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Wall St. rejoices after CPI
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June 16, 1999: 11:55 a.m. ET
News of low inflation drives financial, tech stocks to lead strong rally
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NEW YORK (CNNfn) - U.S. stocks surged Wednesday morning after a keenly awaited inflation report came in more subdued than expected, laying investors' interest-rate fears to rest.
News that the consumer price index remained unchanged overall in May, and rose only 0.1 percent excluding food and energy prices, tamed speculation that a Federal Reserve interest rate hike was imminent. Wall Street had steeled itself for an increase of 0.2 percent.
Analyzing the CPI reading, a key measure of inflation at the retail level, market watchers predicted the Fed either would hold off from a tightening move at its next policy meeting June 29 and 30, or would limit itself to a single rate increase instead of the several hikes many on Wall Street had feared.
"The complete lack of inflation puts the Fed in a bind," said Bruce Steinberg, chief economist at Merrill Lynch. "Recent remarks by Fed officials make it seem that they are hell-bent on tightening. But there is not much of a rationale that comes out of recent data."
Shortly before 11:30 a.m. ET the Dow Jones industrial average jumped 144.06 points, or 1.4 percent, to 10,739.05. Market breadth on the New York Stock Exchange was overwhelmingly positive, with gainers ahead of losers 1,808 to 830 as trading volume climbed to 289 million shares.
The Nasdaq Composite soared 77.40, or 3.3 percent, to 2,492.07 and the S&P 500 index climbed 24.03, or nearly 1.9 percent, to 1,325.19. (Click here for a look at today's list of CNNfn's market movers.)
The bond market was the first to react to the benign CPI number, staging a rally of its own as interest rate anxiety receded for the time being. The bellwether 30-year Treasury bond climbed 27/32 of a point in price, lowering the yield to 6.05 percent.
The dollar also bounced higher against the euro on the strength of the rally in U.S. financial markets, but slipped against the yen.
Banks power ahead
Back in the stock market, financial stocks, one of Wall Street's most interest-rate sensitive sectors, led a broad-based buying spree that left hardly a market niche behind.
Shares of banks and other financial-services companies have suffered in recent weeks as investors braced for the likelihood that the Fed not only will raise interest rates this month, but will push rates even higher in meetings later this year. High interest rates hurt the financial sector by drying up borrowing, a major source of banking revenue.
Among the Dow's financial components, American Express (AXP) gained 4-7/16 to 123-1/2, Citigroup (C) rallied 2 to 45-13/16 and J.P. Morgan (JPM) climbed 3-3/8 to 131-3/8.
But the financial rally extended beyond the Dow 30, with Chase Manhattan (CMB) shares climbing 3-3/16 to 78-5/16 and BankAmerica (BAC) up 2 to 69-5/16.
Techs on the rise
Technology companies, likewise sensitive to the threat of rising interest rates, staged a relief rally of their own. The growth-oriented technology sector borrows heavily to get expansion capital, and higher rates would make that practice both more difficult and more expensive.
Dow computer maker IBM (IBM) rose 4-1/4 to 120-1/8 and fellow blue-chip Hewlett Packard (HWP) advanced 2-7/8 to 89-5/16.
Elsewhere on the high-tech front, Microsoft (MSFT) climbed 2-5/16 to 80, Intel (INTC) rose 2-11/16 to 58-3/8 and Cisco Systems (CSCO) jumped 3-7/16 to 114-5/8. Dell (DELL) gained 1-3/16 to 35-13/16 and Compaq (CPQ) added 15/16 to 22-1/8.
Oracle (ORCL) shares rocketed 6-13/16, or 27 percent, to 31-15/16, gaining back all of Tuesday's losses and more. The database firm gave Wall Street an overnight surprise by reporting fiscal fourth-quarter profits of 36 cents per share, beating forecasts by 4 cents.
Net stocks turn higher
Internet stocks, whose recovery from a steep slide started Tuesday, also followed the broader market higher, especially following news that one of the sector's premier names, online retailer Amazon.com (AMZN), is teaming up with Sotheby's Holdings (BID) to create an auction Web site for upscale art items and collectibles.
News of the $45 million investment in Sotheby's sent shares of the venerable auction house rallying 4-1/8, or more than 12 percent, to 39-1/4. Amazon's stock gained 12 to 108-1/2.
Other Web-related issues also scored hefty gains, with America Online (AOL) soaring 11-7/8 to 105-15/16 and CMGI (CMGI) leaping 11-13/16, or more than 15 percent, to 88-13/16.
Among the Internet portals, Yahoo! (YHOO) surged 16-1/2 to 141-3/4 and Lycos (LCOS) jumped 6-1/2 to 82-3/4. Infoseek (SEEK), which is in talks to formally merge with major shareholder Disney (DIS), climbed 5-5/8 to 50-1/8.
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