Dow Soars 257 on the Prospect of a Rate Cut
Technology, financial, oil and cyclical stocks soared Wednesday as Alan Greenspan’s hint of a possible interest rate cut generated enthusiasm for companies whose fortunes are linked to the health of the economy.
A final-hour surge helped carry the Dow Jones industrial average up 257.21 points, or 3.3%, to 8,154.41 after the Federal Reserve Board chairman indicated in congressional testimony that he would push for a rate cut at a key policy committee meeting Tuesday. The Dow’s point gain was its fifth-biggest ever and coincided with huge gains in Latin American markets.
The Standard & Poor’s 500-stock index jumped 36.46 points, or 3.5%, to 1,066.09, while the technology-heavy Nasdaq composite index roared ahead 3.7%, gaining 62.47 points to 1,760.27.
The market looked strong from a technical perspective. Advancing issues on the New York Stock Exchange outnumbered decliners by better than a 3-1 margin and volume topped 905 million shares, also the fifth-highest ever. Strong volume on an up market day indicates strong demand to own equities.
The 115 NYSE stocks making new 52-week lows exceeded the 66 notching new highs, but the margin between the two narrowed from its recent level.
“When [Greenspan] spoke, his words were a little more favorable than even the Street had hoped for,” said Anthony O’Bryan, a technical market analyst at A.G. Edwards & Sons Inc.
“He certainly seems to be leaning more toward cutting rates and less [worried] about inflation. That’s all the market had hoped for and that’s what it got.”
Though a rate cut would help U.S. companies over time by lowering their borrowing costs and potentially prolonging the economic expansion, many analysts agree that the most immediate effect will be felt in the stock market, where investors have been eager for government policymakers to take action to offset the deflationary pressures being caused by global economic turmoil.
The Russell 2,000 small-capitalization index rose a respectable 2.1% but trailed the blue-chip averages.
On a bright note, however, the S&P; mid-cap index rose 2.8% and, since the market bottomed on Aug. 31, has outperformed even the big-cap averages with a 13.4% return.
To Morgan Stanley Dean Witter investment strategist Peter Canelo, that’s a sign that investors may be starting to branch out from their recent preference for large stocks.
“There is a little sign of life” among smaller issues, he said. “People aren’t going directly from large caps to small caps. [First] they’re going to trade down a little” to mid-caps.
The rally on Wall Street was matched by another jump in Latin American markets, which stand to benefit by a U.S. rate cut. Brazil’s Bovespa leaped 11%, Mexico’s Bolsa rumbled 9.1% and Argentina’s Merval rose 8.2%.
Latin American stocks also are being aided by the recent advance in crude oil prices. Higher oil prices give those countries extra cash with which to meet debt payments to overseas creditors.
Bonds had a mixed day, as yields on short-term Treasury bills and notes fell but the yield on the 30-year Treasury bond rose a bit. Prospects for a Fed cut in short-term interest rates dropped the yield on the two-year note to 4.54% from 4.61% on Tuesday. The long-bond yield, however, ended at 5.16%, up from 5.15% on Tuesday.
Among Wednesday’s highlights:
* Technology stocks led the market higher. Among the leaders, Intel jumped $3.50, or 4.2%, to $87.06; Microsoft advanced $4.44, or 4.1%, to $113.63; and Cisco Systems improved $3.38, or 5.4%, to $66.25.
* Dell Computer climbed $4.31, or 7.2%, to $64.38 after announcing plans with AT&T; and Excite for a package of services designed to attract home users to the Internet. AT&T; added $1.06, or 1.8%, to $59.50, while Internet search company Excite soared $9.38, or 33%, to $37.75.
* Other Internet stocks gained on the belief that the big role played by the global communications medium in the dissemination of Kenneth W. Starr’s report on President Clinton could spur even greater use of the Internet. Yahoo leaped $14.94, or 14.5%, to $117.88; Amazon.com climbed $16.94, or 19%, to $105.13; and Broadcom advanced $7.25, or 9.5%, to $83.88.
* Bank and other financial stocks, which would be direct beneficiaries of an interest rate cut, rallied. Among banks, Citicorp jumped $10.38, or 11%, to $105.50; Chase Manhattan moved up $4, or 8.7%, to $50.13; and J.P. Morgan rose $5.06, or 5.8%, to $93.13.
* Oil stocks scored sharp gains on hope that crude prices will remain off their lows. Exxon gained $3.25, or 4.9%, to $70.44; Chevron tacked on $3.63, or 4.5%, to $84.69; and Mobil rose $4.31, or 5.8%, to $79.25.
*
Market Roundup, D7
