Stocks, Bonds Regain Footing
Stocks and bonds stabilized Monday after Friday’s sell-offs, as investors awaited speeches this week by Federal Reserve Chairman Alan Greenspan.
In remarks early today to an international monetary conference in China, Greenspan repeated previous comments about the slide in long-term bond yields this year, and how “unusual” the decline has been in the context of the Fed’s credit-tightening campaign.
He also warned that many hedge funds were following strategies “destined to prove disappointing” as fund managers searched for higher returns via complex trading techniques.
On Wall Street, most stocks ended modestly positive amid the second-slowest trading volume this year.
In the bond market, long-term Treasury yields edged down.
The Dow Jones industrial average added 6.06 points, or 0.1%, to 10,467.03, after slumping 92.52 points Friday.
Among broader indexes, the Standard & Poor’s 500 index was up 1.49 points, or 0.1%, to 1,197.51; the Nasdaq composite gained 4.33 points, or 0.2%, to 2,075.76.
Winners topped losers by 3 to 2 on the New York Stock Exchange.
Stocks slid Friday after the government said the economy added a net 78,000 jobs in May, the lowest monthly total in almost two years. The report raised concerns that economic growth had slowed more than Wall Street had expected.
Yet bonds also sold off on Friday, in what many traders said was profit taking after the latest rally in Treasuries.
On Monday, long-term Treasury bond yields resumed their decline. The 10-year T-note yield ended at 3.95%, down from 3.98% on Friday. The yield hit a 14-month low of 3.89% on Wednesday.
Many on Wall Street were waiting for Greenspan’s speeches this week for hints about his view of the economy.
In his comments to the monetary conference today in Beijing, delivered via satellite, the Fed chief said the drop in bond yields over the last year, while the central bank was raising short-term rates, was “clearly without precedent.”
He didn’t offer any new explanations for the slide in yields. But he said one effect of lower rates was to embolden hedge fund managers to devise “increasingly more complex trading strategies” to try to boost returns for clients.
Yet “most of the low-hanging fruit of readily available profits has already been picked,” Greenspan said. “Significant numbers of trading strategies are already destined to prove disappointing,” he said.
“After its very rapid advance, the hedge fund industry could temporarily shrink, and many wealthy fund managers and investors could become less wealthy,” the Fed chairman said. However, any comeuppance for the hedge fund industry “should not pose a threat to financial stability” overall, he said.
Markets were riled in May by worries that losses at some large hedge funds could ripple through the financial system.
On Thursday, Greenspan is scheduled to testify before Congress on the U.S. economy.
Many analysts say investors’ willingness to lock in long-term yields is a sign that they believe the Fed is nearing the end of its credit-tightening campaign, and that global economic growth won’t fan inflation concerns.
But there was positive news on the Japanese economy on Monday: Capital spending in Japan in the first quarter rose 7.4% from a year earlier, after growing 3.5% in the fourth quarter, the Ministry of Finance said.
The report drove the dollar down against the yen, to 106.86 yen from 107.82 on Friday. The euro rose to $1.228 from $1.222.
In commodities trading, near-term crude oil futures pulled back, falling 54 cents to $54.49 a barrel in New York.
Among the day’s highlights:
* Real estate investment trust shares got a lift from the announced merger of ProLogis and Catellus. A Bloomberg news index of 148 REIT shares rose 0.9% to a record high.
* General Motors lost 51 cents to $30.42. Investor Kirk Kerkorian’s offer to buy 28 million GM shares at $31 was scheduled to expire today.
* Among entertainment issues, DreamWorks slid 77 cents to $28.49, its lowest closing price since going public at $28 in October. Rival Pixar rose $1.05 to a record high of $53.38.
* Brazil’s main market index plunged 3% on allegations that the ruling party was paying legislators to support its policies.
