Dow Rises 117, Ends the Week 517 Ahead After Rate Cut
Stocks rose Friday, sending the Dow to a weekly gain of 517 points, or 6.5%, a day after the Federal Reserve Board’s cut in key lending rates reassured investors that the U.S. economy will keep growing.
“The bull market hasn’t been revived, but we’re seeing a serious effort to get it started,” said Jeffrey Davis, chief investment strategist at State Street Global Advisors. “We’re going to see more rate cuts, and that’s going to decrease the chance of recession.”
On Friday, the Dow Jones industrial average climbed 117.40 points, or 1.4%, to 8,416.76. The Standard & Poor’s 500 index rose 8.93 points, or 1%, to 1,056.42. The Nasdaq composite index rose 9.94 points, or 1%, to 1,620.95. Two stocks rose for every one that fell on the New York Stock Exchange.
U.S. Treasury bond prices were little changed amid speculation the Fed will cut rates again to keep the economy from lapsing into recession. The dollar rose against the mark and pared losses against the yen a day after the interest rate cut sent the dollar tumbling. Traders said the drop was unjustified given the strength of the U.S. economy.
The bellwether 30-year Treasury bond yield rose to 4.98%, from 4.97% on Thursday.
Treasuries also gained on speculation that the Fed decided to lower rates because of undisclosed financial difficulties at one or more banks or brokerage firms. “The fear element” is making trading extremely volatile, said Charles Reinhard, a market strategist at ABN Amro Inc.
Government reports Friday showing subdued inflation and weaker industrial production suggested the economy is slowing enough to allow the Fed to continue to cut rates.
“The Fed is speeding up easing, and there is more to come,” said Kevin McClintock, who oversees taxable bonds at Dreyfus Corp.
In the wake of the three-day stock rally, analysts expressed guarded optimism.
“If we avoid the recession that everybody has put into their forecasts, then we should really be OK in the near term,” said William Gerlach, who helps manage $2.5 billion in small- and mid-capitalization stocks for Miller Anderson & Sherrerd.
As the Dow lost 19% from July 17 to Aug. 31, many investors feared the onslaught of a long, punishing bear market.
But Laszlo Birinyi, this year’s top stock picker on “Wall Street Week with Louis Rukeyser,” said Friday that the bull market is alive and well.
The stock market “is in very good shape,” said Birinyi, president of Birinyi Associates in Greenwich, Conn. “Money flows have told us for some time there was positive news in the marketplace; yesterday we found out what the news was,” he wrote to clients in a report.
Morgan Stanley Dean Witter & Co.’s Byron Wien said he expects further rate cuts and believes stocks are headed higher. Prudential Securities’ chief technical analyst, Ralph Acampora, said he expects the Dow to pass 8,600 shortly. Last week he said the Dow could sink as low as 6,400.
Still, some investors warn against too much optimism. “It’s going to take more than a [quarter-point] rate cut to instill confidence again,” said Christopher Burnham, president of Columbus Circle Investors. “It’s going to take something more substantial to change the psychology of the market.”
Among Friday’s highlights:
* Regional banks, which lost about a third of their value since July, led the rally. Bank One Corp. rose $2.44 to $47.63, U.S. Bancorp rose $1.38 to $40.94, and Keycorp climbed $2.94 to $31.13. Lower interest rates boost demand for loans and credit and reduce the cost of doing business for banks.
* Airline shares, which rise and fall with expectations about economic growth, soared. Delta Air Lines rose $4.50 to $98, AMR climbed $2.19 to $56.38, and U.S. Airways Group Inc. gained $4.50 to $54.63.
* Hewlett-Packard paced a rally in computer shares, gaining $2.06 to $54.
* Woodland Hills-based Foundation Health Systems surged $2.56, or 32%, to $10.50. Superior National Insurance Group expects to complete its purchase of Foundation’s money-losing workers’ compensation unit Dec. 10.
Market Roundup, C4
