -- in investment spending, and it's especially tech, but not only tech.

And B -- with the danger that the losses of wealth in the stock market. This is where the market comes back, might bear on consumer spending, we haven't seen that yet, but it's a concern.

BAY: Now on the other hand, the Fed reacted very aggressively today, but the markets had stopped betting on an interim cut. Markets looking at data that look better than expected to them. So were they betting wrong?

BLINDER: Well...

BAY: Well, obviously they were betting wrong, but is that data in any way convincing? What does it tell us about the economy, in your mind?

BLINDER: Well, we're going back to the basic controversy between the bulls and the bears not on the market but on the economy. There is a school of thought that says the economy has gone to hell in hand basket. I'm not among those. But everyone sees the economy weak. The truth is, the incoming economic data have been mixed, suggesting a kind of very mediocre, but by no means disastrous, economy. But there's a lot more up side risk than down side risk. And the Fed was reacting to that.

BAY: So, you say we're not going to hell in a basket. You don't fir into that camp. But there is more downside risk. So, what's your bet? Are we going to stave off a recession or are we there?

BLINDER: I bet against a recession, the conventional definition of two negative quarters of GDP. I've a hunch -- it's no more than a hunch, nobody really knows about this. We might get by with no negative quarters whatsoever in this episode, but there is a danger that something goes wrong and we flip over on the negative side. After all, you're looking at an economy that's growing maybe 1 percent. It wouldn't take much to turn that 1 percent into a zero or a negative.

BAY: Alan, real quickly, what's ahead in terms of the Fed?

BLINDER: I think there's more coming. How much and with what speed is another question. I think it's very believable that they're going to cut again at the next meeting and if the economy is as weak as some people think, there'll be more beyond that. But if it strengthens, we may not see much more.

BAY: Alan Blinder, thanks for joining us tonight.

BLINDER: Glad to.

BAY: Still to come on MONEYLINE, one big tech winner today, Hewlett-Packard, even as it announces a profit warning. What gave investors the green light to buy?

Later, we'll talk with Apple chief Steve Jobs about how his company beat expectations. Is he staging yet another turnaround?

And Wall Street's best-known bull on today's Fed move and the market's euphoric reaction. We'll hear from Abby Joseph Cohen.

ANNOUNCER: From CNN's New York headquarters, this is the MONEYLINE NEW HOUR.

(COMMERCIAL BREAK)

BAY: Some major earnings news after-the-bell tonight from tech giants IBM and Apple. Big Blue matched expectations of 98 cents a share, due in part to to strength in its business services unit. Revenues climbed 9 percent to $21 billion, and interesting to note, unlike many of its tech brethren, IBM never issued a profit warning for this quarter.

Apple delivered surprisingly strong results, beating consensus estimates by 10 cents a share. Although profits sank more than 80 percent from a year ago, achieving profitability is a critical milestone for Apple, which posted a net loss just last quarter. In after-hours trading, both stocks up sharply, that on top of strong gains in the regular session.

But the news wasn't all good today from the computer sector. Hewlett-Packard said that second quarter earnings will fall short of forecasts, and the company said it will cut another 3,000 jobs. Still, HP stock surged more than $2.50 today, a 9 percent rise.

Bruce Francis reports

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): It was a warning like so many before it: 3,000 jobs eliminated, drastic cuts in projected earnings, big write-offs for languishing inventory. But nestled in Hewlett-Packard's conference call, a morsel of good news from CEO Carly Fiorina.

CARLY FIORINA, CHAIRMAN & CEO, HEWLETT-PACKARD: I think recovery is too strong a word, but we're clearly talking at this point, based on what we know, about second quarter being a bottom. Now, I say that with great caution. FRANCIS: And with good reason. With two weeks left in the company's quarter, Fiorina warned that Hewlett-Packard would again miss revenue and earnings targets. The consumer business remains weak, HP says, and that weakness is moving beyond the U.S. to Europe. The new projections: Revenues will be down 2 to 4 percent and earnings per share will clock in between 13 and 17 cents.

That's a big reversal from previous expectations of a slight revenue gain, and 35 cents a share on the bottom line. But the tech industry in general, and Hewlett-Packard in particular, have been down so long that this warning doesn't look too bad to analyst Andy Neff.

ANDREW NEFF, BEAR STERNS: The rate of deceleration is slowing. In that last quarter, Hewlett missed by a billion dollars. This quarter, they're missing by less.

