To the average stock trader, a half-percentage-point hike from the Federal Reserve was a scary thought -- in January. Now, one day before the all-but-certain move, it no longer seems frightening, so the market pushed the Dow Jones Industrial Average to a near-200-point gain, and the Nasdaq Composite Index rose 78.
That is, the specter of a 50-point increase wasn't scary for those who played the game at all. The old adage about sitting on the sidelines ahead of a Fed meeting held true, as just 850 million shares traded on the
New York Stock Exchange and 1.137 billion traded on the
Nasdaq Stock Market
-- the lightest volume this year.
The Comp gained 78.62, or 2.2%, to finish at 3607.68, while the Dow gained 198.41, or 1.9%, to 10,807.78. The
S&P 500 was up 31.40, or 2.2%, to 1452.36, and the
Russell 2000 rose 6.87 to 497.81, as investors attempted to position themselves ahead of a potential "relief rally" after the Fed's decision.
"Some people are beginning to think that maybe the economy is slowing, and if they do raise this thing a half-point, and the wording is good, I think we could get a good rally," said John Manahan, head trader at
Brown Brothers Harriman
. "Today was more about a lack of sellers out there, but tomorrow, if they raise a half-point, a lot of people would think it's the beginning of the end."
Perhaps it's the ultimate recognition that this market is on a different bandwidth when the Dow gains 440 points in the three days leading into what would be the Fed's first 50-point hike in five and a half years. Even more so, considering that it was led by interest-rate-sensitive sectors like the banks and commodity-related stocks, both of which were strong through most of the session.
Judging by comments from traders and strategists, the soft
report Thursday and the weaker-than-expected
Producer Price Index
released Friday have instilled a sense of confidence about the Fed's future looking past the meeting. Tomorrow's broad inflation measure, the
Consumer Price Index
, is expected to rise 0.2% in terms of core inflation, which would also be supportive for the market.
Therefore, many don't feel the Fed has much more juice left in it, and they're hoping that these last couple of weak economic reports point the way to a slight slowdown that will stop the trend of higher interest rates.
Again, volume has a lot to do with today's advance. With so many players sidelined, a market trending in one direction tends to pick up steam due to the lack of interested players. The moves exacerbated the strength in some sectors that have recently done well, such as commodity-related stocks, financials and health-care stocks.
led all day, after
The Wall Street Journal
reported that it, too, is involved in the bidding for
Nabisco Group Holdings
. Philip Morris gained 2 7/8, or 11.8%, to 27 3/16, helping the
American Stock Exchange Tobacco Index
to gain 5%, and Nabisco Group Holdings leapt 3 3/8, or 17.1%, to a two-year high of 23 1/16.
Banks and brokerages were strong.
added 6 3/8, or 6%, to 109 1/8, while discount broker
was up 1 7/16 to 43 3/8. The
American Stock Exchange Broker/Dealer Index
gained 4.2%. The S&P Insurance Index gained 4.6%, largely on the back of a 37% gain in
, after the company announced it would be acquired by
. Yes, it's from Italy.
Paper companies had a strong day. Dow component
rose 9%, to 40 1/4, on news that the company will indeed buy
, which was up 4.2% on the day. The
American Stock Exchange Forest and Paper Products Index
Dow Jones Transportation Average
lost 1.3%, while the
Dow Jones Utility Average
'Money Is Being Made Elsewhere'
"Technically, most sectors outside tech look good," said Barry Hyman, chief market strategist at
Ehrenkrantz King Nussbaum
. "Certain sectors are coming out of bear markets. It doesn't seem obvious, but this has been going on for two months. People don't want to give up the tech sector, but for now money is being made elsewhere."
The desire to hold onto tech stocks like a lost puppy was evident in the afternoon, as major tech stocks, which suffered for most of the session, were supported late in the day. Dow component
gained 3 11/16, or 3.2%, to 118 1/8, and the
Philadelphia Stock Exchange Semiconductor Index
rose 2.8%, helped also by
, up 5.6%.
Among major tech indices, the
Morgan Stanley High-Tech 35
gained 2.6%; the
Philadelphia Stock Exchange Computer Box Maker Index
fell 0.4%, and the
Nasdaq Telecommunications Index
was supportive to the Internet sector, after news that the company was involved in merger discussions with Spain's
. Lycos gained 16% to 61 15/16, and it helped
TheStreet.com Internet Sector
index to a 4.5% gain today. Terra lost 4.6%.
Sellers may have a better opportunity Tuesday, if the Fed disappoints the market with a tough-talking statement that causes equity folk to rethink just how many rate hikes the monetary policy committee has left in it. Tomorrow's action after 2:15 p.m. EDT shapes up to be a tug-of-war between those who believe the Fed is done hiking interest rates and those who think the Fed has a ways to go.
"I think we're going to live with a lot of choppy, sloppy and modest action for a while," said Bill Meehan, chief market analyst at
. "There has been clear signs that inflation pressures are building."
The next few days will provide a good barometer for how people are viewing the Fed. As Hyman points out, the market is in quite a position to hash this out. The Nasdaq is safely ensconced in a range, as is the Dow (which has been in a range for about six months now).
"It's perfect for a meeting -- if we came in at the lower end of a range you'd have rallied significantly," he said. "So I think there's some doubt as to which way we'll go tomorrow. I still believe we'll be up, because the market was so oversold, but don't think the tech rally lasts."
The New York Stock Exchange said margin debt fell 9.3% in April, after reaching an all-time record of 278.5 billion in March. That's to have been expected, due to margin calls and selling to cover losses during this month. Margin debt tends to be a bit of a lagging indicator -- investors leverage themselves when things are running wild, not before, and so the decline doesn't necessarily represent a newfound prudence.
Breadth was positive on, um,
New York Stock Exchange
: 1,753 advancers, 1,143 decliners, 851.3 million shares. 104 new highs, 47 new lows.
Nasdaq Stock Market
: 2,148 advancers, 1,883 decliners, 1.137 billion shares. 41 new highs, 132 new lows.
For a look at stocks in the news, see the Company Report, published separately.