The Alan Greenspan sell-off lasted only four days, broken by a big rally on Wall Street yesterday.
The Dow Jones industrial average made a late-day run that left the benchmark stock market indicator 171.07 points higher, closing at 10,702.16. That was the Dow’s biggest gain since May 3.
It was the first positive day for the Dow since Federal Reserve Chairman Greenspan and his counterparts on the Fed’s monetary policy committee conceded that they have developed a bias toward an interest-rate increase, perhaps as soon as late June.
Investors have decided that the threat of inflation is really not enough to push the Fed into a tightening, and yesterday’s rally was driven by the belief that continued growth of the U.S. economy will boost corporate profits.
In fact, one prominent economist called the inflation threat “The Phantom Menace,” also the name of the blockbuster hit “Star Wars” film of this summer.
“Because inflation is likely to remain benign, this latest Fed alert will likely be another in a long string of false alarms from the Fed,” said Stephen Slifer, chief economist at Lehman Brothers.
Slifer’s call was supported by newly released economic data from the government that countered the idea that the economy is growing too quickly to keep inflation in check.
The government reported that factory orders for durable goods rose only 0.9 percent in April, a number much lower than expected. What’s more, orders for aircraft, autos and other transportation items unexpectedly fell 2.3 percent, a sign that the economy is actually slowing.
The report boosted broader market averages.
The S&P 500 index rose 20.36 to 1,304.76, while the technology-laden Nasdaq gained 46.28 to 2,427.18.
The Nasdaq is still 8.5 percent below its all-time high of 2,652.05, set last month.
“There’s good news out there, for example, earnings growth is strong,” said Elaine Garzarelli, president of Garzarelli Capital. “We believe earnings for the S&P 500 will rise 13 percent this year, with 19 percent growth in the third quarter.”
Strong earnings and low interest rates should continue to propel stocks higher, she said.
International Business Machines accounted for more than one-third of the Dow’s rise yesterday, after Big Blue split its shares 2 for 1. It gained 151/16 to 2361/4.
Other technology companies also advanced. Microsoft rose 21/4 to 78, while Cisco Systems jumped 43/4 to 1091/8.
The most active stocks included Citigroup, up 115/16 to 6411/16; AT&T, down 3/16 to 571/4; and MCI Worldcom, up 213/16 to 861 16.
At the New York Stock Exchange, there were 15 advancing stocks for every 14 decliners. Some 178 stocks hit 52-week lows, while 108 rose to new highs.
U.S. bonds fell for the first time in four days, as investors flooded back into the stock market.
The yield on the benchmark 30-year Treasury bond rose 6 basis points to 5.80 percent.