Posted on: Wednesday, May 16, 2001
Dow soars more than 300 points
Associated Press
NEW YORK — The Dow industrials closed above 11,000 for the first time in eight months, soaring more than 340 points on hopes that lower interest rates will revitalize economic growth.
Given the Federal Reserve's decision yesterday 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 the year.
The Dow Jones industrial average surged 343.15 to close at 11,216.12, according to preliminary calculations. 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 rose. The Nasdaq composite index climbed 80.94 at 2,166.52, and the Standard & Poor's 500 index advanced 35.53 to 1,284.97.
"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 attributed the sharp upturn largely to professional money managers pumping the cash 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.
Drug maker Merck climbed $2.20 to $78.10, while Microsoft rose 89 cents to $69.16. Alcoa claimed a new 52-week high, up $2.51 at $44.51, and Hewlett-Packard rose $1.34 to $26.74.
Among the Dow's 30 stocks, there was just one loser, Wal-Mart, off 35 cents at $51.65. The mega retailer said yesterday 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 said yesterday it 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.
In a heavily-traded session, advancing issues outnumbered decliners 2 to 1 on the New York Stock Exchange. The Russell 2000 index, the barometer of smaller companies, advanced 7.58 to 497.21.
