FINANCIAL MARKETS : Markets Rally as Fed Chief Hedges on Rates
U.S. bond yields fell and stocks closed mostly higher Wednesday after Federal Reserve Board Chairman Alan Greenspan left open the question of another Fed credit-tightening move.
While Wall Street had widely expected the Fed to boost short-term interest rates at least half a point next week to further subdue the economy, Greenspan told a U.S. Senate committee that he’s “not sure” if such an increase will occur.
Analysts, though cautioning that it’s dangerous to read anything into Greenspan’s words--or into what he doesn’t say--were surprised by his relatively mild comments on the prospects for near-term inflation and by his long-term optimism about inflation.
That tone, despite Greenspan’s usual warnings about the economy’s strength, suggested the Fed could leave rates unchanged for now. In reaction, bond yields fell across the board on Wednesday.
The yield on the Treasury’s 30-year bond fell to 7.87% from 7.92% on Tuesday, the first decline in five sessions.
The yield on two-year T-notes dropped to 7.48% from 7.51% on Tuesday. And in an auction of new five-year T-notes on Wednesday, the yield was 7.79%, slightly lower than expected.
Greenspan’s comments were enough to persuade some investors that the central bank “might be a lot closer to the end of the (rate increase) cycle” than had been assumed, said Bill Feezer, trader at Sanwa Securities.
In the stock market, meanwhile, investors also responded positively to talk of stable interest rates. Advancing stocks outnumbered losers by 12 to 9 on the New York Stock Exchange, and most major indexes finished higher.
“They ran out of ammunition on the sell side, and the path of least resistance was up,” said Chris McLellan, head of trading at Robertson Stephens.
The Dow industrials added 8.75 points to 3,871.45, after opening lower then surging nearly 30 points at midday. Traders said several waves of computerized program trading buffeted the market.
One worrisome trend Wednesday was a selloff in technology issues--the market’s recent leaders--on a disappointing quarterly earnings report from Compaq Computer. Compaq tumbled 5 to 37 3/8.
Some analysts fear that a continued selloff in tech issues could severely undercut the market.
Among Wednesday’s highlights:
* Tech stocks falling with Compaq included IBM, off 1 5/8 to 72 3/8; Hewlett-Packard, down 2 3/8 to 103; Dell Computer, down 1 7/8 to 42 3/4, and Motorola, off 1 3/8 to 60 3/4.
Storage Technology also added to pressure on tech issues, sliding 3 5/8 to 22 3/8 after reporting lower fourth-quarter earnings.
* Other earnings reports got a mixed reception, with AT&T; gaining 1 1/8 to 49 3/4 and Boeing losing 1 1/8 to 46 5/8.
* Industrial issues rebounding on hopes for stable interest rates included Dover, up 1 1/4 to 58; Caterpillar, up 1/2 to 53 5/8, and Alcoa, up 1 to 85 3/4. But Cummins Engine sank 2 1/8 to 42 1/8 despite reporting record quarterly earnings.
* Some major bank stocks rebounded as bond yields eased. Citicorp added 1 to 40 7/8, BancOne gained 1 to 29 and First Interstate was up 7/8 to 71 3/4.
* Disney fell 1 to 46 3/4 in advance of a major informational meeting the company is holding with analysts and money managers today and Friday in Los Angeles.
* Callaway Golf fell 1 3/4 to 29 7/8, though after the market close the company reported higher earnings and announced a 2-for-1 stock split and a 100% dividend hike.
Wall Street was helped by another rebound in key foreign markets. Tokyo’s Nikkei 225-share index gained 98.75 points to 18,159.48, a second day of recovery after diving Monday. In Hong Kong, the Hang Seng index zoomed 217.82 points to 7,240.72, while London’s FTSE-100 index added 13.2 points to 2,982.2 .
In Mexico City, however, the Bolsa index slid 39.02 points to 2,056.59 on renewed worries that the Clinton Administration’s bailout plan for Mexico’s economy won’t pass Congress.