Federal Reserve Chairman Alan Greenspan did not even say the words "stock market" but his proclamation Thursday that new technology is making the U.S. economy more productive helped Wall Street register its strongest two-week rally in 12 years and sent the Nasdaq market to a new high yesterday.
The Nasdaq composite index closed at 2966.43, up 3.2 percent for the day, 8 percent last week and 8.6 percent over the last two weeks.
Though still 600 points shy of the record high it hit in August, the Dow Jones industrial average gained 109.23 points yesterday to close at 10,731.76. The Dow ended the week up 261.51 points, or 2.5 percent, adding to last week's 450-point advance. The Standard & Poor's 500-stock index rose 20.49 points, to 1362.93, and was up 4.7 percent for the week and 9.2 percent in two weeks.
"The stock market correction is over," proclaimed Allen Sinai, chief economist at Primark Decision Economics. He said the latest assessments of inflation showed little sign that threat is returning. And Greenspan's comment Thursday that recent interest rate increases may be containing the inflationary threat calmed market fears.
Saying there is "much less reason for the Federal Reserve to raise rates," Sinai said he believes the stock market is "probably starting to head into the year-end rally."
The Fed chairman, Intel Corp. and the state of the economy were cited as the big factors behind the tech stock rally--an ironic reversal of fortune on all fronts.
Barely two weeks ago market watchers were blaming Intel, Greenspan and resurgent inflation in wholesale prices for a landslide of selling that gave the Dow its biggest one-day loss in more than a year and knocked more than 200 points off the Nasdaq over five trading days.
It was Intel's disappointing third-quarter earnings and Greenspan's warning that lenders ought to be prepared for a possible stock market slump that drove the market down.
Now, with better news for the economy, the tech sector is leading a market rally, and Intel is heading the pack as the most actively traded stock. Shares of the world's biggest microchip maker were up 5 1/4 at 77 3/8, a 7.27 percent gain.
Intel assured analysts Thursday that it will be able to churn out all the high-powered chips needed to keep up with unexpectedly strong demand for personal computers.
At the same time Greenspan said the economy is in good shape because corporate productivity is growing faster than expected--thanks to investments in computers and communications.
"Alan Greenspan's given the thumbs up to the tech revolution," said Alan Levenson, chief economist for T. Rowe Price, the Baltimore mutual fund company.
Greenspan, known for the deliberateness of even his most ambiguous comments, did not mention the stock market in remarks he made to a group of top business leaders about technology's productivity benefits, but Wall Street figured he had the market in mind.
Inflation--which reared its head in producer prices two weeks ago--has been a big deterrent to stock buyers, who feared the Fed would raise interest rates to keep the economy from picking up excessive speed.
The difficulty, Levenson explained, is that "there's uncertainty as to what the speed limit is." Greenspan has signaled that "the speed limit may be rising," he said, "because all the computer and telecommunications is increasing the speed limit and reducing the fines for speeding"--relieving pressure on the Fed to raise rates to stem inflation.
Friday marked the 70th anniversary of the Oct. 29, 1929, stock market crash that brought on the Depression, but Wall Street did nothing to mark the occasion.
"We are in the midst of a big rally, and it should carry through over several more sessions," said Alan Ackerman, senior vice president at Fahnestock & Co. "But that doesn't mean that this is going to last. We still have a bunch of big hurdles ahead of us before the Fed's next meeting in November."
Next Friday could be a crucial day, economists agreed. That's when the Labor Department will issue its report on payroll employment, which is another way of assessing how fast the economy is growing.