Financial Markets Rebound as Wall Street Adjusts to Greenspan Inheriting Fed
The financial markets rebounded Wednesday, a day after digesting the news that New York economist Alan Greenspan had been named to succeed Paul A. Volcker as chairman of the Federal Reserve Board.
On Wall Street, the Dow Jones average of 30 industrials jumped 42.47 points to 2,320.69, recovering from a 10-point drop Tuesday that followed the announcement of the change in leadership at the Fed.
Five stocks advanced for every two shares that declined in the overall tally of stocks listed on the New York Stock Exchange, and the exchange’s composite index added 2.50 to 165.27.
The credit and currency markets, which were hardest hit by the announcement, also managed moderate comebacks Wednesday.
The Treasury’s bellwether 30-year bond, on which fixed-rate commercial mortgage rates are based, gained 1 3/4 points, or $17.50 per $1,000 face amount Wednesday. Its yield dipped to 8.75% from 8.92% Tuesday.
In foreign exchange trading, the dollar moved higher against most major currencies after losing ground in early Japanese trading. Gold prices fell slightly in response to the dollar’s rally.
“Yesterday was an overreaction. The bond market got carried away, and the dollar got carried away,” explained Maury Harris, chief economist for Paine Webber Inc. “Today, it was inevitable it (the bond market) would come back.”
Closest to a Clone
“Greenspan is probably the closest thing to a clone of Volcker there is,” said Henry Gailliot, senior vice president and economist at Federated Research Corp., a large Pittsburgh-based money-management firm. Gailliot said Greenspan also brings important “people skills” to the job.
Meanwhile, volume on the NYSE came to 164.17 million shares, up from Tuesday’s 153.36 million.
Gainers among the blue chips included International Business Machines, up 3 at 160 1/8; McDonald’s, up 1 5/8 at 81 1/2; Eastman Kodak, up 2 at 79; Merck, up 4 3/4 at 159; Sears Roebuck, up 1 at 51, and Du Pont, up 2 3/8 at 113 3/4.
Control Data dropped 2 5/8 to 29. The company said its after-tax profits this year will be $20 million to $25 million less than expected.
Cray Research fell 5 5/8 to 92 3/4. The company said it repeated warnings made last month to analysts that earnings estimates for it were too optimistic.
Morse Shoe chalked up one of the day’s biggest percentage gains, rising 4 1/8 to 46 1/2. The company, which recently said it had received several expressions of interest regarding a takeover, agreed to a buyout at $47 a share by a group led by members of its management.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 190.36 million shares.
Standard & Poor’s index of 400 industrials rose 5.80 to 340.77, and S&P;’s 500-stock composite index was up 5.01 at 293.47. The Wilshire index of 5,000 equities closed at 2,908.970 up 39.858.
Wickes Most Active
The NASDAQ composite index for the over-the-counter market gained 2.30 to 415.90.
At the American Stock Exchange, the market value index closed at 327.33, up 1.67.
Santa Monica-based Wickes Cos. was the most active stock on the Amex with more than 7 million shares changing hands, including a 1-million-share block. The activity followed a buy recommendation from E. F. Hutton analyst Laurence C. Baker, who predicted the company’s earnings growth would be more stable.
“There are not that many $4 stocks around offering this kind of opportunity” to investors, he said. The stock closed at $4 a share, up 25 cents.
In the credit markets, corporate and municipal bonds also rose. Short-term interest rates were mostly lower, although one key rate soared.
Bond prices began crumbling Tuesday shortly after President Reagan announced he was nominating Greenspan to succeed Volcker.
The market rout accelerated in the afternoon as the dollar also plummeted, and by the time the session ended Tuesday, the 30-year government bond had fallen about $32.50--the biggest one-day plunge in about five years.
Analysts said investors who nervously sold bonds after the Volcker announcement felt on Wednesday that Greenspan, whose appointment is expected to fly through the Senate, was likely to continue many of Volcker’s policies.
Harris said Tuesday’s selloff was not necessarily a no-confidence vote in Greenspan but disappointment that Volcker was leaving.
“I think he (Greenspan) is a very able replacement,” Harris said. “He has reason to continue Volcker policy--and that is to worry about inflation and the dollar.”
Bond traders see a strong dollar as a plus for the credit markets because it makes dollar-denominated securities more attractive to foreign investors and acts as a curb against higher inflation--a key enemy in the fixed-income markets.
In the secondary market for Treasury bonds, prices of short-term governments rose point to 3/8 point, intermediate maturities were up between 1/2 point and 1 points and 20-year issues increased about 1/2 point, according to figures provided by the financial information service Telerate Inc.
In corporate trading, industrials were up 1 point and utilities rose 1 1/8 points in light trading, according to the investment firm Salomon Bros.
Among tax-exempt municipal bonds, general obligations rose 7/8 points and revenue bonds were up 1 point. Trading was light to moderate.
Yields on three-month Treasury bills were off 7 basis points to 5.67%. A basis point is one-hundredth of a percentage point. Six-month bills fell 8 basis points to 6.08% and one-year bills were off 9 basis points at 6.42%.
The federal funds rate, the interest on overnight loans between banks, traded at 7.50%, up from 6.438% Tuesday.
