No Surprises in Fed Testimony; Dow Rises 24.2
Market Overview
* Stocks climbed Tuesday after congressional testimony by Federal Reserve Board Chairman Alan Greenspan soothed Wall Street fears about interest rates.
* Long-term Treasury bond yields fell for the first time in six trading days in response to Greenspan’s comments.
* The dollar rose against most foreign currencies compared to its pre-holiday close.
Stocks
During his semiannual testimony on monetary policy, Greenspan told Congress to expect increases in interest rates to keep inflationary pressures at bay, but he wasn’t specific about when that might occur.
His comments, which analysts said contained no surprises, quelled fears about an immediate run-up in rates.
The Dow Jones industrial average rose 24.20 points to 3,911.66 on Big Board volume totaling 270.90 million shares. Meanwhile, advancing issues outnumbered declines by about 10 to 9 on the New York Stock Exchange.
The market was closed Monday for the Presidents’ Day holiday.
“The day’s big news was Greenspan, which wasn’t big news,” said James Melcher, founder and president of Balestra Capital. “The market was relieved he did not rock the boat any further.”
The Fed tightened credit Feb. 4 for the first time in five years, leading to a 96-point drop in the Dow and a steady climb in interest rates.
Stock investors dislike higher rates, which raise the cost of money to corporations with potential implications for earnings. They also make share prices less attractive relative to interest-bearing investments.
But Lawrence Rice, chief market strategist at Josephthal Lyon & Ross, said the market was also rebounding from its weakness late last week, as investors bought up depressed issues. On Thursday and Friday, the market shed a combined 50 points.
Among the market highlights:
The earnings news and word again from Greenspan that the economic recovery is firmly entrenched encouraged investors to buy shares of companies linked closely to the economic cycles, such as autos, papers and chemicals.
* Procter & Gamble rose 1 5/8 to 59, Gillette gained 1 3/8 to 62 5/8, and Clorox advanced 3/4 to 54 7/8.
* Minnesota Mining & Manufacturing rose 2 3/8 to 107 3/4, and Caterpillar rose 2 1/2 to 110 5/8.
* Earnings news was good, with Deere, among others, ahead of Wall Street estimates, Wal-Mart on target, and Home Depot only slightly below. Deere rose 5 1/4 to 82 1/2, Wal-Mart jumped 5/8 to 28 3/8, and Home Depot rose 1 1/8 to 40 1/8.
* Among financial stocks, Bank of New York rose 1 1/8 to 53 3/4 and Federal National Mortgage Assn. added 1 1/8 to 85 1/8.
* Utilities American Electric Power and Pacific Gas & Electric advanced 3/4 to 33 3/4 and 7/8 to 30 7/8, respectively.
* Dell Computer gained 1 3/4 to 22 3/4 after it introduced Monday a family of five “aggressively priced” notebook computers. Other computer makers also rose, with IBM gaining 1 to 53 5/8, and Compaq Computer up 2 3/8 to 95 7/8.
* Benton Oil & Gas surged 1 1/16 to 5 3/4. The company said it acquired an additional 30% stake in Benton-Vinccler, its Venezuelan venture. Kidder Peabody upgraded its rating on the stock.
Markets ended mostly lower abroad. In Tokyo, the Nikkei average closed at 19,342.63, down 51.31 points, while Frankfurt’s 30-share DAX average finished at 2,107.62, off 11.91 points.
London’s Financial Times 100-share average fell 16.6 points to 3,333.7.
Credit
Bond market investors expressed relief that the Fed chief’s testimony lacked any surprises that could potentially depress bond prices.
The yield on the Treasury’s main 30-year bond fell to 6.60% from Friday’s 6.62%, pushing up the price, which moves in the opposite direction by 5/16 point, or $3.13 cents per $1,000 in face value.
Greenspan said in his semiannual report to Congress that the Fed’s recent actions designed to increase the federal funds rate on Feb. 4--to 3.25% from 3%--were likely to be followed by further rate rises. The funds rate, the interest on overnight loans between banks, was 3.313% on Tuesday, unchanged from Friday.
Bond market prices have plunged in the past two weeks on the belief that further rates rises are on the way, a trend that depresses the value of already-sold bonds.
Analysts said the market’s ability to advance Tuesday showed that the market already has absorbed the bad news from the first rate hike.
Other Markets
The dollar opened much higher in New York from its close Friday. But the gain reflected the dollar’s rise on world markets Monday, when New York financial markets were closed for the Presidents’ Day holiday.
The dollar traded in tight ranges Tuesday, with little news to influence it.
In New York, the dollar finished at 105.60 Japanese yen and 1.7245 German marks, up from 104.55 yen and 1.714 marks, respectively, Friday.
Gold prices fell on the New York Comex, closing at $378.00 an ounce, off $2.30 from Friday. Silver finished at $5.213 an ounce, up 3.8 cents. Heating oil led energy futures higher on the New York Mercantile Exchange on forecasts for colder weather this week in the Northeast. Light sweet crude oil for March delivery rose 3 cents to $14.24 a barrel.
Frozen pork bellies for February delivery rose 2 cents, the permitted daily limit, to 58.50 cents a pound. Pork bellies are used to make bacon.
Pork bellies rocketed in reaction to the Agriculture Department’s annual cold-storage report, released after the close of trading Friday, in which the agency lowered its previous estimate of Dec. 31 stocks by about 4.5 million pounds
