Fed Chief’s Remarks Spark ‘Relief’ Rally
Stocks and bonds rallied Wednesday, with blue chips leading the way, as Federal Reserve Board Chairman Alan Greenspan appeared to take a less dire view of Wall Street’s current heights.
The Dow industrials rose 93.13 points, or 1.4%, to 6,945.85, recouping some of the 215 points lost between the index’s peak of 7,067.46 on Feb. 18 and Tuesday.
In the broad market, winners topped losers by 16 to 9 on the New York Stock Exchange and by 23 to 17 on Nasdaq. Most key indexes closed higher, although their gains in most cases lagged the Dow’s.
The Nasdaq composite, for example, added 11.72 points, or 0.9%, to 1,329.09.
In the bond market, yields eased modestly, with the benchmark 30-year Treasury bond ending at 6.82%, down from Tuesday’s 6.86%. Shorter-term yields were also lower.
Wall Street focused intently on Greenspan, who testified before a House committee on the economy. Unlike his comments before the Senate a week ago, when he appeared to be stridently warning that stock prices might be too high for investors’ own good, the Fed chief was a bit more conciliatory.
Whereas last week Greenspan appeared to be hinting that he might raise short-term interest rates soon in part to take some steam out of the bull market, he declared Wednesday, “We don’t view monetary policy as a tool to . . . prick the stock market bubble.”
“He did gingerly take a step back,” said Hugh Johnson, chief investment officer at First Albany Corp. “He helped us get over our jitters, and I think almost everybody is issuing a sigh of relief.”
Still, Greenspan continued to warn that the Fed will remain vigilant about forces in the robust U.S. economy that could drive inflation higher. He said the Fed must act preemptively to tighten credit if it believes inflation will rise, because of the lag time between what it does and the effects.
At the same time, Greenspan said, “If we were assured that inflation would stay down, that’s a forecast which in my judgment would mean we do nothing” to interest rates.
Among Wednesday’s highlights:
* Financial stocks rallied as worries about a Fed tightening move dissipated. First Chicago NBD gained 1 5/8 to 61, Citicorp jumped 4 to 122 1/8 and Merrill Lynch surged 3 1/8 to 98 1/2.
* Semiconductor stocks gained on an optimistic industry forecast from a Merrill Lynch analyst. Intel rose 3 1/8 to 149 1/2 and Micron Technology jumped 2 1/2 to 42 3/8.
* On the downside, Corporate Express plunged 8 1/4 to 10 1/16 after the office products company warned of weaker earnings this year. And Broderbund Software sank 7 3/8 to 23 1/8 on news that price cuts will depress its results.
In commodities trading, gold tumbled on news of a Swiss plan to set up a fund for victims of the Holocaust, to be financed by Swiss gold reserves. (Story, A1.)
