US stocks stage big rally
Wall Street staged an impressive rally today after the nomination of top White House economist Ben Bernanke as the next Federal Reserve chief.
The Dow Jones industrial average soared nearly 170 points and strong quarterly earnings from drugmakers and lower oil prices bolstered the gains.
Stocks were already advancing when news came that President George W Bush picked Bernanke, chair of the president’s Council of Economic Advisers, to succeed Chairman Alan Greenspan when he retires in January.
Bernanke was widely seen as likely to continue Greenspan’s policy of fighting inflation.
Meanwhile, upbeat profit reports at Merck & Co and Schering-Plough eased earnings concerns prompted by Pfizer’s weak forecast last week. Encouraging results from American Express late in the day also lifted stocks.
The Dow climbed 169.78, or 1.66%, to 10,385.00, its largest single-day gain since a 206-point advance April 21.
Broader stock indicators also rose sharply. The Standard & Poor’s 500 index was up 19.80, or 1.68%, at 1,199.39, and the Nasdaq composite index jumped 33.62, or 1.61%, to 2,115.83.
Bonds declined, with the yield on the 10-year Treasury note rising to 4.45% from 4.39% late Friday. The dollar was mixed against most major currencies, while gold prices inched upward.
Bernanke’s nomination helped soothe a market that has grown increasingly nervous in recent weeks as record energy prices and inflation threaten to clamp down on consumer spending and economic growth. The announcement removes a great deal of uncertainty that would have worsened if there were a prolonged period of questions about the future Fed chairman, said Lynn Reaser, chief economist for Bank of America’s investment strategies group.
“He’s likely to continue to enhance the Fed’s move toward greater transparency,” Reaser said. “One change might be his advocacy of an explicit inflation target. But it should help credibility and confidence.”
Investors have been hoping the new Fed chief would be less hawkish than Greenspan on inflation and keeps interest rates lower to spur the economy, but analysts say Bernanke will probably stay with the central bank’s rate-tightening campaign.
Richard Hoey, chief economist and chief investment strategist for Dreyfus Corp., said Bernanke was the “most likely case,” and that under him, the new issue will be whether the Fed officially targets inflation rates – moving beyond the current practice of issuing a consensus forecast.
However, “the main reaction will be a sigh of relief that he is one of the mainstream, qualified candidates,” Hoey said.
Crude oil dropped to near three-month lows as Hurricane Wilma spared key production and refining facilities in the Gulf of Mexico. A barrel of light crude lost 31 cents to settle at 60.32dollars on the New York Mercantile Exchange.
With no new data to give investors clues about the economy’s health, Monday’s trading was influenced by the Fed announcement and by earnings reports. Merck, a Dow industrial component, rose 82 cents to 27dollars after its profit rose 7% because of lower costs and beat Wall Street views by 3 cents per share.
Rival Schering-Plough added 2 cents to 21.13dollars after its profits tripled in the third quarter from strong product sales, including the allergy drug Nasonex. Schering-Plough surpassed analysts’ expectations by 2 cents per share.
Cendant Corp. said it will split itself into four separate publicly traded companies. One company will run the Ramada and Howard Johnson hotel chains, another will take over its Orbitz.com and other travel businesses, while the other two will operate its rental car and real estate units, respectively.
The stock opened higher but was down 1.32dollars at 18.77dollars.
Wall Street firm Morgan Stanley announced plans to buy AMLI Residential Properties Trust, a real estate acquisition and management firm, for 2.1 billion dollars, which includes assuming AMLI’s debt as well as 37.75dollars per share in cash. AMLI surged 6.25dollars or 20%, to 37.52dollars, while Morgan Stanley gained 1.30dollars to 53.40dollars.
Financial services firm American Express Co. reported its quarterly profit grew 17% on growth in its domestic and international card businesses. American Express added 2.39dollars to 49.54dollars.
Advancing issues outpaced decliners by more than 3 to 1 on the New York Stock Exchange, where volume of 1.65 billion shares lagged the 1.86 billion shares traded at the same point Friday.
The Russell 2000 index of smaller companies rose 13.87, or 2.19%, to 646.60.
