Dow soars more than 340 points, breaks past 11,000 on Fed rate cut
NEW YORK (AP) – The Dow industrials closed above 11,000 for the first time in eight months, soaring more than 340 points Wednesday on hopes that lower interest rates will revitalize economic growth.
Given the Federal Reserve’s decision Tuesday to reduce interest rates by 0.5 percentage point – the fifth such cut this year – investors are growing increasingly optimistic that the economy and earnings will turn around in the second half of 2001.
The Dow Jones industrial average closed at 11,215.92 after surging 342.95 points – its fifth-best daily point gain.
The last time the blue chip index finished above 11,000 was Sept. 14 when it ended at 11,087.47. And, the last time the Dow ended higher was Sept. 12 when it closed at 11,233.23.
The market’s broader indicators also posted big gains. The Nasdaq composite index climbed 80.86 at 2,166.44, and the Standard & Poor’s 500 index advanced 35.55 to 1,284.99.
”This thing really has legs. It’s significant and you best not fight it,” said Gary Kaltbaum, market technician at Investors’ Edge Partners.
Investors bought stocks based on the market’s tendency to move higher about six months after the Federal Reserve starts to lower interest rates, Kaltbaum said. The central bank made its first cut on Jan. 3.
Analysts also attributed much of Wednesday’s sharp upturn to professional money managers pumping the cash that they’ve been holding onto back into the market. Meanwhile, investors overlooked poor earnings and other signs of economic weakness, including a 0.3 percent rise in consumer inflation reported for April.
”Institutions are now accumulating stocks, and they don’t care about the bad news. They only care about the potential of good news down the road,” Kaltbaum said.
”The economy will recover, we’re not in terrible shape,” said Charles Pradilla, chief investment strategist for SG Cowen Securities. ”This thing is going to turn and every portfolio manager out there has got to play.”
Gains were widespread with investors bidding up safer and riskier sectors alike. Aluminum products maker Alcoa claimed a new 52-week high, up $2.51 at $44.51, while Microsoft rose 89 cents to $69.16. Both are Dow stocks.
Hewlett-Packard, also a Dow stock, rose $1.34 to $26.74. The printer maker advanced another $1.47 in extended-hours trading, after announcing that earnings for its fiscal second quarter beat analysts’ reduced expectations by 3 cents a share.
Among the Dow’s 30 stocks, there was just one loser, Wal-Mart, off 35 cents at $51.65. The mega retailer said Tuesday that it doesn’t expect double-digit growth to return until the second half of 2001.
Other stocks managed to move higher despite the latest evidence that their business has suffered as the economy has slowed down.
Applied Materials rose sharply, up $4.20 at $54.09, after the world’s largest manufacturer of chip-making equipment on Tuesday missed second-quarter earnings expectations by a penny a share and announced cost-cutting efforts, which include offering severance packages to up to 1,000 employees.
Even as companies announce layoffs and trim operations, Pradilla said the economy does have some brighter spots.
”We are not falling off a cliff here,” he said. ”Housing is still very strong. We are seeing some strong auto sales. … This is not an economy that is in a rout, and we are going to see some positive things from what the Fed is doing.”
Advancing issues outnumbered decliners 2 to 1 on the New York Stock Exchange, where consolidated volume came to 1.64 billion shares, up from 1.28 billion on Tuesday.
The Russell 2000 index, the barometer of smaller companies, advanced 7.58 to 497.21.
Overseas markets were mixed Wednesday. Japan’s Nikkei stock average fell 2.6 percent, and France’s CAC-40 slipped 0.4 percent. But Germany’s DAX index advanced 1.3 percent, and Britain’s FT-SE 100 rose 0.7 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
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