Posted at 11:40 a.m., Thursday, June 21, 2001
Financial shares surge on news of possible rate cut
Bloomberg News Service
NEW YORK — U.S. stocks rose as financial shares gained on optimism the Federal Reserve will lower interest rates next week and as Morgan Stanley Dean Witter & Co. reported profit that topped forecasts.
"We've got some good numbers coming out of the financials," said James Gribbell, who helps manage $70 billion at David L. Babson & Co. in Cambridge, Massachusetts. "Folks are beginning to anticipate further action by the Fed."
Citigroup Inc., General Electric Co. and Fannie Mae rose with Morgan Stanley, lifting the Standard & Poor's 500 Index 11.75, or 1 percent, 1,234.89. The Dow Jones Industrial Average gained 62.19, or 0.6 percent, to 10,709.52, led by General Motors Corp.
The Nasdaq Composite Index advanced for a third day, climbing 26.76, or 1.3 percent, to 2,058.00 as Cisco Systems Inc., Qualcomm Inc. and Peoplesoft Inc. rose.
Eight stocks rose for every seven that fell on the New York Stock Exchange. Some 1.2 billion shares traded on the Big Board by 3:30 p.m. EDT, up 10 percent from a week ago.
While forecasts of disappointing sales or profits have driven the Nasdaq down by 12 percent in the past month, estimates of financial companies' earnings have been rising.
Bank and brokerage shares have evolved into the "800-pound gorilla of S&P earnings," Steven Galbraith, Morgan Stanley's U.S. equity strategist, wrote in a report to clients. Based on current profit estimates, financial companies should generate twice the level of earnings of any other group in the market this year, he said.
Earnings for financial companies in the S&P 500 are expected to rise 6.7 percent for the year compared with a decline of 5.5 percent for total S&P earnings, according to First Call/Thomson Financial.
Financial stocks also got a lift after a report showed the number of U.S. workers filing new claims for jobless benefits last week stayed at a level that suggests companies are reducing payrolls faster than last year.
That reinforced the view that the Fed next week will lower short-term rates for a sixth time this year, said Gribbell, who expects a quarter-point reduction.
Gribbell said he sold all of his telecommunications stocks about a month ago, including shares of Nortel Networks Corp. He's been adding to his holdings of financial stocks.
Citigroup rose $2.15 to $52.80, and General Electric, whose GE Capital unit is the largest non-bank finance company, rose 82 cents to $51.59.
Fannie Mae climbed $2.41 to $86.42, and Freddie Mac advanced $2.22 to $69.17 after Countrywide Credit Industries Inc. said earnings this quarter will exceed analysts' estimates.
Countrywide, the largest publicly traded U.S. home lender, rose $2.56 to $44.24. Fiscal first-quarter earnings rose 47 percent as lower interest rates encouraged consumers to refinance their mortgages.
Technology shares rallied on optimism that lower rates will lift corporate profits. Cisco Systems Inc. rose 1.74 to $18.14 after Dow Jones reported that Gordon Astles, Cisco's head of Asia- Pacific operations, said in Singapore that sales this quarter will fall as much as 10 percent, in line with previous forecasts.
"There was a sigh of relief that there wasn't another disappointment," said James Fargis, a money manager for Fleet Bank. "Nortel and Juniper had disappointed and people were saying maybe Cisco's next."
The Russell 2000 Index of smaller stocks rose 1.72, or 0.4 percent, to 497.58. The Wilshire 5,000 Total Market Index, the broadest measure of U.S. shares, gained 107.08, or 0.95 percent, to 11,419.85.
