Dow soars 380 points Market rises on word of Greenspan that interest cut is possible

Biggest 1-day point gain

4.98% upsurge shows investors willing to ignore Asian woes

September 09, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Jittery investors shook off concerns of a global economic recession yesterday and sent the Dow Jones industrial average to its biggest one-day point gain ever on optimism that interest rates may be cut.

In its first day of trading since Federal Reserve Chairman Alan Greenspan signaled Friday that a rate cut was not out of the question, the Dow soared a record 380.53 points, or 4.98 percent, to 8,020.78.

Its surge came after a two-week beating in which the index of 30 blue-chip stocks sank by 893 points, and investors lost about $2 trillion in value on paper.

"Greenspan pulled a John Wayne; he saved the day," said Rob Brown, chief market strategist at Ferris, Baker Watts Inc. in Baltimore.

Yesterday's rise blew past the Dow's previous record gain of 337 points on Oct. 28, 1997. It helped the Dow recoup last week's 5 percent loss and pulled it out of negative territory.

The index is up 1.42 percent for the year, a weak showing after several straight years of double-digit rises.

Although it was the Dow's biggest point gain, it didn't even rank in the top 10 in terms of percentage increases. The largest gain was 14.87 percent on Oct. 6, 1931, when the index rose 12.86 points.

The talk of lower interest rates spurred not only the Dow, but other major indexes.

The Standard & Poor's 500 jumped 49.57 points, or 5.09 percent, to 1,023.46. The Nasdaq composite, heavily weighted with technology and health stocks, plowed to its second-largest percentage gain ever, rising 94.34 points, or 6.2 percent, to 1,660.86.

Even small company stocks, out of favor with investors for much of the year, rose: The Russell 2,000 index was up 4.2 percent, or 14.86 points, to 361.93.

Gainers routed losers on the New York Stock Exchange with four stocks rising for every one that fell. Trading was heavy on the Big Board with almost 815 million shares changing hands, compared with a three-month daily average of 679.70 million shares.

Greenspan has openly worried in the past that investors' expectations of the stock market were too high, and he warned that bubbles burst.

But he had seen enough with problems in Asia, Russia and Latin America threatening to damage the U.S. economy, experts said.

"He tried to provide some confidence to investors that he would be prepared to act," said Richard Cripps, the stock market strategist at Baltimore-based Legg Mason Wood Walker Inc.

"If indeed the economy is weakening and indeed it looks like it is getting soft out there, he has the ability to act. That is what the markets really wanted to hear."

Greenspan didn't come out directly and say he would cut rates, but in his speech at the University of California at Berkeley, he hinted at such a move.

"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," he said.

The words were like dynamite, blasting markets around the world higher on Monday and yesterday. U.S. markets, which were closed Monday for the Labor Day holiday, got into the act yesterday.

The Dow shot up nearly 300 points in the first 15 minutes of trading. It then stabilized for the rest of the day until making a 143-point charge in the last 60 minutes.

Despite yesterday's euphoria, many experts don't see the Fed cutting interest rates when it meets Sept. 29 because the economy is still strong.

"I don't think this is anything other than psychological," said Bob Freedman, chief investment officer at Boston-based John Hancock Funds, which manages about $37 billion in assets. "I don't think he is going to do anything in the very near future."

Cripps said Greenspan could cut rates as early as next month if third-quarter earnings are weak and problems overseas persist.

"It is going to take a little more evidence for the Federal Reserve to cut interest rates," Cripps said.

Freedman said he does not expect a reduction in rates until next year because the Fed has generally been slow to act.

Brown said Greenspan was forced to say something because banking stocks have been clobbered in recent weeks. The Fed regulates the banking industry, and maintaining confidence in it is key to the country's economy, he said.

While yesterday's rally may have boosted investor confidence, troubles that caused the stock market to spiral still exist.

"I don't think we have solved any of the problems that we had a week ago," said Peter Canelo, U.S. investment strategist at New York-based Morgan Stanley Dean Witter.

Canelo said the stock market was oversold and it was prime for a bounce.

"All you needed was a speech and you got it," Canelo said.

Dow's big gains

The Dow Jones industrial average had its biggest point gain yesterday, but that was not even close to being among the largest percentage increases. In terms of points gained, here are the best days for the average, including the percentage change in value.

Date ....... Points Pct.

Yesterday .. 380.53 5.0

10/28/97 ... 337.17 4.7

9/1/98 ..... 288.36 3.8

9/2/97 ..... 257.36 3.4

11/3/97 .... 232.31 3.1

2/2/98 ..... 201.28 2.5

12/1/97 .... 189.98 2.4

10/21/87 ... 186.84 10.1

4/29/97 .... 179.01 2.6

9/16/97 .... 174.78 2.3

Pub Date: 9/09/98

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.