Broad Market Gains, Yields Fall on Eve of Fed Meeting
Is fear of the Fed fading?
Stocks rallied and bond yields fell Monday as Wall Street shook off last week’s gloom tied to concerns about an expected Federal Reserve interest rate increase this week.
The Dow Jones industrial average rose 102.59 points, or 1%, to 10,655.15.
The Nasdaq composite surged 2%, and Standard & Poor’s index of smaller stocks gained 1.5%, in a broad-based advance.
Volume remained relatively light, a sign that many traders were unwilling to make big commitments in advance of the Fed’s Open Market Committee meeting Tuesday and Wednesday.
Still, analysts were encouraged that buyers had the upper hand.
“The rate hike is almost history and now investors are thinking it’s a great time to buy,” said Alfred E. Goldman, director of market analysis at A.G. Edwards & Sons Inc. in St. Louis.
The Fed is widely expected to increase its key short-term interest rate by a quarter percentage point, to 5%, on Wednesday, a move to slow the economy and prevent inflation from accelerating.
Monday’s market rally was a “relief-type situation,” said John Lynch, director of investment strategy at IJL Wachovia in Charlotte, N.C. “A quarter-point increase is not something that will grind the economy to a halt.”
Last week, the Dow lost 303 points, or 2.7%, amid fears that the Fed would raise interest rates by a larger amount in the months ahead.
Further illustrating the strength of the U.S. economy, the Commerce Department reported Monday that consumer spending rose 0.6% in May, outpacing personal income, which rose 0.4%. The continued rapid rise in spending, which boosts corporate profits, also increases fears about inflation.
But the bond market rallied despite the economic data. Long-term yields fell modestly, with the 30-year Treasury bond yield ending at 6.09%, down from 6.15% on Friday.
The Fed increase “will be a one-shot deal,” said Randy Bateman, who oversees $1 billion at SunTrust Private Capital Group in Orlando, Fla.
Many other investors aren’t so sure, which is why bond yields have surged in recent months.
Still, yields near their highest levels in 19 months helped lure investors to bonds Monday, and that helped stocks.
Winners topped losers by 19 to 11 on the New York Stock Exchange.
Among Monday’s highlights:
* Financial shares were up sharply, led by Citigroup, up $2.19 to $46; Downey Financial, up $1.06 to $22.06; and American Express, up $2.81 to $125.25.
* Industrial shares gaining included DuPont, up $1.38 to $67.69; GE, up $1.75 to $106.19; Caterpillar, up $2.81 to $60.75; and Paccar, which surged $4 to $54.25.
* After an early slide, many Internet stocks turned around and closed higher. EBay rose $4.06 to $140.06 after trading as low as $127.50. America Online added $1 to $103.81 after falling to $98 during trading.
* Airline stocks were hot, with AMR, parent of American Airlines, up $3.69 to $67.50 and Delta up $1.69 to $57.94.
* Philip Morris eased 19 cents to $41. The company warned analysts that 1999 earnings will be slightly below expectations, in part because of the strong dollar.
Market Roundup, C14
