Rate-Cut Hopes Return Dow to 9,000 Territory
The Dow Jones industrial average on Monday closed above the 9,000 mark for the first time since July, riding expectations of a Federal Reserve interest rate cut today and helped by a lessening of Mideast tensions.
The Dow jumped 91.66 points, or 1%, to 9,011.25, its highest close since July 30.
The broad market also advanced, though not as strongly. Winners topped losers by 16 to 14 on the New York Stock Exchange and by 21 to 19 on Nasdaq.
The Nasdaq composite index rose 0.7%, helped by continuing interest in Internet stocks.
The Russell 2,000 small-stock index edged up 0.3%.
In other markets, the dollar fell as Mideast concerns abated, and oil prices also tumbled.
Treasury bond yields rose modestly, taking a more cautious view of what the Fed might do than did the stock market.
On Wall Street, the betting is heavily that the central bank will again reduce its benchmark short-term interest rate, the federal funds rate, by at least a quarter-point today.
Since Sept. 29 the Fed has cut that rate from 5.5% to 5%, seeking to bolster global financial markets among extraordinary volatility and a sudden unwillingness on the part of many investors to take on any risk at all in markets.
Wall Street’s message on Monday was that “they seem to think there’s going to be a cut,” said Robert Freedman, investment chief for John Hancock Funds.
Others weren’t so sure. “I don’t think they can justify cutting rates right now,” given signs of strength in the U.S. economy and the improvement in financial markets during the past month, said David Jallits, who helps oversee $5.5 billion at Strategic Fixed Income in Arlington, Va.
Indeed, stocks’ stunning recovery--lifting the Dow from a low of about 7,500 in late August to within 327 points of its record high of 9,337.97 set on July 17--could be a troubling issue for the Fed, because the gain suggests the market’s health may depend on further rate cuts. If those cuts don’t materialize, another stock selloff could ensue amid continued worries about the global economy’s prospects in 1999, some experts say.
Earlier Monday, the Fed reported that industrial production fell 0.1% in October, confirming that there is indeed a slowdown in manufacturing and surprising economists, who had forecast a 0.2% rise.
The Treasury bond market’s modest selloff on Monday partly reflected some investors’ decisions to exit super-safe securities as tension in the Mideast subsided, analysts said.
The yield on the 30-year Treasury bond rose to 5.29% from 5.25% on Friday.
For Wall Street, Asian stock markets had set a good tone on Monday, rallying on news of Japan’s latest economic-stimulus package. Tokyo stocks gained 1.1%. The Hong Kong market jumped 3%.
Among Monday’s highlights:
* Buyers snapped up blue chips across a broad range. 3M rose $3.25 to $97.44, GM jumped $2.56 to $72.81, American Express added $2.38 to $96.94 and General Electric rose $2.25 to $90.44.
* Leading tech shares also rose. Intel surged $3.13 to a record $106.88 and IBM rose $1.94 to $91.50.
* In the Internet-related sector, some of last week’s high-flyers plunged, including Theglobe.com, down $14.75 to $48.75, and AvTel Communications, tumbling $20.50 to $10.50 after soaring from $2.25 to $31 last Thursday before trading was halted.
AvTel, which announced plans to offer high-speed Internet access in Santa Barbara last week, had trading in its shares suspended by Nasdaq Friday after the big runup. The company on Friday issued a press release clarifying some points about its Internet plans.
The stock reopened Monday at $3.50, and traded as high as $15.
* Other Internet stocks continued to rise, including EBay, up $3.69 to $127.63; Yahoo, up $5.25 to $173.25; and America Online, up $6.63 to $146.63.
* Oil stocks fell as tensions eased in the Persian Gulf. Exxon fell $1.44 to $71.44, and Texaco dropped $1.25 to $59.38.
* Los Angeles-based CalMat rose $3.44 to $30.63 after Vulcan Materials agreed to buy the construction materials maker for $700 million in cash plus debt to take advantage of a planned jump in spending on highways and roads.
Vulcan shares rose $2.44 to $125.13.
* PacifiCorp rose 75 cents to $19.75 after two London newspapers reported Scottish Power Plc was in talks to buy the Oregon-based utility for about $6.6 billion.
*
Market Roundup, C16
