Stocks Continue to Gain; Smaller Issues Lead Rally
U.S. stocks on Monday continued their broad-based rebound, as the Federal Reserve Board’s strong anti-recession stance buoyed investor sentiment.
Meanwhile, oil prices fell to seven-week lows amid worries about future production levels.
On Wall Street, the rally sparked by last Thursday’s surprise Fed rate cut extended into its third day, with smaller stocks in the lead.
The Russell 2,000 index of smaller shares rose 2.8% to 352.45, after rocketing 7.7% last week.
The blue-chip Dow industrials pulled back from a 99-point gain to close up 49.69 points, or 0.6%, at 8,466.45. The Dow had jumped 6.6% last week and has risen in six of the last seven sessions.
Monday’s trading volume was well below the heavy levels of Thursday and Friday, but breadth was healthy: Winners topped losers by nearly 2 to 1 on the New York Stock Exchange and by 26 to 15 on Nasdaq.
“Talk of recession has subsided with the Fed easing,” said Jay Suskind, director of trading at Ryan, Beck & Co. “And if the Fed is loosening credit, that will help the banks.”
Beaten-down bank stocks continued to resurge. The Standard & Poor’s financial stocks index gained 1.1%, nearly twice the Dow’s percentage rise.
The Fed on Thursday cut its key short-term interest rate to 5% from 5.25%, after having reduced the rate from 5.5% on Sept. 29.
Amid extraordinary turmoil in global financial markets, the Fed is trying to send a message that it will supply needed liquidity to the financial system, analysts say.
And while worries persist about slowing corporate earnings growth and the risk of more trouble in foreign markets, “there’s an old rule of thumb that you don’t fight the Fed,” said Art Micheletti, investment strategist at Bailard, Biehl & Kaiser Inc., which oversees about $1 billion. “We’ve had two easings, and I think there will be more coming.”
The Treasury bond market was relatively calm Monday, with longer-term yields hovering near last week’s lows.
The two-year T-note yield edged up to 3.89% from 3.88% on Friday. The 30-year T-bond yield was unchanged at 4.98%.
Another drop in the dollar versus the Japanese yen failed to rile bonds. The dollar sank to 114.28 yen from 115.25 on Friday in New York. Meanwhile, Japanese stocks gained, with Tokyo’s Nikkei stock index up 2.2% to 13,567. Other foreign stock markets were mixed, however.
In commodity trading, crude oil tumbled more than 5% to a seven-week low on speculation that Venezuela will abandon output cuts next July, signaling a weakening in the resolve by major producers to curb supply.
Crude oil futures for November fell 80 cents to $13.35 a barrel in New York trading.
In the stock market, investors will have a flurry of third-quarter corporate earnings reports to digest this week--including IBM’s report today. IBM stock rose $3.44 to a record $139.38 on Monday, in anticipation of a good profit gain.
Among Monday’s highlights:
* J.P. Morgan led bank stocks higher after its earnings report. Morgan rose $3.38 to $92.88.
Other financial stocks rising included BankAmerica, up $3.25 to $52.88; Chase Manhattan, up $2.16 to $51.25; and Merrill Lynch, up $2.63 to $52.38.
* Many retail shares gained on optimism that consumers will keep spending in the coming year. Wal-Mart jumped $2.13 to $68.75, nearing its record high of $69.81.
* Takeover activity buoyed some stocks. Ciena shares surged $2.81 to $12.13 after former suitor Tellabs said a new bid is still possible for the telephone equipment maker.
But Kroger slumped $3.31 to $45.44 after its bid for Fred Meyer disturbed some investors because of the debt level to be incurred. Meyer lost $4.81 to $44.19.
* Hotel and casino stocks rebounded, including Circus Circus, up $1.38 to $9.88, and Hilton Hotels, up $1.69 to $18.88.
Finally, a historical note: It was 11 years ago Monday that the Dow plunged 508 points, or 22.6%, in its biggest decline ever. Since then, the Dow has increased almost fivefold, not counting dividends.
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Market Roundup, C14
