Stocks, Bonds Hold Steady as Fed Does Too
Stocks were little changed Tuesday after the Federal Reserve Board left interest rates unchanged, making it likely that borrowing costs will stay low and corporate profits will expand.
The Dow Jones industrial average edged 3.74 points higher to 9,054.65, paring a 62-point gain.
The Standard & Poor’s 500 index gained 3.70 points to 1,109.52, and the Nasdaq composite index rose 14.25 points to 1,845.87.
“It’s a great environment to own stocks,” said Michelle Clayman, chief investment officer at New Amsterdam Partners in New York, which oversees $660 million. “You have an economy that’s growing faster than expected, and inflation is coming in lower than expected.”
Bonds were little changed as the Fed’s move signaled that central bankers don’t expect inflation to accelerate soon. The yield on the benchmark 30-year Treasury bond rose to 5.93% from 5.92% on Monday.
Steady borrowing costs are good for stocks because they make it easier for companies to finance the expansion of their business.
Stocks rallied early in the day on expectations that the Fed would leave the so-called federal funds rate at 5.5%.
Banks in particular benefit from low interest rates, as demand for loans picks up when borrowing costs are attractive. Chase Manhattan rose $2.63 to $144.88 after Chairman Walter Shipley said he expects double-digit per-share earnings growth and that the company doesn’t feel pressure to merge. Citicorp rose $1.50 to $115.50, BankAmerica gained 69 cents to $83.25 and BankBoston rose $3.44 to $110.44.
The Fed hasn’t changed interest rates since March 1997, when they raised the federal funds rate, or target rate for overnight loans between banks, by a quarter of a percentage point.
About four stocks rose for every three that fell on the New York Stock Exchange, where 570.4 million shares changed hands, compared with a three-month daily average of 614 million.
Drug companies rallied for a second day amid optimism that new treatments for cancer and other diseases will help profits. Cor Therapeutics rose 56 cents to $17.44 after the company won full Food and Drug Administration approval for its Integrilin heart drug.
Bristol-Myers Squibb rose $2.06 to $111.19 after a study showed that the company’s Taxol, when added to standard post-surgery chemotherapy in the early stages of breast cancer, boosts the odds that a woman will survive the disease.
Pfizer, the maker of the impotence drug Viagra, gained $2.13 to $112.81. About 278,715 prescriptions for Viagra were filled in the week ended May 8, up 6% from the week earlier, according to IMS Health, an industry research group.
The NYSE composite index rose 1.84 points to 573.92, and the American Stock Exchange composite index rose 0.33 point to 732.69. The Russell 2,000 index of smaller companies rose 3.25 points to 470.86.
The Wilshire Associates Equity Index--the market value of NYSE, American and Nasdaq issues--was up 48.26 points, or 0.46%, at 10,533.969.
Overseas, Tokyo’s Nikkei stock average rose 1.1%, Frankfurt’s DAX index rose 0.9% and London’s FTSE-100 rose 0.9%.
Among Tuesday’s market highlights:
* DuPont was the Dow’s biggest gainer, rising $1.44 to $82.19 after announcing it will buy Merck’s interest in their drug venture for $2.6 billion. Merck fell 94 cents to $118.69.
* Cisco Systems helped give the Nasdaq a boost, rising $2.64 to $80.39. Cisco jumped after a Donaldson Lufkin & Jenrette analyst made positive comments about the computer-networking company.
*Market Roundup, D12