FRANCIS: Fiorina said that the computer giant is seeing some improvement in its enterprise business, which sells large computer systems to big corporations. But not everyone is looking for a fast snap-back for HP.

GEORGE ELLING, LEHMAN BROTHERS: If the company can get its computer operations back into the black, I think that that would be a huge catalyst for the company, and we do expect that to happen in 2002.

(END VIDEOTAPE)

FRANCIS: HP may see the makings of a bottom here, but it's not exactly brimming with confidence in its future. On its conference call, HP CFO Bob Wayman said that he would be detailing cuts in its capital spending when they report the final tally on this disappointing quarter. And that's still what it is, Willow, a disappointment.

BAY: But add it all up, does it suggest a turnaround in computer hardware, at least?

FRANCIS: I think we can use the t-word when we actually see some order growth again. We use the b-word, maybe now, bottom, to say it's not getting any worse and that's very good news for investors.

BAY: OK, we'll hope to be able use that t-word when those orders come in. Thank you, Bruce.

Coming up, a longtime Wall Street bull tones down her forecasts. We'll ask Abby Joseph Cohen whether today's upswing was a sign of further gains ahead or just another bear market rally.

(COMMERCIAL BREAK)

BAY: It was a certainly a dramatic rally today, but we've seen this kind of performance before, and mostly during this bear market. Nasdaq's 8 percent surge today was its fourth biggest gain ever. In fact, nine of the 10 biggest Nasdaq days have happened in the past year, the worst ever for the Nasdaq. So, is this just another bear market rally? We put that question earlier today to Goldman's Abby Joseph Cohen.

(BEGIN VIDEOTAPE)

ABBY JOSEPH COHEN, GOLDMAN SACHS: We think that there is, in fact, the beginning of a very significant upward movement in stock prices. Things don't go in just one direction. I think we will have backing and filling, but it looks to us that the stock market is notably undervalued, the bad news is already priced in and the direction in the next six to 12 months is up.

BAY: And you -- recently, you say you've detected some sign of change, a change of tone. What have you seen?

COHEN: Well, a month ago, during the downward spiral, we indicated to our clients that we though it was time to buy because there were so many good opportunities. Over the last few days, investors have been responding in a positive way to positive news. That's always a good sign, and the bad news has been taken in stride.

BAY: Your reaction this morning when the Fed cut rates?

COHEN: Our economics team has expected the Fed to lower interest rates, although not necessarily today, and so we are not surprised that they did it. They have told us along that if interest rates needed to come lower, they would move it lower.

BAY: Not surprised today, nothing to raise your eyebrows?

COHEN: We knew the Fed would be doing something at some time and we do believe that stocks being as undervalued as they are, as much cash on the sidelines as there is, there was the opportunity for a meaningful rally.

BAY: That news, of course, came after you adjusted your forecast? Why did you adjust them?

COHEN: Our normal springtime house cleaning. We always, in the springtime, adjust our earnings outlook and our price targets accordingly. We made some modest downward adjustments, recognizing that profits are a little bit slower than we might have liked earlier in ther year, still expecting gains of 30 percent or better over the next nine to 12 months.

BAY: Thirty percent or better over the next nine to 12 months, still, Abby, very bullish given the negative earnings news that we're still getting and the, at best, mixed economic data?

COHEN: The time to be nervous was a year ago. The S&P then was overvalued; it's now undervalued. Then, profits were just beginning to decelerate; now, we think they're beginning to stabilize and reaccelerate.

BAY: When do you think we'll see that reacceleration?

COHEN: We some stabilization in some industries right now. For the overall S&P 500, in the second half.

BAY: What specific signs of stabilization?

COHEN: We're seeing, for example, that inventories are now flattening out. We are hearing some companies tell us that demand is stabilization for their products. And keep mind that the bad news, to many extents, is already factored into the stock market. That's why stocks are a discounting mechanism; they move early.

BAY: So, you're saying the worst is over.

COHEN: We think the worst is over in the stock market, not necessarily in the economy.

BAY: What sectors are you looking at, are you liking these days?

COHEN: Our number one choice is technology. For the last 12 to 15 months we had suggested a notable underweighted position. We're now again overweighted because we think the valuations are good, and good, quality companies in technology are good companies, and their stocks are the most attractively priced we've seen in a long time.

BAY: Abby Joseph Cohen, thanks for joining us on a rather interesting day.

