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Market jumps on Fed call
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May 20, 1997: 2:44 p.m. ET
Stocks reverse earlier losses after the central bank leaves rates unchanged
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NEW YORK (CNNfn) - Wall Street stocks pushed higher just moments after the U.S. Federal Reserve announced its decision to leave short-term interest rates unchanged, with blue chips and technology shares leading the charge.
After spending much of the session in negative territory, the Dow Jones industrial average rocketed higher as traders learned of the Fed's decision. Down as many as 75 points earlier in the session, the blue-chip measure was up 37.50 points to 7,266.38 at 2:40 p.m.
Among the leading broader market indexes, the S&P rose 1.66 to 834.93, while the American Stock Exchange index gained 1.45 to 588.93. The Nasdaq Composite pushed ahead 9.73 to 1,350.97. On the Big Board, New York Stock Exchange declines led advances, 1,231 to 1,128, with volume topping 300 million shares.
In the bond market, the 30-year Treasury rose 8/32 in price and the yield, which moves in the opposite direction of price, dipped to 6.89 percent. Bond traders expressed some skepticism that the rally would last. Several said concerns that a weak dollar will lure international investors away from the U.S. market could hamper continued gains.
Analysts had been divided on the outcome of the central bank's meeting. Many, believing that the Fed is a creature of habit, argued that it would raise rates for the second time since March. Others argued there was too little evidence of inflation on the economic horizon to justify a move capable of undermining financial markets around the world.
Rate-sensitive financial stocks had fallen at the opening bell, but reversed the slide amid euphoria over the Fed's decision. Among key issues, Citibank (CCI) gained 2 to 118; J.P. Morgan (JPM) climbed 1/2 to 103; Wells Fargo (WFC) rose 1-1/2 to 267; Chase Manhattan (CMB) added 1-1/2 to 94-1/8; and NationsBank (NB) rose 3/8 to 59-3/4.
Among other noteworthy movers, Dell Computer (DELL) gained 1/2 to 98. The company, which saw its stock rise sharply on Monday, is expected to report first-quarter earnings of 93 cents per share, a gain of 118 percent, after the closing bell.
Elsewhere, Electronic Data Systems (EDS) lost 1-3/4 to 36-1/4 after warning that it will miss analysts' expectations for second-quarter earnings, while C-Cube Microsystems (CUBE) fell 5-1/2 to 20 on a warning that it, too, will fall short of forecasts. C-Cube said it will likely turn in a profit between 20 cents and 25 cents per share, well below the 40-cent profit Wall Street anticipated.
On the positive side, Intel (INTC) jumped 5 to 159-3/4 following comments by a Merrill Lynch analyst that earnings could grow by 30 percent and sales could expand 36 percent over the next five years.
Retailer Dayton Hudson (DH) added 2-1/2 to 49-1/2 on a 68 percent jump in first-quarter profits to 53 cents per share, including a 9-cent special charge, while Home Depot (HD) rose 1-1/8 to 60-7/8 after reporting record profits in the first quarter of 53 cents per share.
Ford Motor (F) gained 1-1/8 to 37-1/2. Merrill Lynch said it initiated coverage of the company with a rating of "near-term accumulate" and "long-term neutral."
And shares of Renaissance Solutions (RENS) rose 2-1/4 to 37 after the consulting firm said it will be acquired by rival Registry for $430 million, or $45.20 per share, in stock. The two firms provide information technology to businesses. Registry (REGI) fell 7-1/4 to 49-1/4.
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