Stocks Recover After Dose of Fed Optimism
Seemingly calming words from Federal Reserve Chairman Alan Greenspan on Thursday helped the stock and bond markets climb out of their latest funk.
Bond yields tumbled after Greenspan suggested the economy could indeed be heading in the direction he wants--that is, toward slower growth. That could mean the Fed is done, or nearly done, raising short-term interest rates.
The stock market responded in kind, with the Nasdaq composite index soaring 128.93 points, or 3.2%, to 4,184.56. The index had fallen 121.54 points Wednesday.
The Dow industrials jumped 147.79 points, or 1.4%, to 10,843.87.
The rally, however, wasn’t as broad-based as many analysts would like to see, given the big gains in key indexes.
On Nasdaq winners outnumbered losers by 22 to 18, a fairly thin margin. Still, volume increased to 1.7 billion shares.
“Many of the things Greenspan said were music to the ears of the investment community,” said Robert Robbins, chief investment strategist at brokerage Robinson-Humphrey in Atlanta.
“Greenspan seemed less inclined to issue warnings and more receptive to the idea that inflationary pressures may not have been as bad as previously imagined during the past year,” Robbins added.
In the bond market that translated into heavy buying of longer-term Treasury securities. The yield on the 10-year T-note tumbled to 6.01% from 6.17% Wednesday.
The yield on the two-year T-note fell to 6.33% from 6.49%.
Still, the declines just took yields back to their levels of a week ago.
“People are concluding that the Fed is out of the picture” in terms of raising rates at its Aug. 22 meeting, said Anthony Karydakis, an economist at Banc One Capital Markets. “Greenspan seems to be prepared to give the current slowdown the benefit of the doubt.”
In the stock market the deluge of second-quarter earnings reports also provided some reasons to buy, investors concluded.
After disappointing earnings reported earlier this week by Microsoft and Apple Computer, IBM helped fuel a tech rally after it reported surprisingly good numbers. IBM shares surged $8.50 to $117.25.
On the downside, Agilent Technologies plummeted $20.06 to $54 after the test and measurement company warned that earnings in the current quarter will lag analysts’ forecasts. Agilent said it can’t get enough custom chips and electronic capacitors for its equipment that tests cellular phones, their parts and wireless networks.
Another tech giant--telecom equipment supplier Lucent Technologies--shocked investors with its warning about near-term earnings weakness. But Lucent’s plunge of $10.31 to $54.19 failed to drag down the rest of the telecom sector.
As Lucent sank, rival JDS Uniphase soared $21.38 to $128.13, in part on news that the stock will be added to the benchmark Standard & Poor’s 500 index.
Overall, the tech sector finished higher. The PSE tech stock index gained 1.7% for the day.
Among Thursday’s highlights:
* Other tech gainers included Intel, up $4.56 to $142.69; Cisco Systems, up $2.69 to $69.50; and Oracle, up $4.38 to $78.13.
* Financial stocks rallied as bond yields fell. Merrill Lynch jumped $2.75 to $127.44, T. Rowe Price rose $3.56 to $45.38, Citigroup gained $2.56 to $70.56 and Bank of America added $2.19 to $48.38.
* Excitement over Deutsche Telekom’s expected bid for VoiceStream helped pump up the telecom sector. Among equipment suppliers, ADC Telecom rose $6.19 to $44 and Ciena gained $11.63 to $163.94.
* Energy stocks were lower as crude prices fell below $31 a barrel. BP Amoco fell $1.13 to $52.56 and Chevron lost $1.94 to $80.
* Eli Lilly fell $2.25 to $96.50 even after the maker of top-selling antidepressant Prozac reported second-quarter profit of 61 cents a share, a penny better than the consensus estimate.
Market Roundup: C5-6