(END VIDEOTAPE)

BAY: Coming up, some of the biggest names in corporate America hit the street with quarterly numbers. We will get a round-up of their results.

And, Winstar files for bankruptcy, and files something else: A huge lawsuit against one of its former partners.

We'll be right back.

(COMMERCIAL BREAK)

BAY: Wrapping some of today's major earnings, AOL Time Warner, parent of this network, beat the Street by 3 cents a share on revenues of $9 billion. We'll bring you the full story in our next half-hour. Drug giant Pfizer outpaced the Street. Still, Pfizer's best-selling drug, Lipitor, accounted for more than 20 percent of its nearly $8 billion in sales. General Motors beat bearish estimates, that despite a nearly 90 percent drop in profits.

Earlier today on CNNfn, GM's CFO, John Devine, said today's rate cut was a pleasant and needed surprise.

(BEGIN VIDEO CLIP)

JOHN DEVINE, CFO, GENERAL MOTORS: Our first quarter for the auto industry in the U.S. was actually stronger than people thought it was going to be. It was down from last year, but those were probably exceptional volume years. But still, I think we need something, and I think this was a great surprise. It's a great way to wake up for the day.

(END VIDEO CLIP)

BAY: In the banking sector, J.P. Morgan Chase posted a nearly 30 percent drop in profits. In an effort to cut costs, executives say they are slashing more jobs than the 5,000 expected. Merrill Lynch followed suit, profits there down more than 20 percent. All of the stocks but Pfizer made strong gains on the day, helped, of course, by that surprise rate cut.

One stock that did not even trade today, Winstar Communications. The high-speed Web service provider today filed for Chapter 11 bankruptcy protection, the latest company caught in a tangled web of financing raising in the troubled telecom business.

Winstar today filed suit against Lucent Technologies for $10 billion, charging Lucent with failing to provide additional financing. A Lucent spokesman called the lawsuit without merit. At issue is a deal for Lucent to finance the telecom equipment it supplied to Winstar, which earlier this week defaulted on its senior debt.

Winstar stock, which was halted today, has plummeted 99 percent from its high. It closed Tuesday at 14 cents. Lucent stock recent fell to a record low, but gained 42 cents today to close above $7.50.

Still to come in the next half-hour of MONEYLINE, more on the markets' power surge: Can the Dow and Nasdaq keep up the pace?

After this unexpected rate relief, is there even more to come? We'll have a in-depth analysis of the Fed move with three of Wall Street's leading economists.

Plus, Apple Computer blows past forecasts. We'll ask Steve Jobs how Apple thrived during a tough time for techs.

(COMMERCIAL BREAK)

ANNOUNCER: MONEYLINE continues. Here again, Willow Bay.

BAY: In tonight's headlines, the bulls take the lead on Wall Street, pushing both the Dow and Nasdaq to their highest closing levels in more than five weeks. Unleashing the stampede, a surprise 50 basis point interest rate cut from the Federal Reserve. The Fed funds rate is now at a 6-year low. And Apple Computer is back in the black, beating Street estimates by a dime. We'll talk live to CEO Steve Jobs.

But first, a session to remember on Wall Street. The markets were already in rally mode at the start of the trading day, even before the Fed cut interest rates. Much of the early strength was due to positive guidance from Intel. But the 10:55 a.m. announcement from the Fed sent buyers into overdrive.

The Dow gained as many 471 points before finishing the day up just under 400 points at 10,615. But it was the Nasdaq that took the spotlight, spiking after the rate cut to finish up an impressive 8 percent, or 156 points at 2,079.

The Nasdaq, like the NYSE, saw explosive volume: More than 3 billion shares traded.

The broader market mimicked the Dow, gaining just under 4 percent to finish at 1,238.

Standouts can be found across many sectors, as you can see here: Qualcomm, Juniper Networks, Amgen, Viacom and Best Buy all sharply higher on the day.

So is the buying continuing in after hours? Jen Rogers is tracking the action from the Instinet trading floor -- Jen.

JEN ROGERS, CNN CORRESPONDENT: Well, this was definitely a session that the bulls stuck around for. Let's start with IBM: Big Blue coming in-line with analysts estimates for the quarter, posting 98 cents, and that is up from 83 cents a year ago. Revenues up 9 percent to 21 billion.

The company also cautiously optimistic about the future, the stock getting a big jump here in after hours, up better than $7. This stock closed below $100 yesterday. So an enormous day for IBM.

