Dow Zooms Up 82 as Bond Yields Ease
Investors in effect thumbed their noses at Federal Reserve Board Chairman Alan Greenspan on Monday, driving stocks sharply higher and bond yields lower.
Recovering quickly from Friday’s early rout caused by Greenspan’s warnings about “irrational exuberance” in markets, the Dow Jones industrial average surged 82 points, or 1.3%, to 6,463.94.
That more than recouped Friday’s net Dow loss of 55 points.
In the broad market Monday, most major stock indexes surged, in the first across-the-board rally since the day after Thanksgiving. The Nasdaq composite index of mostly smaller stocks shot up 28.59 points, or 2.2%, to a record 1,316.27.
“What a difference a weekend makes,” said Russ Labrasca, senior vice president at Principal Financial Securities of Dallas. “Everyone has had time to digest Greenspan’s comments and realize that it was a word of caution but not of an impending apocalypse.”
Greenspan had set off a plunge in stock prices worldwide on Friday after he hinted in a speech late Thursday that the Fed was concerned about speculation in global financial markets. The implication was that the Fed might be compelled to tighten credit to keep a speculative “bubble” from building in world markets.
But after diving as much as 144 points early Friday morning, the Dow recovered nearly two-thirds of that loss by the close of trading. And Monday the rebound continued as investors apparently saw no great risk that the Fed might actually seek to choke off the bull market any time soon.
“The market was basically saying that Greenspan’s comments were a non-event,” said Art Micheletti, head of investment strategy at $1-billion-asset Bailard, Biehl & Kaiser in San Mateo, Calif. “As long as you’re in a low-inflation, low-interest rate economy, it’s generally constructive for stocks.”
Investors were encouraged by remarks from Treasury Secretary Robert E. Rubin, traders said. Speaking Sunday on NBC-TV’s “Meet the Press,” Rubin said Greenspan was only asking a question about the point at which financial assets may be overvalued and was not warning that stocks already are.
The bond market also rallied Monday, buoying stocks. The yield on the benchmark 30-year Treasury bond eased to 6.47% from Friday’s 6.51%, the first decline in yields in six trading sessions.
On Wall Street, winners topped losers by 19 to 6 on the New York Stock Exchange and by 26 to 18 on Nasdaq.
The Russell 2,000 index of smaller stocks jumped 4.99 points, or 1.4%, to 360.49, finally creeping back within reach of its May 22 record high of 364.61. Smaller stocks have been catching up to blue chips over the last two weeks.
Meanwhile, many foreign stock markets, which had fallen much more sharply Friday in response to Greenspan, also recovered some of those losses Monday. Tokyo’s Nikkei stock average jumped 1.6% after tumbling 3.2% on Friday. Frankurt’s DAX index leaped 2.3% after sliding 4.1% on Friday. And London’s FTSE-100 index rose 1.2% after dropping 2.2% on Friday.
Among Monday’s highlights:
* Tech stocks led the rally. Microsoft rocketed 5 3/8 to 81 3/4 on the first day of trading after a 2-for-1 stock split. Intel gained 4 7/16 to 130 1/8, Dell Computer rose 3 3/4 to 60 1/2 (also after a 2-for-1 split), IBM soared 4 3/8 to 160 and Compaq rallied 1 1/2 to 85 3/4.
* Many computer chip makers gained in advance of an industry report showing a continuing recovery in orders. Cypress Semiconductor rose 1 3/4 to 15 5/8, VLSI Technology climbed 2 1/8 to 28 3/8 and Advanced Micro Devices was up 7/8 to 26 5/8.
* Philip Morris soared 4 7/8 to 114 1/4 after brokerage Goldman Sachs raised its 12-month price target for the stock to 135.
Also in the Dow, Allied Signal rose 7/8 to 69 7/8 after it said it would buy back an additional 50 million shares.
* Drug stocks were big gainers, after last week’s profit taking. Warner Lambert rocketed 4 1/4 to 75 1/4, Merck soared 2 1/4 to 80 3/8 and Pfizer zoomed 3 1/4 to 84 3/4.
* On the downside, Presstek slumped 6 1/4 to 75 1/2 after the New Hampshire-based maker of printing equipment said the Securities and Exchange Commission voted to begin a formal investigation of trading in the company’s shares.
* Southwest Airlines fell 3/8 to 24 1/4 after Chairman Herb Kelleher said fourth-quarter earnings will fall below last year’s levels because more passengers are buying cheaper leisure fares and its average flights are longer.
Also in the airline sector, Vanguard Airlines, which reached a record high of 11 1/4 on May 3, fell 7/8 to 1 1/2. The company said it will be delisted from the Nasdaq SmallCap stock market at the close of business on Dec. 13.
* Shares of Inglewood-based Imperial Bancorp fell to 22 3/4 on their first day of trading on the NYSE, down from 22 7/8 on Nasdaq on Friday.
Among commodities, crude oil prices fell on news that the United Nations had given its final stamp of approval to a deal that would allow Iraq to start shipping oil for the first time since its 1990 invasion of Kuwait.
January crude oil ended down 32 cents at $25.30 a barrel after falling as low as $25 on the New York Mercantile Exchange.
