Greenspan’s Remarks Send Dow Down 108; Yields Jump
Stocks fell Friday and bond yields soared after Federal Reserve Chairman Alan Greenspan voiced concern over the highly valued stock market, striking fear in investors who interpreted the remarks as a sign the Fed isn’t finished raising interest rates.
In the quietest trading day of 1999, the Dow Jones industrial average lost 108.28 points to 11,090.17.
Broader stock indicators also fell. The Standard & Poor’s 500 index fell 13.74 points to 1,348.27, and the Nasdaq composite dropped 15.72 points to 2,758.90.
Greenspan, speaking at a Kansas City Federal Reserve Bank meeting in Jackson Hole, Wyo., said the extraordinary rise in stock prices the last five years has been mostly inexplicable. He suggested the Fed should watch markets carefully, as Americans are using their growing stock portfolios to justify spending and other financial decisions.
He did not discuss the Fed’s Tuesday decision to raise short-term interest rates a quarter-point. The rate increase heartened many investors as the Fed hinted that it may be enough to keep inflation on hold.
Friday’s speech, however, unsettled investors who recalled Greenspan’s previous concerns about the stock market. In December 1996, he caused a sharp, brief sell-off in markets around the world by wondering aloud whether investors were in the grip of “irrational exuberance.”
“The presumption is he thinks the stock market is too high and is contributing to overheating the economy, which could cause inflation,” said David Orr, chief economist at First Union Capital Markets Group in Charlotte, N.C.
But some economists took a different view.
“Greenspan’s comments seemed to be more of a lecture on the role of the central bank than a guarantee of what the Fed might do in the near future,” said Alan Ackerman, senior vice president at Fahnestock & Co. in New York.
Analysts said Greenspan’s remarks carried extra weight in a quiet session with little other market-moving news.
Government bond prices, meanwhile, suffered their biggest decline in three weeks as $7 billion in corporate debt sales sapped demand for Treasuries, whose yields reached three-month lows this week.
The benchmark 30-year bond yield surged to 5.97% from 5.90% the day before.
In stock trading, the Dow’s biggest decliners included AT&T;, down $2.44 to $47.50; American Express, down $2.56 to $144.63; and Johnson & Johnson, off $2.25 to $102.19.
Hewlett Packard defied the weakness in blue chips, rising $2 to $104.63.
Northwest Airlines shares fell $2.44 to $29.50 after flight attendants late Thursday rejected a five-year contract offer. Also, a Donaldson, Lufkin & Jenrette analyst downgraded his recommendation on the stock.
The Russell 2,000 index of smaller companies fell 3.57 points to 432.45.
Declining issues outnumbered advancers by an 11 to 7 ratio on the New York Stock Exchange.
For the week, the Dow was down slightly, but the S&P; and Nasdaq gained.
Among Friday’s other highlights:
* Intel rose $1.94 to $83 as Morgan Stanley analyst Mark Edelstone raised his estimates for the No. 1 semiconductor maker’s 1999 and 2000 profit and said he’s bullish on the chip industry. Motorola rose $1.31 to $93.06, and Rambus gained $7.69 to $105.31.
* Ameritrade Holding slumped $1.44 to $21.31, and E-Trade Group skidded $1.81 to $25.94 after the Internet brokers were reduced to “outperform” from “buy” at Lehman Bros. Holdings. Charles Schwab dropped $1.88 to $41.25 and DLJDirect slipped 69 cents to $18.44.
* American Home Products fell $3.88 to $42.13 after the Philadelphia Inquirer reported that a judge certified a class-action lawsuit over the diet drugs Pondimin and Redux, part of the so-called fen-phen combination.
Market Roundup, C4
