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Greenspan cools the bulls
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January 20, 1999: 10:35 a.m. ET
Blue chips relinquish gains when Fed chief says market may be overvalued
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NEW YORK (CNNfn) - Wall Street opened on a high note Wednesday, but quickly reversed its direction after Federal Reserve Chairman Alan Greenspan gave Congress a cautious view of the market's unstoppable climb in recent months.
At around 10:15 a.m. the Dow Jones industrial average was 35.27 points lower at 9,319.95, after opening in positive territory. Trading volume on the New York Stock Exchange stood at 175 million shares with declines leading advances 1,208 to 1,188.
The Nasdaq Composite was up 29.65 to 2,437.82, its gains largely sustained on the back of a strong earnings report and a rally in the shares of Microsoft. The S&P 500 index rose 5.63 to 1,256.52.
Wall Street had more than enough bullish news to trade on -- a spate of stronger-than-expected earnings from some of the market's leading performers and an upbeat State of the Union speech by President Clinton.
But it was Greenspan's eagerly awaited review of the economy, delivered to the House Ways and Means Committee, that stole the spotlight and caused some concerns among investors.
In his testimony, which started just after 10 a.m., Greenspan said the central bank is keeping a close eye on the stock market, whose recent gains might be difficult to sustain. Moreover, suggesting the market is overvalued, the Fed chairman said stock prices seem to imply stronger corporate profit growth than has been seen lately.
"The level of equity prices would appear to envision substantially greater growth of profits than has been experienced of late," Greenspan said.
Calling the performance of the U.S. economy "sparkling," Greenspan also warned that a volatile global situation has made the financial market situation "fragile."
The bond market fell sharply as money moved away from Treasury securities and into stocks after a strong showing in world equity markets overnight and a promising start to trading on Wall Street. The benchmark 30-year Treasury bond fell 26/32 of a point in price, for a yield of 5.19 percent.
The dollar rose against the Japanese yen and the euro.
No softness for Microsoft
In the stock market, software powerhouse Microsoft (MSFT) surprised even some of the most optimistic forecasters when it reported its fiscal second-quarter earnings late Tuesday.
Microsoft's shares soared 9-1/4 to 164-7/8 a day after the company revealed its profit grew 75 percent in the latest three months, handily beating market estimates. Helping fuel the rally, Donaldson, Lufkin & Jenrette raised its target price for Microsoft to $200 a share from $150.
Microsoft's example was followed by other computer related issues, with software maker and Microsoft rival Oracle (ORCL) rising 3/16 to 51-7/8, Dell Computer (DELL) climbing 2-5/16 to 84-7/16, Intel (INTC) up 13/16 to 140-3/16.
The robust tone among technology stocks was reinforced by other positive earnings news. Texas Instruments (TXN) reported profit that exceeded Wall Street forecasts by 5 cents a share, and its stock surged 5-1/4 to 98-1/4.
Dow member IBM (IBM) climbed 1-15/16 to 194-3/16.
Several other Dow components delivered their latest performance reports. AlliedSignal (ALD) saw its shares ease 1/4 to 41-5/16 after reporting record fourth-quarter profit.
General Electric (GE) fell 1-5/16 to 100-1/8 after the mammoth reported earnings in line with market forecasts.
Finally, shares of General Motors (GM) rose 1-15/16 to 89-15/16 after the automaker and Dow component reported record fourth-quarter earnings. 
-- by staff writer Malina Poshtova Zang
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