Posted at 12:30 p.m., Tuesday, November 6, 2001
Wall Street rallies on Fed's 10th rate cut
• Hawai'i's Stocks
• Updated Market Chart
Associated Press
NEW YORK — The 10th interest rate cut of the year sparked a solid rally on Wall Street today, as investors decided to bet that the Federal Reserve's latest effort to stimulate growth would work.
The advance primarily came in the last hour of trading, however, reflecting the market's lingering worries about the economy.
The Dow Jones industrial average closed up 150.09, or 1.6 percent, at 9,591.12, according to preliminary calculations, extending a two-day advance. The Dow had been down about 50 points just before the Federal Reserve's announcement at 2:15 p.m. EST.
Broader stock indicators also advanced, recovering from a lackluster performance before the Fed news. The Standard & Poor's 500 index rose 16.02, or 1.5 percent, to 1,118.86, and the Nasdaq composite index soared 41.43 to 1,835.08, a gain of 2.3 percent.
The Fed's half-point rate reduction had been widely anticipated because of recent data suggesting the economy is in a recession, as well as worries that the Sept. 11 terrorist attacks will make it even more difficult for business to turn around.
"The Fed has shown a very strong commitment to take interest rates to wherever they have to go in order to get this economy going again," said Jim Weiss, chief investment officer for equities at State Street Research.
Wall Street's initial response to the cut, though, was lukewarm and it took about an hour for the market to advance decisively. Investors appeared to be weighing the potentially positive effects that lower interest rates would have on business against the Fed's acknowledgment that "for the foreseeable future ... the risks are weighted toward conditions that may generate economic weakness."
The Dow got an additional boost from news that key Hewlett-Packard stockholders planned to vote against the proposed $20 billion takeover of Compaq Computer. Dow component HP rose $2.92 to $19.81, a 17 percent jump, while Compaq fell 49 cents, or 5.5 percent, to $8.50.
Investors also welcomed better-than-expected earnings and revenues from Cisco Systems, which reported first-quarter results late yesterday. The company, however, offered few details about future quarters other than to say its fiscal second-quarter revenue would be flat to slightly higher. Still, the stock rose 57 cents to $18.47 on buyers eager for any indication that business is stabilizing and a recovery will occur.
Among blue chips, J.P. Morgan Chase rose $1.18 to $37.54, a 3.8 percent gain, reflecting the boost financial stocks usually get from rate cuts. General Electric advanced $1.03 to $39.80.
The rally extended a runup that began on Friday in anticipation of the Fed's move. Although the market has regained nearly all its post-terror attack losses, it has yet to move much higher. Instead, rallies have been met with selling as investors, fearful the good times won't last, lock in their profits.
Additionally, skepticism about the ability of lower rates to stimulate the economy might have tempered Wall Street's enthusiasm. A mostly dismal third-quarter earnings season with few indications of better times ahead also has investors nervous about making big commitments to the market. Unemployment also is on the rise, as companies cut back in the soft economy.
Advancing issues narrowly led decliners 3 to 2 on the New York Stock Exchange. Volume picked up late in the session, coming to 1.33 billion shares, slightly higher than 1.19 billion yesterday.
The Russell 2000 index gained 5.24 to 442.78.
Overseas, Japan's Nikkei stock average gained 1.8 percent. In Europe, Germany's DAX index dropped 1 percent, Britain's FT-SE 100 gained 0.1 percent, and France's CAC-40 slipped 0.5 percent.