Another stock that was up sharply here in after hours was Apple Computer, coming out and beating analyst estimates by 10 cents. And despite revenue being down 26 percent from a year ago, it got bid up a lot here. It was up better than $3.

Now, Siebel Systems was the most active issue here after the bell. The sales and customer service software maker, coming out beating the Street by one penny. Shares moved up $1.64 to $35.62.

Another big mover, Advanced Micro Devices: AMD moving up nearly $2. The chipmaker came out and it posted 37 cents for profits. That was 4 cents better than the Street expected. It was down from a year ago, though, down from 58 cents a year ago. While profits were down, sales were up 9 percent, and investors seemed to like that, bidding it up.

And all the good profit news was giving a boost to a number of big caps after the bell. Sun Microsystems -- check this one out -- it hit $20 after hours and it hasn't seen that in over a month -- Willow.

BAY: Whoa! An action-packed session there. Thanks, Jen.

Well, there was plenty of action ahead of the opening bell as well when CNN's parent, AOL-Time Warner, released its quarterly results. The media and Internet firm delivered strong numbers, defying the skeptics who thought the recent advertising slowdown would slam results.

More important to its investors, the company stuck to its previous bullish guidance. Shares of AOL finished the day up more than $5 at 49.

Steve Young has more.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): Despite an advertising ebb tide, AOL Time Warner delivered for investors thanks to the diversity of its businesses. Reporting its first combined results, right in the midst of an economic slowdown, the company, parent of this network, posted higher first-quarter cash earnings. Counting one-time costs for AOL's acquisition of Time Warner, the net loss of $1.4 billion was narrower than a year earlier.

The company more than met most Wall Street expectations because its online and cable units are really cooking.

(BEGIN AUDIO CLIP)

COMPUTER VOICE: You've got mail.

(END AUDIO CLIP)

YOUNG: Online revenue was up 37 percent on strong subscription growth.

(BEGIN VIDEO CLIP)

ANNOUNCER: This is CNN.

(END VIDEO CLIP)

YOUNG: Cable subscription revenue gained nearly 17 percent.

PAUL NOGLOWS, J.P. MORGAN CHASE: I think the real story on the cable side is the uptake in digital subscribers, and that's where you can really start to take up revenue on a per-user basis, and that's significant.

YOUNG: But there were a few sore spots. Despite hit songs like Madonna's "Music," revenue from the music unit fell 7 percent. That was partly because of currency conversion issues and a sales slowdown, especially in the United States.

Analysts were relieved by the upbeat guidance they received, including a predicted advertising pickup in the second half of the year.

JESSICA REIF COHEN, MERRILL LYNCH: There was concern going into the quarter that they would either miss the quarter or they would bring down estimates for the year, and the management, there's a very high degree of confidence by management that they will meet these fairly aggressive forecasts.

YOUNG: The company is sticking to a $40 billion annual sales target.

(on camera): Still, most analysts say they remain concerned that even the world's biggest Internet and media company could run into trouble if there isn't a rising sea of ad dollars fairly soon.

Steve Young, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: Coming up on MONEYLINE, Fed Chairman Alan Greenspan cuts rates, but is he finished? We'll talk to three of Wall Street's leading economists. And Apple posts a profit. Can it keep up the momentum? We'll ask CEO Steve Jobs, when MONEYLINE returns.

(COMMERCIAL BREAK)

BAY: In our "Sector Focus" tonight, PC makers out with news about profits. Hewlett-Packard today issued a profit warning, but CEO Carly Fiorina made some cautiously optimistic comments about the future. IBM met profit expectations in what was generally a strong quarter.

But the big surprise came from Apple. The company trumped expectations by 10 cents a share, and despite a traumatic year 2000, Apple stock is up more than 50 percent so far this year.

Joining us now, CEO Steve Jobs. Steve, welcome.

STEVE JOBS, CEO, APPLE COMPUTER: Thank you.

BAY: How did you do this? Your revenue numbers weren't exactly blow away, yet you beat the street by a dime. So what was it? New products, or was it cost-cutting and execution?

JOBS: You know, we shipped some incredible new products last quarter, and including our new Titanium Power Book. And we've had a hard time even keeping these on the dealer's shelves all quarter long.

So I think we introduced some stellar new products last quarter that really helped us a lot.

BAY: So do you get the sense out there that PC demand in general is picking up?

