SAN FRANCISCO -- The bounce


Sam Ginzburg predicted

last night arrived today, but petered out toward the close.

After trading as high as 10,978.96, the

Dow Jones Industrial Average

closed up 0.4% to 10,911.94. The

S&P 500

closed up 0.6% to 1255.84 vs. an intraday high of 1261.91. The

Nasdaq Composite

finished up 1.3% to 2110.51, but down from its intraday best of 2140.07.

Although major averages failed to sustain early momentum, the session had a positive tone throughout and market breadth favored advancers by 3 to 2 in


trading and 5 to 4 in over-the-counter activity.

The advance was fueled partly by mutual funds' month-end machinations (say


five times fast), as well as renewed speculation that the

Federal Open Market Committee

will ease by 50 basis points when its next meets on June 26-27 to stave off persistent economic weakness.

Renewed hope of an aggressive Fed move flowed from several fronts, including mounting concern about the job market and ongoing worries about manufacturing's strength. The new Fed Fever challenged recent concerns about inflation.

Continued weakness in the

Chicago Purchasing Managers Index

and an increase in jobless claims reported today raised concerns (or is it hopes?) that tomorrow's

employment report


National Association of Purchasing Management

index will be similarly inclined.

The consensus estimate for tomorrow's jobs report is for nonfarm payrolls to be down 17,000 in May, although

it could be worse, reports's

David Gaffen

. The unemployment rate is expected to tick up to 4.6% vs. 4.5% in April. The May NAPM index is expected to rise slightly to 43.7 vs. 43.2 in April.

Expectations for another 50 basis-point ease were heightened by a

Market News International

article (subtly) entitled "50 bp Easing Could Continue Under Right Conditions." The piece was penned by Steve Beckner, widely believed to have the ear of high-ranking Fed officials, or to be a microphone for them, depending on your perspective.

"...while there is a general inclination to ease monetary policy more incrementally after five rapid 50 basis points rate cuts, that could change if incoming economic data and financial market stimuli run contrary to the Fed's forecast of a gradual return to growth near potential somewhere in the 3%-4% real range next year," the story stated.

Lastly, Fed optimists took heart in comments by

Dallas Fed President Robert McTeer

, who said he does not expect the U.S. economy to enter a recession, but that the second-quarter


could suffer a "very small" dip into negative territory.

"Between the

Market News

story and McTeer,

there's ample reason to explain today's rally in stocks," said Tony Crescenzi, chief bond market strategist at

Miller Tabak

. "The recovery began minutes after the

Beckner story, and built upon the

McTeer story."

The Beckner and McTeer stories also found commonality in the once controversial issue of whether or not the Fed is targeting the stock market. It's no longer controversial because it's pretty obvious they are: "One thing that could contribute to changing the outlook and making the Fed more inclined to continue aggressive easing is a further weakening of stock prices,"

Market News


Separately, McTeer declared the stock market's decline from (roughly) March 2000 to April 2001 as "overdone" and, regardless, "does nothing to negate the idea of a New Economy,"



McTeer is known for expressing views out of step with those of other central bankers, but "it is unusual for Fed officials to speak that way" about stocks, Crescenzi said. "The Fed insists it doesn't target stock prices, per say, but the level of equity values have continued importance."

Between Beckner's article and McTeer's comments, "you might say the Fed is trying to engender thoughts of a


put, where investors are comfortable buying stocks because they feel the Fed would bail them out," he added. "Many feel that's dangerous."

This column has long argued that the "Greenspan put" -- a.k.a.

moral hazard -- is dangerous. But to investors who no doubt welcome the Fed's focus on equities, I submit the following.

If the Fed's intent was to inspire stocks, rate cuts to date (actually through yesterday's close), have had -- at best -- mixed results.


prior criticisms of the Fed, I tried to make the point that I wasn't averse to rate cuts, per se, but to rate cuts that appeared to be targeting stocks (apparently without much success given the heated emails I continue to receive). If such rate cuts failed to bolster stocks, I argued, the Fed could lose credibility and thus its ability to influence investors' confidence going forward.

If investors' faith in the Fed wanes, the stock market again will find itself in serious trouble. I'm certainly not "rooting" for such a scenario, but evidence is building that confidence in Alan Greenspan & Co. may be misplaced.

Beyond equities, the greenback has belied predictions of its demise, but note the declining trend in the strength of the dollar index in that chart. Also, gold has produced solid returns this year despite more recent woes (which continued today). Finally, omitted from the chart is the fact that 30-year and 15-year mortgage rates are now at their highest levels since Dec. 15,

Freddie Mac


reported today.

A Bond (or Two) Also Rises

The Treasury bond market rallied across the yield curve today, which also gave stocks a boost. The price of the benchmark 10-year note rose 31/32 to 97 6/32, its yield falling to 5.37%.

Until recently, the long end of the bond market had been selling off in the wake of the Fed's aggressive easing, which raised concerns about faster economic growth

reviving inflation. That, in turn, raised concerns among some equity market participants, who fretted both the possibility of inflation's revival and the competitive threat to stocks posed by higher bond yields.

But given the latest spate of weak economic data and the downturn in gold, "investors may have begun to lose some confidence in the notion of economic rebound," Crescenzi commented. "If so, that may mean bonds are very undervalued."

Today's bond market advance may be a "delayed reaction" to recent weakness in commodities -- the

Bridge/CRB Commodities Index

fell 0.4% today, its eighth consecutive decline -- and economically sensitive stocks, he added. The

Morgan Stanley Cyclical Index

rose 1.1% today after falling 5.2% from its recent high on May 21 through yesterday's close.

But Crescenzi, who has previously

expressed concern about incipient inflation, believes any fixed-income rally will be short-lived and that bonds will resume their downward trend by July. "It's a trading rally and not sustainable," he said. "That's the way I see it."

And that's the way it was, Thursday May 31, 2001...

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.