Dow Surges A Record 380 Points
U.S. stocks surged to their best performance in nearly 11 years Tuesday after Federal Reserve Chairman Alan Greenspan hinted Friday that the central bank might be leaning toward an eventual interest rate cut.
The Dow Jones industrial average soared 380.53 points, or 5.0 percent, to 8,020.78, for its biggest point gain ever. In percentage terms, it was the biggest increase since the 10.2 percent vault of Oct. 21, 1987.
It blew by the previous record point gain, the 337.17 points of Oct. 28, 1997, but was not among the top percentage gains.
The rebound brought the Dow above where it started the year, 7,908.25, and interrupted a two-week slide of 893 points, or 10.5 percent. Still, the barometer of 30 major companies remains 1,318 points, or 14.1 percent, below the record of 9,337.97 set on July 17.Enthusiasm was evident from the start of trading as the Dow shot up 307 points in the early going before giving up some of its gains. The gains picked up momentum in the final hour, with the Dow rising as much as 392.63, or 5.1 percent, in the closing minutes.
The moves confirmed Friday's late strength, when the Dow ran up 144.44 points in the final 28 minutes of trading to whittle a 186.41-point deficit by the closing bell.
Late Friday afternoon, Greenspan told students and faculty at the University of California at Berkeley's business school: "It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.
"In the spring and early summer, the Federal Open Market Committee was concerned that a rise in inflation was the primary threat to the...economy. By the time of the August meeting, the risks had become balanced and the committee will need to consider carefully the potential ramifications of ongoing developments since that meeting."
Traders took his comments to mean that the central bank had tilted from a bias of higher rates to one of neutrality. The Fed's policy-setting panel, the Federal Open Market Committee, next meets Sept. 29.The Fed last hiked the federal funds rate on March 25, 1997, to 5.50 percent from 5.25 percent. The Fed last lowered the rate on Jan. 31, 1996.
The funds rate, the central bank's key monetary policy lever, is the rate commercial banks charge each other for loans on an overnight basis. The Fed controls the rate as a means of influencing the supply of money in the U.S. banking system, thereby affecting the pace of 8economic growth.
Tuesday's market advance was exceptionally broad, with an increase in volume. The technology, financial, and retail sectors scored strong gains.
- Technology: Lucent Technologies advanced 6 1/4 to 81 1/2, International Business Machines 6 9/16 to 125 15/16, Dell Computer 5 3/16 to 59 15/16, Microsoft 5 11/32 to 101 31/32, Cisco Systems 5 3/8 to 94 5/8, EMC 5 3/16 to 54 3/16, Applied Materials 1 13/16 to 25 9/16, Ascend Communications 6 3/8 to 45 1/8, and Intel 3 21/32 to 81 29/32.
- Banking shares: Citicorp picked up 6 3/16 to 98 11/16, JP Morgan 3 9/16 to 90 1/2, BankAmerica 3 5/128 to 63 3/8, First Union 4 1/8 to 51 11/16, Fleet Financial 5 5/16 to 74 3/4, and Chase Manhattan 1 3/4 to 47 1/8.
- Internet-related shares with multipoint gains included: Inktomi, up 13 3/4 to 67 1/2; Yahoo!, up 9 1/4 to 84 5/8; America Online, 9 1/4 to 95 1/4; Amazon.com, 6 to 92 1/4; CNET, 4 1/2 to 44 1/4; and CMG Information Services, 7 1/8 to 49 5/8.
In Tuesday's market indicators:
- The Standard & Poor's 500 Index jumped 5.1 percent.
- New York Stock Exchange winners trounced losers by better than 4 to 1.
- On the Big Board floor, turnover rose 4 percent to 816 million shares.
- The Nasdaq Composite leaped 6.0 percent. Advancing issues beat decliners by 2.4 to 1 in the Nasdaq Stock Market. Volume totaled 774 million shares.
- The Russell 2000 Index of small-capitalization stocks gained 4.3 percent.
- In the bond market, Treasurys sold off after the flight-to-safety bid that had characterized trading in recent weeks came apart amid the explosion in U.S. stocks. The 30-yeaTreasury declined 25/32, to yield 5.341 percent.
- London's Observer reported that British cellular telecommunications concern Vodafone (VOD) and AirTouch Communications (ATI) have held merger talks over the past year. Vodafone shares scored a 9-point gain to 131 and AirTouch stock rose 4 1/4 to 61 1/8.
- Biogen (BGEN) rallied 5 3/8 to 55 3/8 and Amgen (AMGN) improved 5 15/16 to 69 3/4. Goldman Sachs upped its view of the biotechnology interests to "recommended list" from "market performer."
- Safeway (SWY) added 1/16 to 43 5/16 on speculation that it might by acquired be rival grocery store operator Kroger (KR). Kroger rose 1 3/8 to 50 3/8.
- AES (AES) was 5 3/16 points richer to 29 7/16. Morgan Stanley Dean Witter began coverage of the electricity provider with a "strong buy" rating.
- Heilig Meyers (HMY) slipped 1 7/8 to 9. The home furniture purveyor steered analysts to scale back their earnings expectations of 20 cents a share for its fiscal second quarter ended Aug. 31.
- Sun Microsystems (SUNW) rose 2 11/16 to 45 3/8 after Goldman Sachs forecast a positive earnings surprise for the first quarter.
- Ascend Communications (ASND) climbed 6 3/8 to 45 1/8. Bell Atlantic (BEL) will use the wide-area networking specialist for its ATM and frame relay infrastructure. Bell Atlantic increased 1 7/8 to 44.