JOBS: No. I get the sense out there that if we can deliver some really compelling, innovative products to our customers, they're going to buy them. And we still can't keep up with demand for some of these new products, and that's the way we hope it stays for as long as possible.

BAY: So what does that mean for -- for the rest of your year? Do you expect revenues and profits to continue to grow?

JOBS: Well, I think, you know, we're -- we're working on a lot of other new innovative products to come out later. But right now, you know, the crystal ball is pretty foggy in terms of the global economy. And if others can predict it, their crystal ball is less foggy than ours. So we're going to have to play the hand we're dealt here. But right now, right now things seem reasonable. BAY: Now the big question that analysts keep coming back to is, can you grow beyond your base of the loyal faithful? What is your plan to do that?

JOBS: Well, you know, I think this is going to be a difficult year for our entire industry. And right now, I'm really thankful that we have this incredible, loyal, smart base of customers. And our primary objective this year is to surprise and delight them with wonderful products. And I think that's going to help us a lot this year.

We have -- we have plans to grow beyond our market share that we have today. But I think the emphasis of everybody in our industry this year is going to be to really serve their installed bases and to try to get through this year.

BAY: And are retail stores part of that plan?

JOBS: Well, you know, there's lot of things we're thinking about that I really can't talk about at this time.

BAY: So you can't comment, for example, that you've got retail space in Palo Alto or that you've taken over a Gap store on Michigan Avenue?

JOBS: I can't really comment on any future initiatives we might have, yeah.

BAY: OK. You, when you warned...

JOBS: I'm...

BAY: Go ahead. Go ahead. Please elaborate.

JOBS: I'd be glad -- I'd be glad to talk about new products and initiatives as we roll them out in the future. But...

BAY: All right, fair enough. When you warned, in the fall, you said: "I've seen this before. It is called a cycle." You called the beginning of the cycle. Where are we now?

JOBS: Oh, at least from my perspective, we're still in it. It's not clear to me whether things are going to start get better or they're going to continue to get worse. Hardly a day goes by when I read the paper that I don't read about several big companies laying off thousands of people each.

And every time I see that, you know, I wonder how many of them are going to run out and buy a personal computer tomorrow. So, it's hard to say where we are in this cycle right now. Now, we're spending a lot of time on operational excellence here at Apple, and we're pretty good at the stuff.

You know, we end each quarter with less than a day of inventory, but one of the things I'm really proud of is we brought our channels inventory down by over a hundred thousand units last quarter to four weeks. So we're running with one of the leanest channel inventories in the business. That's going to help us a lot right now.

BAY: OK, and we'll be checking in with you, of course next quarter. Thanks Steve. We appreciate it.

JOBS: Thanks a lot, Willow.

BAY: Coming up on MONEYLINE, what's next for the Fed? We'll put that question to three top economists, John Lipsky, Kathleen Camilli, And Dick Hoey. But first, we're going to check in with Terry Keenan for behind the numbers -- Terry.

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, we're going to take a look at why the Fed was able to fake out the markets in recent days to pull off that interest rate shocker.

(COMMERCIAL BREAK)

BAY: The Federal Reserve's decision to cut interest rates this morning was extra effective because it was so unexpected. Terry Keenan takes look at how the Fed move surprised not only many economists, but a time-tested market indicator as well. Terry, just yesterday you were asking where's the Fed?

KEENAN: Yes, that was the question yesterday, today we got the answer. Chalk one up for Alan Greenspan. The subject of thousands of magazine articles and two recent best selling biographies seemed to be in danger of losing his enigmatic image, but his sneaky move to slash rates this morning has many pundits going back to their tea leaves.

That's because the Fed chairman seems to have carefully waited until market expectations for an intermeeting cut dried up before pulling the trigger. And in doing so, his half point rate cut today packed some extra punch. The Greenspan move came one day after noted Fed watcher and former Fed Governor Wayne Angell pulled his prediction of an intermeeting cut.

But it wasn't just Angell who was caught by surprise. As I told you last night, the Fed Funds Futures, by far the best barometer of Fed behavior, was also saying that the Fed would not cut until next month. Until this year these futures contracts have had a remarkable record, calling the Fed's next move correctly before each of the 36 FONC meetings that the Fed has had since late 1996.

This time however, the bond market got it wrong, as did the so called experts. And one former Fed official says Greenspan's colleagues helped him with the fake-out.

