Stocks Rally, Unfazed by Political Drama
Investors returned from one of the most shocking weekends in U.S. political history Monday and, far from turning defensive, poured money into the stock market--especially into technology issues--driving the major indicators sharply higher.
The Dow Jones industrial average rose 85.22 points, or nearly 1%, to 8,988.85, and the technology-heavy Nasdaq composite index leaped 51.89 points, or 2.5%, to a record 2,138.03. At one point in the day, the Dow had been up as much as 175 points.
Internet stocks again were invincible. Yahoo, the Net search service, leaped $35.19 to a record $247.50, and online bookseller Amazon.com soared $32.06 to a record $318.75. Onsale, an Internet auction company, zoomed $24.31 to $68 after announcing a business deal with Yahoo.
Wall Street’s rally followed an even stronger day in European stock markets, where analysts said there was relief that the U.S.-British bombing of Iraq did not spread into a wider conflict.
The end of the air attacks on Iraq also helped push oil prices to 12-year lows--offering more evidence of a global deflation in commodity markets.
The dollar, meanwhile, surprised some experts by gaining strength against the German mark and Japanese yen Monday despite the impeachment of President Clinton and the resignation of House Speaker-designate Bob Livingston over the weekend. The dollar climbed to 1.671 marks from 1.663 on Friday and to 116.21 yen from 115.61.
Treasury bond yields, however, surged as the stock market siphoned money away, and in anticipation that the Federal Reserve’s policy-setting committee, meeting today, will make no move to push interest rates lower. The 30-year T-bond yield ended at 5.06%, up from 5% on Friday.
With the bombing in Iraq halted and the Senate appearing unlikely to muster the votes to remove Clinton from office, there also seemed to be less reason for investors to fly to the safety of Treasury bonds.
The gains in the major U.S. stock market indicators obscured the fact that Monday’s rally was focused in the technology sector.
In an unusual occurrence given the surge in the Nasdaq composite index, declining stocks outnumbered gainers by about 11 to 10 on that market.
There were more winners than losers on the New York Stock Exchange, however, though by a fairly narrow 17-13 ratio. Among Big Board issues, only 131 hit new highs--though that was enough to send the Standard & Poor’s 500 index to a new high.
Some observers warned that the weakness in technical indicators may presage trouble for stocks, because they suggest a narrow advance.
“Very few groups participated in the rally,” said a rather gloomy Stanley Nabi, chairman of the investment committee at money management firm Wood Struthers & Winthrop in New York.
He added that Wall Street’s relief over the end of the bombing and the prevailing opinion that Clinton will escape ouster was “a misreading” of the gravity of the problems.
Other analysts found more reason for optimism, however.
Investors largely shrugged off impeachment because they’re “doing the math,” said strategist Joseph Battipaglia of Gruntal & Co. “The math is, you need 67 votes [to remove the president], and the Republicans don’t have them” in the Senate.
Even the prospect of a prolonged Senate trial would not be an entirely bad thing, several analysts said, because it could mean lawmakers would be too busy to interfere with a still-sound economy and a bull market.
One market sector that lately seems impervious to any kind of turmoil, be it in Washington or abroad, is the Internet.
Companies such as Yahoo and Amazon.com continue adding billions of dollars to their market capitalization as critics deplore their relative lack of earnings.
“The Internet sector’s been divorced from reality for months, so why should something like impeachment change that?” said one Wall Street strategist.
Traders said Monday’s surge in the stocks was sparked by bullish comments from Morgan Stanley Dean Witter analyst Mary Meeker in Barron’s magazine over the weekend. Meeker cited the growth in the number of Internet users--to 80 million today from 5 million in 1995--to argue that the stocks’ high valuations are justified.
The Morgan Stanley high-tech index, which includes Yahoo, AOL and others involved in Monday’s frenzy, is up 76% since Oct. 8.
Monday’s euphoria spread from the Internet companies themselves to bigger technology companies, including Dell Computer, up $4.06 to $71.94; Lucent Technologies, up $5.63 to $104; IBM, up $4.81 to $176.38; and Cisco Systems, up $4.25 to $94.69.
Elsewhere, in Europe, the major indexes of Germany, France, Italy and the Netherlands all gained more than 3%, and the British, Swiss and Spanish indexes rose more than 2%.
As for the Fed meeting today, traders said it appears unlikely the central bank will cut short-term interest rates a fourth time this year, given the rising stock market and the recent signs of continued strength in the domestic economy.
On the other side of the ledger, inflation--normally the central bank’s main concern--has all but disappeared from the global scene, as commodity prices keep tumbling.
Those pushing for further Fed rate cuts believe the collapse of commodity prices indicates a worrisome lack of global demand for goods and services--one the Fed ought to counter by pumping more money into the economy.
Crude oil for January delivery fell to $10.35 a barrel on the New York Mercantile Exchange--the lowest price since 1986--before rallying to close at $10.81, down 14 cents for the day.
Analysts said the drop reflects investors’ growing belief that the latest air attacks will not halt the flow of oil from Iraq, a major producer.
Among Monday’s highlights:
* Some retail stocks gained as the holiday shopping season heads into the home stretch. Circuit City rose $2 to $46.94, Gap jumped $3.19 to $51.13, Ross Stores gained $2.44 to $35.44 and Abercrombie & Fitch leaped $2.25 to $63.
But J.C. Penney dropped $2.81 to $49.88 and Sears fell 81 cents to $41.25.
* Some drug stocks were hit by profit-taking, with Lilly losing $3.25 to $84.06 and Warner-Lambert down $1.75 to $71.81.
* Major financial stocks were mostly higher, led by J.P. Morgan, up $2.75 to $103.25; Charles Schwab, up $7.31 to $51.69; and AIG, up $1.44 to $100.88.
Market Roundup, C13
* ONLINE TRADERS
New technology levels playing field for individuals. C6, C7
