Magazine article American Banker

Bank Stocks Take off after Greenspan Hints Fed May Not Hike Rates

Magazine article American Banker

Bank Stocks Take off after Greenspan Hints Fed May Not Hike Rates

Article excerpt

Bank stocks surged Thursday after Federal Reserve Board Chairman Alan Greenspan testified at a congressional hearing that inflation was "quiescent" and economic growth sustainable.

His remarks indicated the Federal Open Market Committee may not raise rates at its meeting in August, despite signs of very strong economic growth in the second quarter.

Before his comments, the consensus Wall Street view was the Fed's monetary policy arm would tighten by 25 to 50 basis points.

Mr. Greenspan's statements sent equity markets sharply higher, and the yield on the Treasury's 30-year long bond fell below 7% in midday trading. Shares in banks, which are viewed as interest rate sensitive, rose immediately on the news. The Standard & Poor's index of major banks closed the day up 1.77%, while the overall S&P rose 1.50%. The Dow Jones industrial average rose 1.62%.

"The market was in need of some good news and we may have gotten it today," said Raphael Soifer of Brown Brothers Harriman & Co.

"Greenspan's comments that he expected the economy to slow on its own accord will benefit anything interest-rate sensitive," he said. "The bond market seems to be telling us the probability of tightening has lessened and that is favorable for interest rates, bonds, and stocks."

Large capitalization stocks, particularly money-center issues, enjoyed a hefty bounce from the chairman's remarks. These stocks tend to react more strongly to breaking news than smaller companies because program traders generally buy and sell shares in larger, more reognized companies. …

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