(BEGIN VIDEO CLIP)

JAMES ANNABLE, WINGSPANBANK.COM: These things have real impact when they're a surprise. This is not -- it's not random. It's not accidental that other members of the board were setting us up to not expect an intermeeting cut. And they weren't doing it by lying to us, they were just telling us that things look a little better, things look a little stronger. KEENAN: Well, ironically the stock market may have been sensing that Greenspan had something up his sleeve for weeks now. As expectations of that intermeeting cut diminished, stocks actually embarked on a massive April rally. Since April 3rd the Dow is up almost 12 percent, the Nasdaq up more than 24 percent. So, it's the stock market that got it right -- Willow.

BAY: All right, Terry, thank you.

Well, the markets have rallied in recent weeks as Terry just mentioned, but how have they fared since the Fed first began the easing cycle? Well the Fed effect has done nothing so far for the Dow. After four cuts in interest rates over just a few months the Dow has gone nowhere.

If you think that's bad, just look at the Nasdaq. It is down nearly 10 percent since the first surprise cut on January third. So where is the economy and the stock market headed from here?

We're joined now by John Lipsky, Kathleen Camilli and Dick Hoey. Thank you all for joining us. Let's start with the question that everybody was asking today: Why now? John, let's start with you?

JOHN LIPSKY, J.P. MORGAN CHASE: Well, I think that very clearly, markets had been taking away the assumption of future rate cuts. First they eliminated the earlier assumption that there would be a cut in June, and now they, today were eliminating the chances of a cut in May. And so, in essence, the markets were raising interest rates, but the opposite effect of what the Fed wanted and they acted to put that to an end and clarify where their policy was headed.

BAY: Do you agree, Kathleen?

KATHLEEN CAMILLI, TUCKER ANTHONY: Yes, actually getting data in the last couple of weeks industrial production numbers were stronger than expected, some factory orders data, leading the bond market to believe that gee, maybe the economy is not all that bad, and the Fed won't be cutting interest rates again. And, boom, the Fed decided to squash that expectation.

BAY: And you think that's what the Fed was responding to, or was there more?

CAMILLI: Well, I think there's more to it than that. I think there's a pretty sharp capital spending slowdown that's underway in the economy. The technology sector, for all intents purposes, has gone into a recession and...

BAY: And despite the good news we've had some chilling news this week.

CAMILLI: We're having chilling news in that sector of the economy to lower interest rates now helps the consumer of the economy out. So, hopefully doesn't drag -- the tech sector -- doesn't drag the whole economy into recession.

BAY: OK, (UNINTELLIGIBLE) , how do you weigh in on this?

DICK HOEY, DREYFUS: Well, I think, for second time the Fed quickly corrected a mistake that it made. It made a mistake back December 19th of last year when said the economy is weakening but we're not going to do anything about it yet. And then January third they acted because they really had a good reason to. The same thing here, when the employment numbers came out, showing the economy was weak, many people expected, well that would be sufficient evidence for them to act.

What's hard to explain is why they didn't act then. There's never a wrong time to do the right thing. So the thing that encourages me is when the Fed is making mistakes these days it's quickly correcting them. And that's real encouraging. I think that'll be helpful for stock market.

BAY: And sending a message that they are quick to respond, vigilant, all of the above.

HOEY: That's right. I put out a commentary on Dreyfus.com earlier this week identifying the three reasons why this kind of multiple Fed easing in the past has generated rising stock markets and I think it'll do it again. I think we've made the bottom in the stock market. For the good old tradition reasons. Fed will ease enough to take economic weakness into an economic recovery next year.

BAY: How important -- go ahead John.

LIPSKY: It seems to me that back in March, when the Fed cut rates and there was disappointment, remember that they hadn't cut 75, only 50. I think at that time they were already on a mission to lower the fund rate at least to 4 percent. And that's what got priced in immediately despite all the talk of disappointment. So actually, market rates have reflected that expectation. It was when investors started to doubt and take that back that the Fed needed it was time to act.

BAY: How important was the element of surprise, or was it?

CAMILLI: I think it was pretty important. Similar to what they do in the foreign exchange markets. When the market starts going in a certain direction, you know, kind of helps to lift it along, so I think that's very important.

HOEY: I'm not so sure. Maybe one of them had a late date and couldn't get to the meeting soon enough. I think you have to look at it in the longer term context...

BAY: ... you think that's in minutes?

