Stocks Recover After Fed Sparks Early Sell-Off
Chided for their “irrational exuberance” by Federal Reserve Board Chairman Alan Greenspan, investors fled the stock market early Friday only to rush back in and snap up the marked-down merchandise, cushioning a steep decline.
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.
Broader measures also erased a big chunk of the early slide, which was preceded by a sharp sell-off on foreign markets and a big jump in bond market interest rates, all touched off by Greenspan’s remarks Thursday night.
Greenspan hypothesized about the consequences of “a collapsing financial asset bubble,” triggering fears the Fed may soon raise interest rates to slow inflationary pressures in the economy and the financial markets.
However, cooler heads prevailed with the help of another report suggesting moderate economic growth.
A smaller-than-expected rise in November employment spurred a recovery in Treasury bond prices, helping stocks revive.
As bond prices tumbled in the morning, 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.
Bonds and stocks recovered as that scenario was reinforced by the release of the jobless report that said growth slowed in November. As the long-bond recovered, its yield fell to 6.51%.
The Standard & Poor’s 500 list fell 4.78 points to 739.60 after rebounding from a 17 1/2-point morning slide. The NYSE composite index fell 2.60 points to 390.15 after being down nearly 9 points in the early going.
One of the broadest measures of the market, the S&P; 500 index, fell as low as 17.49 points, then rebounded to 739.60, down 4.78.
The worst decline came in the Nasdaq composite index, which sank 41.23 points, then pared the loss to 12.44 points, closing at 1287.68.
Among Friday’s highlights:
* IBM was the Dow’s weakest component, falling 2 7/8 to 155 5/8 as investors continued to secure profits 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.
* Philip Morris led the afternoon Dow rebound, rising 1 1/2 to 109 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.
* The most noteworthy recovery came in bank stocks, which rallied along with Treasury bonds. NationsBank rose 1 3/4 to 97 5/8 and Citicorp gained 1 3/4 to 103 3/8.
