Dow Off 7 as Late Rally Cuts Losses; Dollar Slides Again
The Dow Jones industrial average recovered almost all of a 118-point midday sell-off Thursday as banking and technology shares rallied.
Many traders were expecting a large decline after Goldman Sachs investment strategist Abby Joseph Cohen and Federal Reserve Vice Chairwoman Alice Rivlin separately commented that stocks may have risen too far too fast.
Also, Brazil’s worsening budget crisis weighed on investor sentiment, as Brazilian stocks fell and bond yields there rose.
But when Wall Street began to recover from its midday slump, buyers quickly piled on.
“There’s a lot of money out there, and people are inclined to buy stocks,” said Robert Streed, a money manager at $200-billion-asset Northern Trust. “Some of our clients who directed us to sell two months ago now are coming back and directing us to buy. Any setbacks you get tend to be mild.”
Still, the Dow fell for the first time in three days, dropping 7.21 points to 9,537.76. It had rocketed nearly 234 points on Wednesday.
Losers outnumbered winners by 19 to 11 on the New York Stock Exchange. Volume was a busy 863 million shares.
The Standard & Poor’s 500 index sank 2.61 points to 1,269.73.
But the Nasdaq composite rose 5.23 points to 2,326.09, its seventh record high in eight sessions, led again by Internet-related stocks. Trading volume on Nasdaq was the seventh-heaviest ever.
Wall Street’s stunning rally on Wednesday was followed by hefty price gains in Asian markets on Thursday. But many European markets pulled back on Thursday.
Also, U.S. bond yields rose as the dollar tumbled anew against the Japanese yen, and also fell against the new euro currency.
The yield on the 30-year Treasury bond ended at 5.22%, up from 5.17% on Wednesday.
The dollar fell to 111.04 Japanese yen, down from 112.66 on Wednesday. At midday today in Asia the dollar skidded to 110.65 yen.
The yen strengthened as an auction of 10-year Japanese government bonds enjoyed robust demand Thursday. About $16 billion in bonds were sold at an average yield of 1.87%, below expectations.
A recent surge in Japanese bond yields--though still low by world standards--has lured more domestic buyers, who may be selling U.S. bonds to finance their purchases.
On Wall Street, financial stocks rallied despite higher U.S. bond yields, as strong quarterly earnings reports from brokerages Morgan Stanley Dean Witter and Lehman Bros. raised optimism about profit potential in 1999.
That may have helped lessen the impact of comments from Cohen, one of Wall Street’s most bullish and accurate forecasters. She advised clients to trim the percentage of their holdings in stocks to 70% from 72%, saying prices may have risen too quickly in recent months. She advised investors to slightly boost holdings of corporate bonds.
The Fed’s Rivlin also warned investors. Asked on CNBC whether stock prices are inflated, Rivlin said: “Surely the stock market is very high by any kind of measure. You have to be extremely optimistic about earnings to justify these stock values.”
Among Thursday’s highlights:
* Morgan Stanley surged $3.50 to $84.19 on its 51% earnings gain. Lehman rose 50 cents to $54.13.
Other financial stocks rallying included Citigroup, parent of brokerage Salomon Smith Barney, up $4.13 to $58.50; J.P. Morgan, up $1.75 to $113; American International Group, up $4.38 to $104.63; and E-Trade, up $9.75 to $64.06.
* Internet-related stocks were off to the races again. Yahoo rocketed $29 to a record $320, Amazon.com surged $20.88 to a record $158.88, EarthLink leaped $12.06 to $81 and Doubleclick rose $8.50 to $58. Among tamer winners, Cisco Systems rose $3.88 to $103.63, Micron Technology surged $3.38 to $63 and IBM rose $1.44 to $190.19.
* On the downside, Avnet, a distributor of computer parts, tumbled $10.94 to $49 after warning that quarterly earnings would be about 18% below expectations.
Market Roundup, C8
