Dow Soars 330 on Rate Cut by Fed
U.S. stocks surged, bond yields tumbled and the dollar slumped Thursday in the wake of the Federal Reserve Board’s rate cut.
And early today in Asia, most stock markets there also were rocketing higher, as buyers bet that lower U.S. interest rates will help ease the global financial crisis.
On Wall Street, financial, technology and transportation shares led the final-hour market surge after the Fed made its announcement shortly after 3 p.m. Eastern time.
The Dow industrials, up about 100 points before the news, quickly soared an additional 280 points, peaking at 8,347.76 before easing back to close at 8,299.36, up 330.58 points.
It was the Dow’s third-biggest point gain ever, though in percentage terms the 4.2% rise wasn’t one for the record books. The index now is the highest since Aug. 26.
The flash rally was broad-based. Winners outnumbered losers by 25 to 7 on the New York Stock Exchange in extremely heavy trading of 938 million shares. On Nasdaq, winners topped losers by 28 to 12 as the composite index zoomed 70.04 points, or 4.6%, to 1,611.01--highest since Oct. 2.
Analysts said buying was spurred by hopes that the Fed’s efforts will calm extraordinarily nervous global markets and avert a U.S. recession in 1999.
There have been rumors over the last week that the Fed would quickly follow its Sept. 29 rate cut with another, but many investors obviously were taken by surprise. “It’s been a while since the Fed has been this aggressive,” said Roy Blumberg, analyst for First Allied Securities.
“Short covering” also was a factor in the rally, analysts said: Investors who had expected stocks to continue sliding suddenly rushed in to close out their positions as stocks zoomed.
Analysts cautioned that amid continuing economic jitters and a clouded near-term picture for corporate earnings, the rally is suspect. “We’ll continue to have a tug of war, with interest rates buoying the market and earnings pushing it down,” said W. Shannon Reid, a money manager with First Union’s Capital Management Group.
“If [today] is a down day, it would suggest this is a flash in the pan,” said Philip Roth, chief technical market analyst at Morgan Stanley Dean Witter & Co. “But if [today] looks like [Thursday], it would suggest a new bull market.”
Early today in Asia, markets were rocketing. The Thai market was up 6.1%, Hong Kong was up 6.7% and Tokyo gained 2.2%.
In the U.S. bond market on Thursday, rates on most Treasury securities plummeted in the final hour, reacting to the Fed move.
The yield on two-year T-notes plunged to 3.83% from 4.11% on Wednesday, the biggest one-day rally since June 13, 1995.
The 30-year T-bond yield, however, did not fall much. It ended at 4.97%, down from 5% on Wednesday. The longest-term yields could be sticky now, if the market assumes the U.S. will avoid recession.
But with short-term yields so far below the Fed’s 5% federal-funds rate, it’s clear the market expects many more Fed cuts--at least another full percentage point, many analysts say.
Among Thursday’s highlights:
* Beaten-down financial stocks leading the charge included American Express, up $7.63 to $88.50; American International Group, up $8.19 to $82.44; Merrill Lynch, up $4.56 to $48.06; and US Bancorp, up $3.06 to $39.75.
* Tech shares also were hot, with IBM up $6 to $136.50, Dell up $5.31 to $58.06, Yahoo up $7.50 to $119.38, Intel up $2 to $84.56 and Lucent up $4.06 to $70.81.
* Retail stocks leaped on optimism about the economy. Dayton Hudson soared $3.75 to $43.63 and Gap shot up $3.88 to $60.50.
* Airlines also got a big boost, with Delta up $7 to $93.50 and Southwest up $2.69 to $20.06.
Market Roundup, C7
