Greenspan’s Speech Lifts Stocks
Financial and high-technology stocks led the stock market higher Tuesday as the Dow Jones industrial average surged to its biggest point gain ever.
The Dow rose 380.53 points, or nearly 5%, to 8020.78, generally in response to comments Friday from Federal Reserve Chairman Alan Greenspan indicating the possibility of a reduction in interest rates if the U.S. economy slows.
The 30-stock Dow and other broad indexes won back almost all of last week’s losses, although they remain far below mid-July peaks. Volume on the New York Stock Exchange was 815 million shares, making it the 10th-busiest day of all time.
Despite the strength of the rally, analysts were cautious. They pointed out that volume, while high, trailed the record 1.204 billion shares that changed hands in the Dow’s 288-point rebound Sept. 1 from its 512-point drubbing a day earlier.
Also, volume has been extremely high in the past week, so Tuesday’s activity was not overly telling. Four of the Big Board’s busiest days in history have been in this month.
What’s more, 493 stocks sank to 52-week lows while only 69 touched 52-week highs.
On the bright side, however, the market rallied through most of the final hour of trading. That shows that institutional investors, after watching the market’s action through the day, had the courage to move in and buy at the end of the session.
Also, breadth was positive as four Big Board stocks rose for every one that fell.
Greenspan’s speech last Friday at UC Berkeley was a boon to the market because it suggested that the Fed is determined to keep the current expansion, which began in April 1991, on track to surpass the peacetime record of November 1982-July 1990.
“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.”
Today’s surge in the Dow industrials surpassed the previous record of 337 points set Oct. 28.
The rally propelled the Nasdaq composite index to its biggest point gain of all time, and its second-biggest in percentage terms, since it was created in 1971. The Nasdaq rose 94.34 points, or 6%, to 1660.86. The index rose 7.3% on Oct. 21, 1987, two days after that year’s stock market crash.
The Standard & Poor’s 500 Index rose 49.57 points, or 5.1%, to 1023.46. All 30 Dow stocks rose. International Business Machines, up $6.56 to $125.94, and American Express, up $6.38 to $80, led the Dow.
Some investors said the rally may not last, because of concern that earnings growth is faltering.
“We are going into an earnings period which is not going to be good reading,” said Bill Raftery, vice president of technical research at Salomon Smith Barney Inc.
Merrill Lynch economists predicted that operating earnings for companies in the S&P; 500 will fall 1% this year to $44 a share as the U.S. economy slows. The firm’s previous estimate was for $45 a share.
Wall Street analysts surveyed by First Call Corp. on Tuesday cut their estimates for third-quarter earnings growth to 1.6% from 1.9%, though they’re sticking with a forecast of 5.3% for 1998.
* Financial stocks, among the worst battered in recent weeks, rallied. J.P. Morgan rose $3.56 to $90.50, U.S. Bancorp surged $5.81 to $43.75, and Citicorp rose $6.19 to $98.69.
The prospect of lower interest rates gives investors “more confidence to own bank stocks,” said Steven Mygrant, the director of equity research at Fifth Third Bancorp, which holds $500 million in bank shares. “You haven’t had much good news in the banking sector year to date, and maybe this is the first sign of it.”
Some financial stocks, including Lehman Bros. and Travelers Group, lost about 50% in the last month. Investors are concerned that losses in emerging markets, a slowdown in underwriting and the worst month for junk bonds in a decade mean the best is over for brokerage stocks, which quadrupled from January 1994 through July. Lehman rose $4.81, or 12.6%, to $42.88 and Travelers climbed $3.13, or 8%, to $42.19.
* Merrill Lynch gained $4.31 to $66. After the close of trading, Merrill said it lost an estimated $138 million during July and August, reducing its earnings for those two months to about $102 million. The biggest U.S. brokerage firm attributed most of the losses to Russia and Latin American securities.
* Dell Computer, Microsoft and other computer-related stocks rose on optimism that lower interest rates could spur companies to buy more PCs, software and related equipment.
Dell, which lost 22% of its value in the last three sessions of August, gained $5.19 to $59.94 and was the most active stock. Dell’s 2-for-1 stock split was effective Tuesday. Microsoft rose $5.34 to $101.97.
* America Online rose $9.25 to $95.25 and Yahoo gained $9.25 to $84.63 as investors snapped up Internet-related stocks that are as much as 50% below their peaks.
Market Roundup, D9
