What does Greenspan know that we don't?
Wall St seen sharply lower on Greenspan comments
LONDON, Oct 15 (Reuters) - U.S. stocks were expected to fall steeply on Friday after Federal Reserve Chairman Alan Greenspan heightened market nervousness by advising banks to set aside more money as insurance against a big stock market downturn.
Greenspan's comments late Thursday depressed the closely-watched December S&P 500 index future which dropped 11.5 points to 1,278.5 by 0839 GMT.
Dealers said with fair value for the contract estimated at 1,294.3, its drop was a signal the Dow would fall some 135 points at its open.
''The market looks like they are taking these comments seriously,'' said a U.S. stocks dealer in London.
''There are fears of higher interest rates already in this market and this is the last thing we needed.''
The Fed chairman told a banking conference that sudden losses in investors' confidence ''inevitably'' occur from time to time and said financial institutions should boost their reserves to account for that possibility.
Greenspan, who sent markets reeling in December 1996 when he raised a question about ''irrational exuberance'' in stock prices, reminded investors the bull stock market of the 1990s was not typical and there was no guarantee it would continue.
The Dow Jones average shed around 416 points or four percent in two sessions earlier in the week amid fears of rising interest rates and disappointment over third quarter earnings from market bellwether Intel Corp (NasdaqNM:INTC - news).
The blue chip index, which rose 54 points on Thursday, now stood about 1,039 points or nine percent below its closing record high of 11,326.04 set on August 25.
Meanwhile, the yield on the 30-year benchmark bond hit a two year high on Thursday.
Dealers said there could be more turmoil for the U.S. equity and bond markets if the producer prices data due at 1230 GMT on Friday came in stronger than expected.
Merrill Lynch global equity strategist Trevor Greetham said there was nothing particularly new in Greenspan's remarks but he said they had damaged sentiment at least for the short term.
''The mood of the market has led everyone to interpret Greenspan's remarks as advice to sell shares,'' Greetham said.
''But Greenspan is suggesting banks should be wary of taking excessive risk. That is all he is saying.''
The Merrill Lynch strategist said he would remain concerned about the outlook for stocks while commodity prices remained at current levels.
''I am not going to feel bullish about stocks again until commodity prices start falling as a signal that global growth is peaking,'' Greetham said.
''We are entering this phase when growth is bad, rather than good,'' he added. |
