Rallying Dow halts plunge in London
Wednesday 02 September 1998
Rumours of a co-ordinated cut in international interest rates by the Group of Seven industrialised countries helped to drive it up, and speculation is rising that the US may ease interest rates in response to the weaker economy and stock market. But traders said that there was still fundamental uncertainty about the longer-term direction.
The New York Stock Exchange opened strongly, retreated by 140 points, then advanced to 358 points up before closing 288.36 up at 7,827.43, the second-largest points gain ever.
Two of Wall Street's top analysts, Abby Joseph Cohen of Goldman Sachs and Greg Smith of Prudential Securities, both recommended that investors shift back into equities. But what is still uncertain is whether yesterday marks a long-term change of direction or a correction.
The Clinton administration continues to make soothing noises about the US economy, insisting that nothing it it justifies the market weakness and that growth will continue. The Deputy Treasury Secretary, Larry Summers, said at a briefing in Moscow: "We believe our fundamental economic policy is sound. We believe our people are working at record rates and we are determined to stay on a path of fiscal discipline that brought us to where we are."
However, there was no consistent pattern to yesterday's price movements in major markets. In London the FTSE swung wildly; at its lowest it was down 173.7 points, but it rallied to close at 5,169.1 - a day's loss of 80.3 points.
This was much less than expected, given that the London market was closed for on Monday and had some catching up to do after the Dow plunged 512.61 pointsthat day.
There is as yet little assurance that the volatility on Wall Street is over. "Wall Street still looks very vulnerable," said Ian Harwood, head of Economics and Strategy at DKB.
"The reason it has been going down is that people have begun to realise that company earnings expectations are unrealistic," said Mr Harwood. "To expect 15 per cent profits growth to continue next year is manifestly absurd."
Most other markets resisted the Dow's Monday slump. In Japan the Nikkei showed an unexpected bounce, gaining 261.74 points to close at 14,369.63. But Hong Kong lost nearly 3 per cent of its value.
Most markets in Europe followed the same muted pattern as London. The heaviest fall was in Milan, where prices fell by 2 per cent. But the Paris CAC-40 index was down only 5.56 points at 3,646.29, while in Germany the DAX, helped by Wall Street's rally, rose by 44.61 points to 4,855.89.
Outlook, page 15
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