Day 2 of Fed Remarks Puts Dow in U-Turn as Yields Ease
U.S. stocks roared back Wednesday, snapping a four-day losing streak, as the Nasdaq composite index reached an all-time high.
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. Greenspan told the Senate the central bank could cut rates more “if we envisage that inflation pressures are significantly subdued.”
“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.”
Bond yields, which soared Tuesday after Greenspan’s first day of testimony, fell back slightly in extremely cautious trading. The benchmark 30-year Treasury bond yield fell to 6.37%, down from a four-month high of 6.40% on Tuesday.
Despite Greenspan’s somewhat soothing comments, “I think the market is clearly nervous right now and trading on thin ice,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. The possibility of higher interest rates still spooks the market.
Also disconcerting to some bond players was the first-place victory of Patrick J. Buchanan in the New Hampshire primary Tuesday. Buchanan advocates higher tariffs on exports into the United States, a move that could push up consumer prices and thus aggravate inflation pressures. Inflation tends to erode the value of bonds.
The Dow index closed 57.44 points higher at 5,515.97, gaining bck more than the loss suffered in Tuesday’s volatile sell-off, which wiped off 45 points.
The Dow remains up a respectable 7.8% for the year, although on Feb. 13 it had been up 9.5%. Broader indexes are up about 5%. Few analysts expect the rest of the year to be as strong. “I don’t think that the market is off to the races now,” said James Weiss, a money manager at State Street Research & Management.
Part of the reason the market’s run may end is slowing earnings growth. While more S&P; 500 companies beat analysts’ forecasts last quarter than disappointed, the spread narrowed from the third quarter.
High-technology stocks were among Wednesday’s big winners.
“The techs continue to dominate. They are the most attractive stocks on the market with the best growth and value dynamic,” said Phil Orlando, chief investment officer at Value Line’s Asset Management division.
The technology-weighted Nasdaq composite index climbed 13.61 points to a record 1,096.85, surpassing the 1,095.38 set Feb. 12.
“In our view, we are on the cusp of a massive corporate upgrade in technology,” Orlando 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.
* Shares of Viacom rose 1 1/2 to 41 1/8 after the cable network company said its fourth-quarter loss narrowed to 3 cents a share after the payment of dividends on its preferred stock, from a loss of 14 cents in the corresponding period a year earlier.
* 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 nonvoting 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 climbed 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.
At the New York Mercantile Exchange, April crude oil jumped 44 cents to $19.71 a barrel.
* BUDGET PROD
Greenspan urges White House, Congress to resume talks. D2
