Day 2 of Fed Remarks Puts Dow in U-Turn; Yields Decline
The Dow Jones industrial average surged Wednesday as bargain hunters reemerged one day after the blue-chip index plummeted on the back of a sharp rise in long-term interest rates.
The catalyst for the market’s recovery was once again Federal Reserve Board Chairman Alan Greenspan, who was in the second day of his semiannual testimony to Congress.
The Dow index closed 57.44 points higher at 5,515.97 in a reversal of Tuesday’s volatile sell-off that wiped 45 points from the index.
In the broader market, advancing issues swamped decliners 1,491 to 792 on active volume of 430 million shares on the New York Stock Exchange.
The Nasdaq composite index climbed 13.61 points to a record 1,096.85, surpassing the 1,095.38 set Feb. 12.
In his testimony to the Senate Banking Committee on Wednesday, Greenspan left open the possibility that the central bank might cut interest rates further to help the economy over its current “soft patch.” Wall Street interpreted Greenspan’s comment to mean the Fed may well lower interest rates again next month.
On Tuesday, the market was rattled by speculation that the central bank might not continue to ease monetary policy as aggressively as many on Wall Street had hoped.
Analysts said the rally in the bond market helped boost stocks.
The yield on the key 30-year Treasury bond fell to 6.37% from 6.40%.
“It’s a strange market,” said Hildergard Zagorski, analyst at Prudential Securities. “Yesterday they took the bonds down on Greenspan and today they sent them up on Greenspan again.
“Basically he didn’t say anything new today other than to indicate that he is still concerned about the economy, which was interpreted as a possibility that he might ease rates.”
Greenspan said that while the economy was going through a soft patch and the risk of recession had risen, he did not think that was likely to occur.
He said the most likely outlook for the economy is moderate growth and low inflation in the period ahead.
“The generally accepted view on Wall Street is that the economy will be weak in the first and second quarters of this year but will pick up strength in the second half,” said Hugh Johnson, chief investment officer at First Albany Corp. “Greenspan has bought this view. His testimony was upbeat and in line with the prevailing belief on Wall Street.”
Phil Orlando, chief investment officer at Value Line’s Asset Management division, said he has no doubt that the Fed will lower rates at the March 26 meeting of its policymaking Federal Open Market Committee.
“The reality is we need easing now to prevent recession later, and Greenspan will comply at the next meeting,” Orlando said.
High-technology stocks were among the session’s big winners.
“The techs continue to dominate. They are the most attractive stocks on the market with the best growth and value dynamic,” Orlando said.
“In our view, we are on the cusp of a massive corporate upgrade in technology,” he said. “I think the techs are in for a fabulous year, especially coming off the low relative valuation base where they started 1996.”
Among Wednesday’s highlights:
* Tech stocks rose broadly. Cisco Systems was up 1 9/16 at 47 3/16, Intel rose 1 3/8 at 59 1/4, Dell gained 3 to 35 3/8 and Microsoft rose 2 1/8 to 99 7/8. Shares of Presstek were up 20 at 114 3/4.
* Delta Air Lines rose 2 7/8 to 76 1/2 after the union representing its pilots tentatively agreed to a 2% pay cut in return for stock options, a non-voting board seat and a guarantee that Delta will recall its furloughed pilots.
* The shares of gold mining companies were boosted by a rally in bullion prices. ASA gained 1 7/8 to 46 1/4, Newmont Mining climbed 1 1/2 at 56 and Amax Gold rose 3/8 to 37 3/8.
* Banking stocks rose sharply as interest rates fell. Citicorp shares rose 3 to 76 7/8. Chase Manhattan added 3 to 71 1/2.
* Oil stocks rose with oil prices. Texaco rose 1 to 81 1/2. April crude oil settled up 44 cents at $19.71 in New York.
In foreign stock markets, the Nikkei index in Tokyo gave up 1.37% in its fifth session of declines, amid reports that the Bank of Japan was selling dollars in an effort to stop the yen from declining further against the dollar. But European and Mexican stock markets rose.
Oil prices surged for a second straight day as tight supplies, forecasts of colder weather in the United States and a snowstorm in Europe buoyed the market.
With United Nations talks with Iraq over a limited $2-billion oil sale on hold, traders were not worried about fresh supplies glutting the market.
At the New York Mercantile Exchange, April crude oil jumped 44 cents to $19.71 a barrel, after earlier posting a new high for the contract of $20. The March contract expired Tuesday, but not before hitting a high of $23.
Underscoring the supply tightness was a report from the American Petroleum Institute issued after the close of trading that said stocks of distillates such as heating oil dropped a sharp 3.87 million barrels in the week ended Feb. 16. Crude oil inventories fell 3.88 million barrels.
* BUDGET PROD
Greenspan urges White House, Congress to resume talks. D2
