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Stocks Rise on Expectations for Federal Reserve Interest-Rate Cut
U.S. Stocks Rise on Expectations for Fed Rate Cut (Update1) (Updates prices.)
New York, Oct. 2 (Bloomberg) -- U.S. stocks rose for the first time in four days on expectations that the Federal Reserve will lower interest rates to keep the U.S. economy growing amid a global slump.
The Dow Jones Industrial Average rose 152.16, or 2.0 percent, to 7784.69. The Standard & Poor's 500 Index rose 16.21, or 1.6 percent, to 1002.60. The Nasdaq Composite Index, full of computer-related shares, rose 2.65, or 0.2 percent, to 1614.98, held back by Cisco Systems Inc. and Peoplesoft Inc.
Investors said stocks are beginning to look attractive again, after coming close yesterday to their lows for the year. Thirty-year government bonds have returned 20.5 percent in 1998, while the Dow industrials are down for the year. Federal Reserve policy-makers lowered the target rate for overnight loans among banks on Tuesday to 5.25 percent from 5.50 percent, the first cut in almost three years. ''It's likely the Fed will have to again lower interest rates 25 basis points, sooner rather than later,'' said Tom Kolefas, a senior portfolio manager with Loomis Sayles & Co., which oversees $30 billion in stocks. As rates decline, he said, bonds become relatively less attractive as investments. Also, the eventual boost to the economy from lower rates will benefit stocks.
Rising stocks outnumbered decliners on the New York Stock Exchange by a 17-to-13 ratio In composite trading, 783 stocks touched year-long lows, while 116 rose to 52-week highs.
About 897 million shares changed hands on the New York Stock Exchange, above the three-month average of 721 million. Today was the seventh-busiest day ever on the Big Board, according to a preliminary estimate.
For the week, the Dow average fell 3.0 percent, the S&P 500 slid fell 4.0 percent and the Nasdaq fell 7.4 percent.
Banks
Bank and financial services companies rose, because lower interest rates increase demand for their loans and credit. Bank One Corp. gained 2 to 41 15/16 and U.S. Bancorp rose 2 1/4 to 36 7/16. J.P. Morgan & Co. rallied 2 1/2 to 83 1/2 and Citicorp jumped 6 3/4 to 95. 'Money is being allocated back to stocks, as the Fed will move with another 25 basis-point cut,'' said David Flora, a portfolio manager at Austin, Texas-based First Capital Management Inc., which oversees $115 million. Lower borrowing costs make it cheaper for companies to invest and expand their businesses.
Flora said he was buying retail stocks such as Tommy Hilfiger Corp. Hilfiger gained 1 3/16 to 40 1/4.
Peoplesoft tumbled 8 3/16 to 24 5/16 on concern the No. 2 maker of applications software is facing weak software license sales as German rival SAP AG and other competitors slash prices. Goldman, Sachs & Co. and Morgan Stanley Dean Witter & Co. cut their ratings on the software company. More than 44 million shares changed hands, making Peoplesoft the most active on U.S. exchanges.
Cisco, Lucent Technologies Inc. and other makers of networking and telecommunications equipment fell amid concern that slowing international sales will hurt revenue and earnings growth. Cisco, the No. 1 maker of networking equipment, lost 1 1/2 to 55 3/4 and Lucent, North America's top phone- equipment maker, fell 3 1/8 to 63.
Slowing Growth
A report from the Labor Department showing an unexpected drop in employment growth in September ''suggests that the economy's growth is slowing, and that would perhaps open the door to a further easing in monetary policy, which would be good for equities because everyone's running scared,'' said Kevin Logan, chief market economist at Dresdner Kleinwort Benson North America in New York.
Stocks extended afternoon gains after Treasury Secretary Robert Rubin said the ''mostly likely'' scenario for the U.S. economy is solid growth and low inflation.
Providing some encouragement to investors, U.S. President Bill Clinton said finance ministers and central bankers from industrialized and emerging nations will discuss on Monday a plan aimed at heading off a global recession and preventing future worldwide economic crises. ''For every dollar gained, 5 cents was on Clinton, 20 on Rubin and 70 was a bounce, just because stocks are so low they are starting to attract people back in,'' said Ted Bridges, a money manager with Omaha, Nebraska-based Bridges Investment Counsel Inc. with $1.5 billion in assets.
Revlon
Revlon Inc. shares tumbled 12 3/8 to 15 7/16 after the maker of Revlon and Almay cosmetics warned slowing sales in the U.S. and overseas and the strong dollar will push its profit far below forecasts this year and next.
Revlon, which generates about 40 percent of its sales outside the U.S., joins Coca-Cola Co., Procter & Gamble Co., Gillette Co. and other companies to disclose that sales are being hurt by slumping sales overseas.
Monsanto Co. fell 2 1/8 to 52 on speculation its proposed merger with American Home Products Corp. may face delays and that its earnings could be hurt by lower prices for its seeds.
Scientific-Atlanta Inc. fell 7 11/16 to 12 11/16 after the maker of television set-top boxes said fiscal first-quarter and 1999 profits won't meet estimates because of weak international sales. The Atlanta-based company said orders for the quarter are rising because of ''robust'' North American market, though sales have declined in Asia, Europe and Latin America.
Metris Cos., a credit card company that last week was spun off by catalog retailer Fingerhut Cos., fell 14 7/8 to 27 7/8. Analyst Jeffrey Evanson of Piper Jaffray Inc. said Metris might take a charge to reflect a change in how it books revenue related to a membership program. Company officials weren't available. |
