Greenspan’s Speech Lifts Stocks
Wall Street stocks soared Tuesday, with the Dow Jones industrial average posting its biggest point gain ever after Federal Reserve Board Chairman Alan Greenspan hinted that interest rates may be headed lower.
The world’s most widely watched stock index jumped 380.53 points, or nearly 5%, to 8,020.78, beating the 337-point rise on Oct. 28, 1997, the day after the Dow fell 554 points, its worst point loss ever. Tuesday’s gain in percentage terms, though, did not even rank among the top 15.
In the broader market, advancing issues swamped declines 2,503 to 612 on active volume of 814.87 million shares on the New York Stock Exchange. The average share rose $1.74.
The Nasdaq composite index rose 94.34 points, or 6%, to 1,660.86, eclipsing the record 75-point gain set on Sept. 1.
“The consensus is a rate hike for this year is ruled out and the possibility of a rate cut has increased now,” said Peter Coolidge, senior equity trader at Brean Murray & Co. “That is giving the market a shot in the arm.”
Battered investors returned from the Labor Day holiday with hopes rejuvenated by just the tonic they needed: a soothing speech from Greenspan late Friday.
Wall Street sensed that Greenspan had left the door open to a rate cut, although he did not comment directly on interest rates.
“It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress,” the Fed chief said.
Greenspan suggested that the central bank currently viewed the risks to the economy from a global slowdown on the one hand and inflation on the other as balanced, which was seen as confirmation the Fed has dropped its slant toward raising rates.
“You can give a lot of the credit to Mr. Greenspan,” said Charlie Crane, chief market strategist at Key Asset Management. “Greenspan’s comments on Friday indicate that the Fed has abandoned the hawkish stance it had been maintaining, and that is the first step toward easing.”
Crane added, “We are still several steps from a cut, but in an environment where every bit of news seemed to be bad news, this stood out as a beacon of hope and heartened investors.”
Some analysts were still worried about whether rumblings from weak emerging markets could call off the rally.
After the close, Merrill Lynch became the latest securities firm to report that turmoil in emerging markets would hurt its third-quarter profit.
Banking and brokerage house stocks, some of the hardest-hit issues last week after many warned of lower profits because of losses in Russia and Latin America, led the market higher.
Citicorp jumped $7.31 to $99.63, Chase Manhattan added $1.75 to $47, American Express rose $6.38 to $80, and Merrill Lynch gained $4.69 to $66. Travelers Group added $3.19 to $42.25.
Technology stocks were also among the high fliers. Microsoft rose $5.69 to $101.48, and Dell Computer added $5.94 to $59.94 on a huge volume of nearly 51 million shares after a 2-for-1 stock split.
The Internet sector was hot with Yahoo up $9.25 to $84.63 and America Online jumping $9.25 to $95.25. Excite gained $4.13 to $30. Among the losers, Concentra Managed Care fell $6.19 to $6.19 after warning that its third-quarter results would be below analysts’ forecasts because of a 20% slump in revenue.
The Standard & Poor’s composite index of 500 stocks rose 49.57 points to 1,023.46. The American Stock Exchange index gained 22.02 points to 624.73.
The NYSE composite index of all listed common stocks rose 22.28 points to 508.59.
The Wilshire Associates Equity Index--the market value of NYSE, American and Nasdaq issues--was 9,354.256, up a record 423.100, or 4.74%.
Grain markets rose, buoyed by Wall Street and continued softness in the U.S. dollar against the yen and other foreign currencies, a sign that export demand may pick up.
Coffee closed higher as traders eyed possible labor disruptions in top exporter Brazil, but oil closed lower amid swollen world supplies.
At the Chicago Board of Trade, grains led the markets higher. Wheat for delivery in September ended 4 cents a bushel higher at $2.50 and September corn closed 5 cents higher at $2, while September soybeans rose 3 cents to $5.26.
