Stocks Recover After Fed Sparks Early Sell-Off
Stocks, bonds, commodities and the dollar all gyrated Friday, first losing value after Federal Reserve Chairman Alan Greenspan publicly wondered if stocks were overvalued, then recovering as buyers entered the markets and key economic reports boosted spirits.
Stock market measures erased much of an early slide, which was preceded by a sharp stock and dollar sell-off on foreign markets and a big jump in bond market interest rates, all touched off by Greenspan’s remarks Thursday night.
The Dow Jones industrial average tumbled 145 points in the first half-hour of trading before recovering to close at 6,381.94, down 55.16 for the day and down 139.76 on the week.
The wild ride left the dollar little changed from levels 24 hours earlier.
“We had a pretty volatile day,” said Frank Conte, chief trader at Royal Bank of Canada’s New York branch. “Greenspan came out of left field.”
The yield on the 30-year Treasury bond soared from late Thursday’s 6.50% to as high as 6.64%, the highest level since early November. Last week, the yield hit a nine-month low amid continuing indications of noninflationary economic growth. But by day’s end, it was back to 6.51%.
“The market came to the conclusion that this was nothing but an effort by Greenspan to keep the speculation under control, not a harbinger of some Draconian monetary policy in the works,” said John Shaughnessy, research director at Advest Inc. of Hartford, Conn.
The early action rattled commodity markets with gold, silver, cattle, corn, soybeans and lumber futures ending lower.
Many foreign markets closed before Wall Street’s recovery, with Germany’s DAX index down more than 4% to 2,792 and Japan’s Nikkei index down 3.2% to 20,277.
Among Friday’s highlights:
* Advanced Micro Devices rose 2 1/2 to 26 1/8. Cowen & Co upgraded its opinion of the stock.
* Adobe Systems fell 1 1/2 to 40 1/2 and AMC Entertainment fell 1 to 17 7/8 after the software developer and theater company were both rated “neutral” by analysts at Cowen & Co.
* IBM was the Dow’s weakest component, falling 2 7/8 to 155 5/8 as investors continued to secure profit on November’s rapid ascent. Other big Dow decliners included GM, down 2 1/4 to 56 1/2; DuPont, down 2 1/4 to 95 5/8; and United Technologies, down 2 1/8 to 132 1/8.
* Airline stocks also suffered. AMR crumbled 2 3/8 to 89 5/8 after British officials demanded American Airlines and British Airways make concessions before they approve their planned alliance. BA’s American depositary receipts sank 2 1/4 to 95 3/8.
* General Instrument gained 2 to 24 1/4 amid speculation the cable TV equipment maker could announce a takeover, joint venture or other market-moving news next week.
* Financial stocks, which enjoy a smaller profit margin on loans when interest rates rise, were among the worst hit groups in the early going, but rebounded as rates eased. Citicorp rose 1 3/4 to 103 3/8 after dropping as low as 97 3/8 in the morning, while Chase Manhattan rose 5/8 to 89 1/2, after having been as low as 86.
