Stocks Soar; Dow Touches 32-Month High
Updated from 4:01 p.m. EST
Stocks closed solidly higher Wednesday afternoon, with the
Dow
surging to a new 32-month high, following
generally positive comments about the economy from
Fed
Chairman Alan Greenspan before Congress.
Comcast's
(CMSCA)
$54 billion hostile bid for Dow component
Disney
(DIS) - Get Report
also lent support.
The Dow added 123.85 points, or 1.2%, to 10,737.7 and the
S&P 500
gained 12.22 points, or 1.1%, to 1157.76, a 23-month high. Both indices posted their biggest one-day point gains since Jan. 26, their previous highs during the 11-month rally. The
Nasdaq
managed a gain of 14.33 points, or 0.7%, to 2089.66.
Volume was 1.7 billion trades on the
New York Stock Exchange
while 2.15 billion trades changed hands on the Nasdaq. Winners beat losers on both imarkets by a margin of about 2 to 1.
Only 6 of the 30 Dow components closed the day lower with Disney and
Alcoa
(AA) - Get Report
the big winners. Shares of Disney climbed up $3.52, or 14.6%, to $27.60, surpassing Comcast's $26.47 offer price to acquire the company, and Alcoa closed up $1.85, or 5.2%, at $37.39.
Greenspan started his address to the House Committee on Financial Services at 11 a.m. EST, and then took questions from lawmakers. He said strong productivity and "stimulative macroeconomic policies are likely to sustain robust economic expansion and low inflation in 2004." Additionally, the Fed expects GDP growth of 4.5% to 5% and an unemployment rate of 5.25% to 5.5% this year, both better than previously forecast.
Regarding interest rates, the Fed chief admitted that ultimately they will be raised to "a more neutral level." He added, however, that "Monetary policy remains accommodative. Financial conditions for businesses remain quite favorable: Profits have been rising rapidly, and corporate borrowing costs are at low levels."
Reaction to Greenspan
After lagging in early morning trading, the major indices surged after Greenspan's text was released. "Everybody is happy," said Paul Nolte, director of investments at Hinsdale Associates. "He's confirmed that rates will stay low. He's cautioned people not to get too excited about things. Status quo is kind of the operating word at this point."
Richard Nash, an independent market strategist, agreed that the market liked Greenspan's comments. "We're almost a bit in this sweet spot in the economy where the Fed upped its GDP estimates and bumped down the unemployment rate."
"The message is that even in the face of higher growth, the Fed still sees low inflation. It can keep rates lower for longer than expected," Nash added. "This pushed out further the probability of a rate increase at any point in the first half of the year."
In a somewhat negative view of the testimony, Dr. Vincent Malanga of Investor's Economic Resources, an economic research and analysis firm, said Greenspan intentionally did not address the possibility that job growth could remain weak. Greenspan "was not asked nor did he address what we consider to be the key issue. With fiscal stimulus soon to wear off, if job growth remains weak, what is it that will continue to propel the economy forward?" asked Malanga.
Meanwhile, the 10-year Treasury note surged 22/32 following Greenspan's remarks, its yield dropping to 4.02% from an earlier rate of 4.13%.
The dollar was weaker against the euro, with one euro worth $1.28 lately. The greenback was also much lower vs. the Japanese yen, with one dollar fetching 105.33 yen.
The financial sector had a strong day:
Lehman Brothers
(LEH)
closed up $4.96, or 6.1%, at $86.89;
Goldman Sachs
(GS) - Get Report
gained $4.91, or 4.8%, at $107.09; and
Merrill Lynch
(MER)
added $2.71, or 4.7%, at $60.91.
In corporate news, Comcast's offer for Disney calls for the cable company to issue 0.78 of a share of Comcast Class A voting common stock for each Disney share. Comcast shares fell $2.70, or 8%, to $31.23.
Comcast also reported earnings of 17 cents a share in the fourth quarter, which easily surpassed analysts' estimates for 3 cents a share. Revenue skyrocketed 58%. And Disney said it earned 33 cents a share in its first quarter, which was ahead of analysts' expectations for 23 cents a share. Revenue increased about 19%.
Coca-Cola
(KO) - Get Report
said it earned 46 cents a share in its fourth quarter, excluding charges, on an 8% increase in total sales. Analysts had been calling for 45 cents a share in the quarter. Nevertheless, shares of the company closed down 37 cents, or 0.7%, at $51.80.
Sun Microsystems
(SUNW) - Get Report
said it will acquire privately held
Kealia
, which was co-founded by Andy Bechtolsheim, also a co-founder of Sun Micro. Kealia makes advanced servers. Shares of Sun were up 20 cents, or 3.6%, at $5.74 at the end of trading.
In research, J.P. Morgan upgraded shares of
Accredo Health
(ACDO)
, and Lehman Brothers downgraded the small-cap technology sector. Shares of Accredo ended up $2.24, or 6.4%, at $37.08.
Markets overseas were mixed. London's FTSE was last down 0.2% at 4396 while Germany's Xetra DAX was up 0.3% at 4122.2. In Asia, Hong Kong's Hang Seng was up 0.07% at 13,524.8 and Japan's Nikkei was down 0.4% at 10,365.4.
On Thursday, look for earnings reports from
Dell Computer
(DELL) - Get Report
,
Loews
(LTR)
,
CVS
(CVS) - Get Report
and
May Department Stores
(MAY)
.
And in addition to Greenspan's testimony at 10 a.m. EST when he speaks before the Committee on Banking, Housing and Urban Affairs at the Senate, look for the government's release of December business inventories. Economists are calling for a 0.3% increase on top of the prior month's 0.3% rise.
Also, initial jobless claims for the week ended Feb. 7 are expected to be 345,000 compared with the prior week's 356,000. Retail sales for January are forecast to be flat following a 0.5% increase in December; but excluding autos, retail sales are expected to rise 0.5% on top of the prior month's 0.1%.