Dow Soars 155 to New High as Bond Yields Fall to 1997 Lows
Stocks and bonds found buyers galore again on Tuesday, as Federal Reserve Board Chairman Alan Greenspan gave Congress a basically upbeat outlook on the economy.
The Dow industrials zoomed 154.93 points, or 2%, to a record 8,061.65, as winners swamped losers by 21 to 8 on the New York Stock Exchange in heavy trading.
In the bond market yields plunged, with the 30-year Treasury bond yield ending at 6.41%, down from 6.54% on Monday and the lowest yield since last Dec. 4.
It was the biggest bond rally in more than nine months. In another sign of investors’ exuberance, the yield on two-year T-notes ended at 5.82%, down from the 5.93% yield on newly auctioned notes, which were sold just an hour before Greenspan began testifying.
Investors took heart from the optimistic tone of the Fed chief’s remarks. Although he warned that, at some point, the Fed surely will tighten credit again, he also implied that “there’s nothing on the immediate horizon that would suggest a rate hike,” said Joseph Liro, economist at CIBC Wood Gundy Securities. (Main story, page A1.)
For stocks and bonds, “He’s taken the only potential negative blip off anybody’s radar screen,” said John Cleland, chief investment strategist at Security Benefit Group in Topeka, Kan.
Greenspan has “given everybody all the more reason to buy,” said Warren Simpson, a portfolio manager at Little Rock, Ark.-based Stephens Capital Management, which oversees $1 billion.
Indeed, every major U.S. stock index rose powerfully. The Nasdaq composite surged 27.63 points, or 1.8%, to 1,563.86, though it remains below its recent peak of 1,580.63.
Yet many analysts concede that U.S. stocks, on average, are reaching historically high levels relative to earnings, dividends and other fundamental measures of value.
And although corporate earnings gains continue to look good, on balance, for the second quarter, it isn’t clear that profits can advance as strongly going forward, if the U.S. economy’s growth remains moderate.
Still, Greenspan, among other Wall Street veterans, has apparently decided not to fight the market anymore. “Greenspan had every opportunity [Tuesday] to say something unsettling to the market’s psychology, and he chose not to do it,” said Robert Stovall, president of Stovall/Twenty First Advisers. “His concerns of 1,500 points ago have been trampled by an iron-sided bull.”
Among Tuesday’s highlights:
* Blue chips leading the charge included several reporting quarterly earnings: Walt Disney, up $2.44 to $77.63; Philip Morris, up $2.13 to $42.63; and Pepsico, up $2.50 to $38.06.
* Drug stocks also continued to surge, helped by earnings. Warner Lambert gained $3 to $142.50, Lilly rose $2.38 to $113.63 and Schering-Plough advanced $2.13 to $51.
* Boeing climbed $2 to $56.88 after the company offered a set of last-minute concessions to the European Commission in hopes of winning approval for its planned merger with McDonnell Douglas.
* Big-name technology shares sprang to life after three days of profit-taking on that sector’s recent rally. Intel jumped $3.06 to $88.75, Microsoft surged $8.19 to $144.13 and Dell Computer leaped $7.38 to $160.
* Oil stocks were broadly higher, led by Mobil, up $3.44 to $75.50, and Chevron, up $2.75 to $77.63.
* Among smaller shares rising sharply, Sizzler jumped 44 cents to $3.81 after the restaurant chain reported higher earnings.
Meanwhile, the dollar also surged anew, hitting 1.82 German marks as European officials hinted at looser entry rules for the planned monetary union.
