Stocks Rise Sharply; Bond Yield Dips
Technology stocks led a broad rally Tuesday, erasing almost every trace of Friday’s sell-off, as the Federal Reserve Board helped restore some faith in the outlook for low inflation and interest rates.
The Dow Jones industrial average climbed 114.74 points, or 1.47%, to 7,918.10 after storming 109 points higher Monday on the heels of Friday’s 247-point loss.
The Nasdaq composite index jumped 31.19 points, or nearly 2%, to 1,600.71 on the strength of technology stocks.
Advancing issues outnumbered decliners by more than a 2-1 margin on the New York Stock Exchange in heavy trading. The Standard & Poor’s 500-stock list rose 13.52 points to 926.01, and the NYSE composite index rose 5.99 points to 479.54.
By contrast with Monday’s late advance, which aided the blue-chip sector more than the broad market, Tuesday’s rally led some analysts to conclude that the market’s sharp retreat from record levels may have run its course in less than two weeks.
“We had a selling climax on Friday, which is hard to identify except in hindsight,” said Alfred E. Goldman, market analyst at A.G. Edwards & Sons of St. Louis.
“You’d have to be nuts not to know that somewhere along the way we’re going to get a pullback,” Goldman said. At Monday’s low, he said, the Dow had fallen more than 8% from Aug. 6’s record close at 8,259.31. “The Dow had given back 35% of its advance from April to August, so the correction had done its dastardly deed.”
Wall Street cheered the Fed’s decision to leave rates unchanged, which was seen as a vote of confidence that the economy can continue to grow at a comfortable speed without reigniting inflation.
The central bank last changed rates March 25, when it boosted the federal funds rate by 25 basis points, sparking a sell-off of nearly 10% in the blue-chip Dow index.
The price of the benchmark 30-year Treasury bond rose, trimming its yield to 6.51% from 6.52% on Monday. Bond prices and yields move in opposite directions.
Technology stocks sizzled as money managers, looking for more growth and cheaper valuations, rotated money out of blue-chip stocks and into the high-tech sector, analysts said.
“Most of the blue chips have had such strong advances, how much further can they go? The play is to look for growth,” said Kenneth Ducey of BT Brokerage.
Among Tuesday’s highlights:
* The Dow’s big gainers included IBM, up $3.94 to $107.94; Procter & Gamble, up $3.75 to $138.88; American Express, up $2.31 to $82.81; and J.P. Morgan, up $2.38 to $113.13.
* Among leading Nasdaq issues, Intel rose $3.69 to $97.91, Microsoft rose $4.94 to $138.81, and Dell Computer rose $2.31 to $84.69.
* One direct beneficiary of the tentative settlement between United Parcel Service of America and the Teamster union was Gateway 2000, which uses UPS as the primary delivery service for its personal computers. Gateway rose $2.75 to $40.
The dollar rose after the German central bank elected to leave interest rates unchanged. The sharp rebound in the stock market also aided the U.S. currency.
The dollar closed at 1.8405 German marks, up from 1.8305 marks on Monday. In late New York trading, the dollar settled at 118.21 Japanese yen, up from 117.82.
Overseas, Britain’s FTSE-100 rose 79.2 points, or 1.64%, to 4,914.2. In Tokyo, the 225-stock Nikkei average closed at 18,961.00, down 80.10 points, or 0.42%.
