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Stocks Get Back Up After Fed Move

May 17, 2000|From Times Staff and Wire Reports

Another Fed rate increase--and another stock market rally.

What's wrong with this picture?

Stocks closed broadly higher Tuesday as the Federal Reserve, as expected, raised its key short-term rate to 6.5% from 6%.

Some analysts said Tuesday's rally was simply in relief that the Fed wasn't even more aggressive.

"We got what we expected, so that's good news--there are no surprises," said Art Hogan, analyst at Jefferies & Co. in Boston.

The Nasdaq composite index ended up 109.92 points, or 3.1%, at 3,717.57. The Dow Jones industrials rose 126.79 points, or 1.2%, to 10,934.57.

Despite a mild sell-off immediately after the Fed announced its rate decision at about 11:15 a.m. Pacific time, the market quickly regained its footing.

The Nasdaq index, up as much as 122 points, to 3,729, before the Fed acted, tumbled to 3,625 after the Fed announcement, then shot back up almost as fast as it had fallen.

Winners topped losers by 23 to 18 on Nasdaq as volume rose to 1.5 billion shares--still far below recent peak levels.

Tuesday's rally marked the fourth consecutive day of gains as at least some investors have convinced themselves that the Fed is getting close to the end of its credit-tightening cycle.

But whether the rally can hold is still an open question. Indeed, the last time the Fed raised rates, on March 21, the Standard & Poor's 500 index rallied to a record high. The Nasdaq index also gained.

Yet by early April, the market was plummeting on renewed interest rate concerns and other worries.

In the bond market, yields ended mixed Tuesday as bond investors generally failed to share the equity market's optimism about the Fed's plans.

The 2-year Treasury note yield rose to 6.91% from 6.85% on Monday, though the 10-year T-note yield eased to 6.42% from 6.45%.

The stock market may have drawn some strength from Goldman Sachs & Co. chief investment strategist Abby Joseph Cohen. Cohen told an Economic Strategy Institute conference that she anticipates "good returns, not necessarily abnormally large returns" from the stock market this year.

"A more aggressive stance by the Federal Reserve on interest rates is already reflected in fixed-income and equity markets," Cohen said.

"We believe that such policy action will be successfully aimed at elongating, not ending, the economic expansion."

Among Tuesday's highlights:

* Beaten-down tech stocks getting a lift included Intel, up $3.75 to $121.88; IBM, up $4.81 to $109; Broadcom, up $11.38 to $166.63; and Vitesse Semiconductor, up $4.50 to $54.44.

* Many industrial names also rallied, suggesting a belief in Cohen's view about the economic expansion continuing. GM gained $2.88 to $89.31, 3M rose $4.13 to $90.06 and Illinois Tool Works rose $1.94 to $64.75.

* Bank stocks, sensitive to higher interest rates, mostly eased. The stocks have generally been trading in a narrow range for weeks. Citigroup lost $1.19 to $61.69, Bank of America fell 94 cents to $49.69 and Wells Fargo eased $1.25 to $43.63.

* Many retail stocks were lower as major retailers reported quarterly earnings that evidently didn't impress many investors. Home Depot fell $3.06 to $53.44, Tiffany lost $2.25 to $72.94 and Staples fell $1.81 to $17.31.

Market Roundup, C9-C10

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