Small-Stock Rally Grows; Yields Fall
Stock and bond prices rose Monday after Federal Reserve Board Chairman Alan Greenspan failed to rattle Wall Street with his latest comments on the economy.
The Dow Jones industrial average rose 12.77 points to 7,835.18. But the session was highlighted by small stocks’ extending their rally and the technology-heavy Nasdaq composite index’s reaching a new high.
In the broader market, advancing issues outnumbered decliners by a 5-3 margin on the New York Stock Exchange in moderate trading.
“The primary markets seem to be languishing, yet the broadest measures of the market continue to do well, playing catch-up, so to speak,” said Scott Bleier, chief investment strategist at Prime Charter.
The Russell 2,000 index of smaller companies notched its eighth consecutive record high, rising 2.95 points to 435.99.
The Standard & Poor’s 500-stock list rose 2.15 points to 931.20, and the NYSE composite index rose 1.14 points to 485.78. The Nasdaq composite index rose 9.58 points to 1,645.35, another record high.
Traders said investors took heart on strength in the bond market after Greenspan gave no indications that the nation’s central bank would raise interest rates soon. He spoke Friday evening at Stanford University after the market closed.
“Greenspan’s comments over the weekend were benign and nonthreatening, at least in the near term,” said Guy Truicko, equity portfolio manager at Unity Management.
Greenspan said the economy continues to grow without inflation--unlike previous expansions--probably because new products such as computers are enhancing productivity.
The Fed raised short-term rates in March in a bid to ward off inflation, the first increase in more than two years, but it has held rates steady since. Higher rates would also tend to slow the economy, hurting corporate profits and stock prices.
The ongoing rally in small and mid-sized stocks has helped bolster Wall Street following the August pullback in blue-chip issues, said James Volk, head of institutional equity trading at Arcadia Investment Corp.
“That’s calmed some of the selling in the larger-cap stocks,” he said.
With no major economic or corporate earnings news to lead trading, stocks took their cue from bonds for much of the session.
The price of the key 30-year Treasury rose, lowering its yield to 6.61% from 6.63% on Friday. Bond prices and yields move in opposite directions.
Greenspan’s speeches have roiled markets in the past, as in December, when he questioned whether “irrational exuberance” had unduly inflated stock prices. Higher rates can drain funds from stocks and put them into bonds.
The Fed chairman raised the question again on Friday, asking whether the central bank can safely ignore the “extraordinary rise” in equity prices in determining whether inflation is a problem, even as prices for products and services remain stable.
Greenspan “didn’t give away any warning shots, other than the fact that he’s alert for inflation,” said Richard Cripps, director of research at Legg Mason in Baltimore.
Among Monday’s highlights:
* The Dow’s biggest gainers were J.P. Morgan, up $2.69 to $113.69, and Chevron, up $2.31 to $80.44.
* Transportation shares surged amid reports that major U.S. airlines had raised ticket prices 5%. Some carriers quickly restored their previous fares on Monday amid an apparent backlash among business travelers.
The Dow Jones transportation average rose more than 2%, led by Delta Air Lines, up $5 to $99.31; Southwest Airlines, up $2.25 to $32; and American Airlines parent AMR, up $4.19 to $110.44. All three carriers shunned the higher fares. US Airways rose $2.75 to $37.75.
* Paper companies fell after Merrill Lynch lowered its opinion on the pulp industry.
International Paper declined 56 cents to $53.50, Weyerhaeuser dropped $2 to $55 and Georgia Pacific fell $1.31 to $89.81.
* Despite the rise in the small-company indexes, not all small companies gained. Cymer plunged $12.88 to $69.13 on concern it won’t be able to meet estimates for the third quarter. The maker of semiconductor equipment dragged others in the technology sector lower, including Applied Materials, off $4.06 to $94.25, and Novellus Systems, off $4.44 to $111.94.
In currency markets, the dollar rose to 1.8070 German marks from 1.8025 marks on Friday. The British pound fell to $1.5827 from $1.5940. But the dollar fell to 121.17 Japanese yen from 121.06.
Overseas, Tokyo’s Nikkei stock average fell 0.1%, Frankfurt’s DAX index fell 0.8% and London’s FTSE-100 fell 0.2%.
