Blue Chips Surge to Highs as Fed Holds Rates Steady
Blue-chip shares stormed higher Wednesday after the Federal Reserve Board, as expected, adjourned its regular policy meeting without raising interest rates.
The broad market also advanced, but smaller stocks failed to keep up with big-name stocks. Elsewhere, gold fell to fresh four-year lows.
In an afternoon rally, the Dow Jones industrials leaped 73.05 points, or nearly 1%, to finish at 7,795.38--just under the record close of 7,796.51 reached June 20.
The Standard & Poor’s 500 index was even stronger, gaining 13.00 points, or 1.5%, to a record 904.03. (Investor Spotlight, D7.)
The Nasdaq composite also hit a record, rising 1.2% to 1,455.61. But it was led by major tech stocks, while many smaller shares lagged: Winners had only a narrow edge over losers on Nasdaq, while on the New York Stock Exchange, winners topped losers by nearly 2 to 1.
“The market got what it wanted to hear,” said William M. Lefevre, analyst at Ehrenkrantz King Nussbaum, referring to the Fed’s decision to hold steady--awaiting more data on the economy and inflation before deciding whether credit should be tightened again.
The Fed raised short-term rates in March for the first time in more than two years, sparking a broad decline in stocks. But since then a slower pace in the economy has dampened worries about sharply higher rates--and stocks have rocketed.
The bond market also rallied Wednesday, but only modestly. The bellwether 30-year Treasury bond yield slipped to 6.71% from 6.73% on Tuesday.
On Wall Street, the Dow’s volatility late in the day followed a familiar pattern of recent weeks. Some analysts have suggested that the recent switch to quoting stocks in sixteenths on the NYSE, from eighths, has led to increased activity by computerized-program traders who now get better prices as they take advantage of short-term discrepancies between stocks and stock index futures.
Program trading and other technical trading games often accelerate late in the day.
Today, the markets will close at 10 a.m. PDT in advance of the July 4 holiday. One key economic report is due: June employment data.
Among Wednesday’s highlights:
* Financial stocks again led the market higher, on hopes for stable interest rates. Citicorp jumped 4 3/4 to a record 128 1/16, Travelers rose 2 1/8 to a record 66 7/8 and Wells Fargo gained 6 13/16 to 278 1/2.
* In an apparent vote of confidence on the economy, many industrial issues also were strong, including AlliedSignal, up 2 1/8 to 86 5/16; Alcoa, up 1 7/8 to 78 1/4; and Kimberly Clark, up 2 3/16 to 52 1/2.
* Nasdaq’s surge was powered by computer-networking issues, including Ascend Communications, which surged 5 5/16 to 49 1/16 after Merrill Lynch raised its rating on the stock. Other winners included 3Com, up 3 11/16 to 48 1/8, and Cisco Systems, up 2 1/4 to 70 9/16.
But the biggest tech-related gainer was new issue Peritus Software, which jumped 10 3/4 to 26 3/4 in its first day of trading.
* On the downside, Disney fell 1 11/16 to 76 7/8. Brokerage Deutsche Morgan downgraded the stock to “hold,” citing concern over ratings at Disney’s ABC network.
The stock has slumped 8% since June 13, which analysts attribute to expected negative earnings effects from the accounting method used in the ABC takeover, hard-to-beat year-ago profit comparisons for theme parks, and concerns about movie performance.
Most analysts say a Baptist church group’s call for a boycott of Disney hasn’t been a major force pushing the stock lower.
