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Wall St. savors Greenspan
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July 20, 2000: 5:03 p.m. ET
Stocks rally, breaking loss streak, as Fed chief eases interest rate fears
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - U.S. stocks rose for the first time in three days Thursday as investors, heartened by remarks from Federal Reserve Chairman Alan Greenspan, bet that the Fed won't raise interest rates next month.
Speaking before a Senate committee, Greenspan said the world's biggest economy shows signs of slowing, suggesting to Wall Street that a year-long credit tightening campaign has gone far enough. For stock investors, the world's most powerful banker sparked optimism that corporate profitability won't suffer under steeper borrowing costs.
Stock investors -- who already were snapping up shares following a two-day sell-off -- stepped up the buying pace as the day wore on. Bond yields, meanwhile, plummeted, making stocks more attractive than fixed-income securities. Financial stocks, ever sensitive to higher rates, surged.
 "My sense from just this brief analysis is we may avoid a rate hike in August," Grace Fey, portfolio manager at Frontier Capital Management, told CNNfn's Market Call. "If you believe the economy is slowing down, we may be at the end of interest rate increases."
The Nasdaq composite index gained 128.93 points, or 3 percent, to 4,184.56, moving back into the plus column for the year. The surge reversed Wednesday's 121.55-point slide and put the index above the 4,069 mark at which it ended 1999.
Microsoft and Intel, hard hit this week after reporting earnings, drew buyers, lifting the Nasdaq. A surge in fiber-optics equipment maker JDS Uniphase, which will be added to the S&P 500, also buoyed the tech-laced gauge.
The Dow Jones industrial average, meanwhile, added 147.79 to 10,843.87, while the S&P 500 gained 13.51 to 1,495.47. IBM led the Dow higher after the nation's largest technology company in terms of revenue posted a better-than-expected profit.
Thursday's gains follow losses Tuesday and Wednesday that came despite a slew of strong corporate profit reports. One analyst said the market, which ran up ahead of these announcements, needed the kind of new spark that the Fed chief provided.
 "The earnings themselves are not enough to lift the markets higher," Subodh Kumar, chief investment officer at CIBC World Markets, told CNNfn's market coverage. "We need a benign Fed to lift the markets."
Still, Kumar said stocks aren't going steadily higher until there's certainty about the Fed's direction. (235K WAV) (235K AIFF). That comes in late August.
More stocks rose than fell. Advancing issues on the New York Stock Exchange outpaced declining ones 1,699 to 1,141, as more than 1 billion shares changed hands. Nasdaq winners beat losers 2,211 to 1,770 on trading volume of more than 1.6 billion shares.
In the currency markets, the dollar fell against the euro and yen.
Greenspan sparks optimism
In his semi-annual state-of-the-economy testimony to Congress, Greenspan balanced his comments. On the one hand, he acknowledged that tighter credit has slowed the economy's robust growth, justifying the six interest rate hikes in 13 months to which some senators object.
"But it is clear that, for the time being at least, the increase in spending on consumer goods and houses has come down several notches, albeit from very high levels," Greenspan told the Senate Banking Committee.
At the same time, the Fed chief said it's too soon to conclude that the slowdown is enough to keep inflation in check. Still, Greenspan suggested that the Fed's inflation-fighting work could be nearing an end, a sentiment that accelerated Thursday's rally.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the remarks indicate the Fed chief needs more evidence before he's willing to raise rates.
 "We think Mr. Greenspan is willing to give the data a chance; it will take bad data to force an August rate hike," Shepherdson said.
Just hours before Greenspan spoke, a government report showed that housing starts across the United States fell to the lowest rate in almost two years, suggesting the Fed's moves are beginning to bite.
Financial stocks, which benefit from lower interest rates, rose strongly Thursday. J.P. Morgan (JPM: Research, Estimates) surged 4-1/2 to 134-1/2, Citigroup (C: Research, Estimates) added 2-5/8 to 70-5/8, and American Express (AXP: Research, Estimates) gained 2 to 57-1/16.
Technology stocks, meanwhile, gained following two days of losses that drove the Nasdaq into the minus column for the year.
"The market was ripe for some good news to provide an excuse for the rally," Ken Tower, of UST Securities, told CNN's Street Sweep. "If it wasn't (Greenspan), it would have been something else."
Among the gainers, Intel (INTC: Research, Estimates) rose 4-9/16 to 142-11/16 and Microsoft (MSFT: Research, Estimates) climbed 1-11/16 to 74-13/16.
In other tech winners, JDS Uniphase (JDSU: Research, Estimates) gained 21 to 127-3/4 on news the fiber-optic equipment maker is being added to the S&P 500 index next week. The announcement sparked a  flurry of buying from fund managers whose portfolios mimic the index.
IBM (IBM: Research, Estimates) surged 8-5/16 to 117-1/16 to 108-3/4 after saying net income declined to $1.94 billion, or $1.06 per share, from $2.39 billion, or $1.28 per share a year earlier. But results topped the $1.00 per share expected by analysts.
Still, not every company pleased investors Thursday.
Among those disappointing, Lucent Technologies (LU: Research, Estimates) tumbled 10-1/8 to 54-3/8 in heavy trading after issuing an earnings warning. The telecommunications equipment maker earned $1.0 billion, or 30 cents a diluted share, in its fiscal third quarter ended June 30, beating forecasts. But Lucent also warned that earnings in the current quarter will fall below estimates. More than 85 million shares changed hands, making Lucent the most heavily traded stock on the major U.S. exchanges.
Federated Department Stores (FD: Research, Estimates), meanwhile, tumbled 3-3/8 to 23-1/2. The operator of Macy's and Bloomingdale's warned that credit problems at its Fingerhut unit would cut second quarter earnings in its direct-to-customer unit by $150 million, or 43 cents a diluted share.
Another rally ahead?
Two technology companies posted strong profit statements after the close of trading, paving the way for possible gains Friday.
Sun Microsystems Inc. reported a fiscal fourth-quarter operating profit of 39 cents per share, beating Wall Street's expectations. And America Online earned $334 million, or 13 cents a share, beating forecasts by 2 cents.
In regular trading, Sun Microsystems (SUNW: Research, Estimates), the maker of computer networking equipment, gained 4-1/8 to 98-1/16 and America Online (AOL: Research, Estimates), the No. 1 Internet service provider, jumped 2-3/8 to 61-3/4. AOL is in the process of acquiring Time Warner, the parent of CNNfn.
(Click here for a comprehensive look a the day's earnings.) 
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