April 5, 2000
Nasdaq Rises as Greenspan Eases Jitters
By David Runk Interactive Journal
Stocks traded mixed late Wednesday afternoon as the Nasdaq Composite Index extended its recovery in the wake of encouraging remarks from Federal Reserve Chairman Alan Greenspan.
After opening lower and wavering throughout the morning session, the Nasdaq Composite Index rose 122.70 to 4271.60 in late afternoon trading.
The Dow Jones Industrial Average continued to trade lower, however, down 78 to 11087 after narrowing its losses during midmorning trading. But breadth was increasingly positive, with advancing issues leading decliners on the Big Board.
The Standard & Poor's 500-stock rose 6.40 to 1501.20 and the New York Stock Exchange Composite Index climbed back from early losses, rising 1.60 to 653.90. In prepared remarks at a White House conference, Mr. Greenspan denied that the Fed intends specifically to lower stock prices to cool the economy.
"In short, monetary policy should focus on the broader economy and on pending inflationary or deflationary imbalances," Mr. Greenspan said. "Should changes in asset prices foster economic imbalances, as they appear to have done in recent years, it is the latter we need to address, not asset prices."
Mr. Greenspan's remarks appeared aimed at cooling speculation in U.S. financial markets that the Fed may consider raising its key federal funds rate as much as half a percentage point next month. The Fed hasn't made such a big increase since February 1995, and analysts say the speculation has contributed to the recent volatility in the U.S. stock markets.
Steven Goldman, market strategist at Weeden & Co., said Mr. Greenspan's remarks don't come as a surprise to the market, which has discounted the Fed's rate policy. Mr. Goldman said the market is poised for growth following recent consolidation by the Dow industrials and the Nasdaq.
"I think we've hit the lows here," said Mr. Goldman, referring to Monday and Tuesday's performance by the Nasdaq. "I think that's it for now."
Earlier in the day, renowned market bull Abby Joseph Cohen of Goldman Sachs also offered some encouragement to the market, when she said the investment bank remained "enthusiastic" about the prospects for the stock market.
"For the past decade, we have been enthusiastic about the outlook for U.S. stock prices in the United States, and we remain so," she said. Ms. Cohen made her remarks at panel discussion of the New Economy at the White House.
But many market watchers remained fearful Wall Street still hadn't touched bottom. "Everyone seems to be extremely nervous," Mr. Lyons said. "No one wants to commit any capital, make any major commitments," said Michael Lyons, a senior trader at Morgan Stanley Dean Witter.
Wednesday's see-saw performance followed perhaps the most wild trading session on record. The Dow industrial average plunged more than 500 points on Tuesday before recovering to show a closing loss of just 57.09. The Nasdaq composite, meanwhile, lost 575 points at its low before closing with a loss of 74.79.
The Nasdaq composite has been beaten down for several days owing to sharp losses in its dominant technology sector. The index is down 17.8% from its record close. At its low on Tuesday, it was well into bear-market territory -- which is typically defined as a loss of more than 20% from a high.
Joesph DeMarco, a managing director at HSBC Asset Management Americas, said the market likely will see increased volatility over the next few weeks.
"Technology is still for sale, is the feeling I get," Mr. DeMarco said. Messrs. Lyons and DeMarco said margin calls continued to contribute to the market's weakness and volatility. Borrowing to buy stock, known as trading on margin, is a favorite technique of market speculators because it helps them earn much higher returns on their money -- but also puts their initial investments at considerable risk.
When falling stock prices reduce investors' equity below minimum margin requirements, brokers often require investors to put up extra cash or securities, or sell some securities.
In major market action:
Stocks were mixed. On the Big Board, where 922 million shares traded, 1,634 stocks advanced and 1,264 declined.
Bonds slipped. The 30-year Treasury bond was down 3/8 point, or $3.75 per $1,000 bond. Its yield, which moves inversely to its price, rose to 5.793%.
The dollar was mixed. It traded at 96.25 cents to the euro and 104.87 yen to the dollar, compared with 96.26 cents to the euro and 104.89 yen to the dollar late Tuesday in New York.
Write to David Runk at <david.runk at wsj.com>