Wall St. Zooms on Comments by Greenspan
The bulls romped on Wall Street on Wednesday, pushing the Dow Jones industrial average to its highest level since June 2001 after Federal Reserve Chairman Alan Greenspan gave a better-than-expected assessment of inflation and the economy.
Treasuries issues also gained and the dollar fell to near a record low against the euro.
Greenspan, in testimony to a House committee, said the central bank could remain “patient” before raising rates even as the economy expands at a faster-than-expected pace.
Investors responded with a wave of buying. The Dow Jones industrial average gained 123.85 points, or 1.2%, to 10,737.70. The index is at its highest point since June 13, 2001, and is within 1,000 points of its record close of 11,722.98, set Jan. 14, 2000.
Broader stock indicators also rose sharply, with many reaching multi-year highs. The Standard & Poor’s 500 index was up 12.22 points, or 1.1%, at 1,157.76.
The technology-heavy Nasdaq composite index, however, lagged blue chips, rising 14.33 points, or 0.7%, to 2,089.66, still below the recent peak of 2,153.83 on Jan., 26.
More than two stocks rose for every one that fell on the New York Stock Exchange as trading volume surged.
Some analysts were particularly cheered that Greenspan’s address included a cut in the Fed’s official inflation rate forecast for 2004, to a range of 1% to 1.25% from the previous forecast of 1% to 1.5%.
“That in particular tells me that the Fed is not really concerned about inflation,” said Jeff Kleintop, investment strategist for PNC Financial Services Group. “I think it’s positive for stocks in that it will keep rates low for a longer period of time.”
“When you take Greenspan’s comments, a pickup in business spending and some deals in the past few days, it sets up a lot of positives,” said Peter Dunay, chief market strategist at brokerage firm Wall Street Access. “The combination of everything here is just going to push the market higher, as long as there is no major cataclysm.”
A strong bond rally also helped stocks. The yield on the benchmark 10-year T-note fell to 4.03% from 4.11%. And the government’s auction of $16 billion in five-year notes garnered a yield of 3.03%, amid the strongest demand for five-year securities since 2000.
The dollar was the day’s loser: It tumbled after Greenspan said the inflationary effect of the dollar’s slide had been minimal so far because foreign exporters were hedging their profit margins and so were not passing higher prices along to U.S. consumers.
The euro rose to $1.281 from $1.271 Tuesday, nearing its recent record high.
Among the day’s highlights:
* Major media and entertainment stocks were mostly higher after Comcast made a surprise takeover offer for Walt Disney. Comcast fell $2.70 to $31.23 while Disney soared $3.52 to $27.60.
But two of Disney’s main rivals, Viacom and Time Warner, were just marginally higher. Viacom Class B added 7 cents to $41.17 and Time Warner was up 7 cents to $17.87.
Echostar gained $1.58 to $39.28 as some investors suggested Disney could make a takeover bid for the satellite TV broadcaster to thwart Comcast.
* Investment banking stocks soared, in part on expectations that the Comcast bid signals a new round of merger mania that could boost the banks’ fee income, analysts said. Goldman Sachs jumped $4.91 to $107.09, Merrill Lynch surged $2.71 to $60.91 and Lehman Bros. gained $4.96 to $86.89.
* Optimism about the economy lifted many industrial names, including Phelps Dodge, up $4.22 to $84.04; Alcoa, up $1.85 to $37.39; and Caterpillar, up $2.40 to $78.96.
Housing stocks also rallied, including KB Home, up $1.85 to $70.15, Centex, up $3.62 to $100.70.
* European stocks closed at their highest levels in 17 months after Greenspan’s comments.
The FTSE Eurotop 300 index of pan-European blue chips ended up 0.1% at 996.02, the highest close since Aug. 27, 2002. The Tokyo stock market was closed for Foundation Day, a national holiday.