HOEY: Absolutely -- the economy is quite weak. It's appropriate for the Fed to reduce a Federal Funds Rate that is too high for the economy. Which day they do it is only of concern to people on Wall Street. What's important is that they are doing the right thing.

BAY: Dick says the economy was quite weak, they're doing the right thing. Rate the importance for the economy of this rate cut from insurance policy to dire need?

CAMILLI: Well, the tech sector is in a severe downturn.

BAY: Do you think the entire economy is...

CAMILLI: No, not the entire economy, but there's a risk here that the elimination of jobs in the tech sector will create a spill over effect to the rest of the economy, and I think the Fed is trying to step in to ameliorate that deterioration.

Unfortunately, the job destruction is occurring and it is having a (UNINTELLIGIBLE) effect. So, the sooner you could get liquidity into the system, the sooner you can slow that process.

HOEY: One of the keys is not only consumer confidence; it's CEO confidence. Because the CEOs have put a halt on their capital spending plan and they are intensifying the layoff. You've got to change the sentiment, not just of consumers but also of CEOs to have a more optimistic view of the future for next year.

BAY: And that's certainly one thing we see day in and day out. That CEO confidence is in short supply, even with somebody like Steve Jobs, who's had a very good report.

HOEY: Greenspan has done his part here to help turn CEO confidence around. Not about, what's going to happen in the next month, but that somebody's on the case, the doctor's on the case and he's going to help solve the problem.

CAMILLI: Also, the people who do venture capital have been pulling their venture capital out of some of these new ventures, therefore, causing them to close down. So, it's almost like there's kind of like an implosion of sorts that's going on...

HOEY: Although many of these new ventures are such bad businesses, that they wouldn't survive at a zero Federal funds rates, even a negative fed fund rate. There are many bad companies that got finances.

BAY: John, speaking of fed funds rate, where is it headed?

LIPSKY: Oh, at least 4 percent, probably. We're saying 3 3/4 by June. Mr. Greenspan has put his new economy where his new economy mouth has been.

BAY: We'll let that be the last word. Kathleen Camilli, John Lipsky, and Dick Hoey, thank you all; we appreciate it.

Coming up on INSIDE POLITICS, the airlines are losing millions upon millions of dollars. We have a profit round up next.

(COMMERCIAL BREAK)

BAY: Tomorrow on money after the bell, profits from the company dethroned over the last year as the world's most valuable: Microsoft. Just how bad was the fourth quarter for the software giant? Tomorrow on MONEYLINE.

Turbulent times for airlines. The industry as a whole posting its first money-losing quarter since 1993. Today, the carriers blamed a dramatic slowdown in corporate travel, abnormally high fuel costs, and expensive labor issues for what were, at best, dismal results.

United, US Airways and Delta all reported losses far wider than expected. United even admitting it expects second quarter revenues to be "considerably worse."

American and Northwest, while still in the red, did manage to post narrower-than-expected losses. Continental, which reported Monday, is the only major airline so far to trade higher.

In trading today, the Fed rate cut helped the stocks move higher. AMR, UAL, and Delta all up more than 2. Only U.S. Airways lost ground.

Boeing executives hit the road today in search of the ideal city for its headquarters. On a short list, Chicago, Dallas-Fort Worth and Denver.

Chicago, Illinois, where state officials and area business executives are putting the hard cell on the jet maker. The company says there is no front-runner so far. It dismisses reports of favoring Texas, due to Texan George W. Bush in the White House. Boeing announced last month that it will move its headquarters in Seattle, where it was founded in the early 20th century.

Up next, "Ahead of the Curve." Some of what you need to know tonight before the markets open tomorrow.

Taking a look at some of what could move the markets tomorrow: see if stocks could see explosive gains. The Nasdaq posting its fourth biggest percentage gain ever. And watch shares of IBM and Apple, which both rallied in after hours trading after reporting their quarterly results.

And tomorrow, expect earnings from tech giants Microsoft, Sun Micro Systems, Gateway, Nortel, PMC, and eBay. For more on the Fed surprise rate cut, tune into "WOLF BLITZER REPORTS" at 8:00 p.m. Lou Dobbs will be the guest. As you might already know, Lou Dobbs, the founder of MONEYLINE, is rejoining this program on May 14th.

That's MONEYLINE for this Wednesday. I'm Willow Bay. Good night from New York. CROSSFIRE is next.

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