Asian Markets Lead Worldwide Rally
Stock markets worldwide joined in a giant rally Monday that lifted the Dow Jones industrial average more than 200 points and smashed a major barrier by pushing the Standard & Poor’s 500-stock index beyond the 1,000 mark for the first time.
The broad-based surge by U.S. stocks was triggered largely by an earlier rebound in East Asian markets and rising optimism that the region’s battered economies are stabilizing. Analysts said Wall Street was also buoyed by growing expectations that the Clinton administration will survive the controversy over allegations that the president had a sexual relationship with a former White House intern.
Still, some economists said investors appeared to be overly optimistic and warned that the Asian financial crisis could drag on and slow U.S. businesses for much of 1998.
“The market is getting ahead of itself,” said Sung Won Sohn, chief economist for Minneapolis-based Norwest Corp. In Asia, Sohn predicted, “economic conditions will get worse before they get better.”
Stock market investors, however, enjoyed a blockbuster day. The Dow climbed 201.28 points, or 2.6%, in heavy trading to finish at 8,107.78.
That gave the closely watched market gauge its first close above 8,000 since Dec. 9 and put it within striking range of its record level of 8,259.31 reached Aug. 6. It was the fourth-biggest point gain ever for the Dow.
The broader S&P; 500 index jumped 20.99 points, or 2.1%, to a record 1,001.27. For both the S&P; and the Dow, it was the biggest one-day rally in three months.
At the same time, bond prices edged lower, pushing the yield on the 30-year Treasury bond up to 5.87%, from 5.79% on Friday.
Analysts said bonds previously were buoyed by nervous Asian investors looking for security, but that some of that money now is heading back to Asia as fears of a continuing crisis ease.
Investors were also encouraged by statements made last week by Federal Reserve Board Chairman Alan Greenspan suggesting that the central bank’s key policymaking committee, which will meet today and Wednesday, will leave interest rates unchanged. Investors have been heartened as well by President Clinton’s proposed budget for fiscal 1999, which contains a surplus for the first time in 30 years.
Monday’s Wall Street surge, however, was spurred by 10%-plus gains by the major stock indexes in Hong Kong, Singapore, Indonesia, Thailand and the Philippines. Several of those markets had been closed late last week for Lunar New Year celebrations.
Although Japanese and South Korean stocks, which have rebounded sharply over the last two weeks, didn’t participate in the rally, the enthusiasm spread to Europe as well as Wall Street.
Still, many economists agreed with Sohn that the optimism about the beginning of recovery in Asia is overblown.
“The reality is that the economic conditions of those countries are going to be deteriorating throughout the year,” said Bruce Steinberg, chief economist of Merrill Lynch & Co.
Steinberg said he doesn’t necessarily expect a quick pullback in the stock market but that he expects stocks to remain within a “broad trading range” during the first half of the year. “It’s not going to make the kind of progress it made last year,” he said.
Eric Miller, chief investment officer for Donaldson, Lufkin & Jenrette, described himself as “a little wary” about the direction of the stock market later this winter and during the spring. In Asia, the sense that the crisis is abating “is a perception rather than a reality,” he said.
Miller said he expects lingering Asian economic problems to dampen the stock market by weakening U.S. corporate earnings.
For now, Miller said, an upbeat view among some investors about Asia and signs that earnings won’t be badly hurt are prodding money managers to put cash back into stocks.
“No money manager wants to fall behind a trend,” Miller said. “If you’ve got a little bit of cash and the market is moving up, you rush to put some [cash] to work” in the stock market.
More upbeat was Ralph Bloch, chief market analyst with Raymond James & Associates. “What really kicked in today,” he said, “was a tremendous amount of money that did not get spent in January because of Asia and the president’s crisis. Now that those two problems seem to be fading, the money is coming in.”
He added that many investors are pleased that earnings so far have not been badly hurt by the Asian problems.
Among the biggest gainers on Wall Street were financial concerns with ties to Asia such as J.P. Morgan, which rose $3.75 to close at $104.94, and Citicorp, up $5.31 to $124.31.
Computer and software companies also advanced, with the Morgan Stanley high-tech index climbing 3%. Software giant Microsoft rose $5.69 to $154.88, Oracle rose $1.44 to $24.69 and Dell Computer rose $5.13 to $104.56.
National Semiconductor was an exception, dropping $4.63 to close at $23.50. The company said fiscal third-quarter earnings may fall below analysts’ expectations because of slower sales in Asia.
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Bloomberg News and Associated Press were used in compiling this report.
