Stocks Extend Rebound from Friday's Retreat
Dec. 09, 1996
NEW YORK (AP) _ Stocks were rising on major world exchanges today, recovering much of the ground lost Friday when the chairman of the Federal Reserve questioned whether investors had gone too far in bidding up share prices.
With a weekend of reassess the remarks of Fed chief Alan Greenspan and encouraged by comments from Treasury Secretary Robert Rubin that the U.S. economy was basically in good shape, traders went bargain hunting.
In afternoon trading in New York, the Dow Jones industrial average was up more than 40 points, recouping nearly all of Friday's drop of 55.16. At one point early in Friday's session, Wall Street's best-known indicator had plunged up to 145 points in response to remarks the night before by Greenspan.
The Nasdaq composite index, which lost almost 12 1/2 points Friday, was up more than 18 points, or by almost 1.5 percent, in afternoon trading.
Traders overseas, who missed Friday's late start of a recovery in U.S. markets, were buying today.
In Tokyo, the Nikkei Stock Average, which fell 3.19 percent Friday, bounced back 327.01 points today, or 1.61 percent.
Prices were higher in London, Frankfurt, Paris, Milan and Amsterdam, with key stock indices closing anywhere from about half a percentage point to about 2 percentage points higher.
``Europe is catching up with what happened in the U.S. after our markets closed,'' said David Aserkoff, an equities strategist at CS First Boston in London.
Treasury Secretary Rubin helped calm jitters during the weekend.
``All (Greenspan) was seeking to do was widen the intellectual debate'' on the current course of the market, Rubin said Sunday on NBC's ``Meet the Press.''
Markets on Wall Street and around the world dipped sharply Friday after the head of the nation's central bank asked in a speech whether ``irrational exuberance has unduly inflated asset values.''
Many had interpreted Greenspan's remarks as suggesting that the market is rising too quickly and that the Fed will step in with an interest rate rise.
But Rubin, while stressing it was not his place to predict market movements, said the markets should continue to reflect the strong economy.
``Stocks will follow fundamentals, and we've had good fundamentals and for good reasons, given the policies the president's put in place,'' said Rubin, a former Wall Street investment banker.
He said the economy will remain robust if the administration and Congress can work together, as they have promised to do, on such matters as balancing the budget.
Rubin said he and Greenspan have discussed the market occasionally and he was aware the Fed chairman might express his opinion at some point. But he added there was ``certainly not an attempt by the government'' to use the power of Greenspan's comments to cool off what some economists worry is an overly rapid rise in stock values.
Senate Majority Leader Trent Lott, R-Miss., said Greenspan's power to move the market with a single comment made him ``a little nervous'' about the central bank's independence from the administration and Congress.
``I try not to be a Fed basher, but I sometimes think they focus too much on one side of the equation rather than the broader basket of things,'' Lott said on ``Fox News Sunday.'' ``And I'm a little nervous about the degree of independence they have.''
Rep. John Kasich, R-Ohio, chairman of the House Budget Committee, said it would be beneficial if Greenspan's comments ward off the need for an interest rate increase. ``I think what Mr. Greenspan is saying is that he's concerned about this economy. I am, too,'' Kasich said on NBC.
The GOP lawmaker disputed Rubin's assertions that the economy is healthy. He cited ``very, very feeble'' improvements in wages and an ``undercurrent of fear'' among Americans about the future.
Kasich urged President Clinton to take the lead in changing the formula for determining the Consumer Price Index, thought by many to be a key to any long-term balancing of the budget.
Republicans, stung by Democratic ``demagoguery'' on the issue of Medicare during the election, are not going to go it alone on the CPI, Kasich said. ``We are willing to work with (Clinton) and this is an opportunity for him to show real leadership. I hope they don't blow this chance,'' he said.
A report to Congress last week confirmed what most economists have long asserted _ that the way of calculating cost-of-living increases for beneficiaries of Social Security and other federal programs overstates the real inflation rate. By trimming the rate 1.1 percentage points, the government could save $1 trillion over the next 12 years, economists estimate.
But neither party is willing to tackle alone the politically sensitive issue of restricting future increases in benefit payments.
``This shouldn't be political points,'' Sen. Pete Domenici, R-N.M., chairman of the Senate Budget Committee, said on CNN's ``Late Edition.'' ``The cost-of-living increase should be accurate, refined and provide inflationary protection, no more and no less.''
Franklin Raines, director of the White House Office of Management and Budget, said it was not a question of who should go first, the White House or Congress, on revamping the index.
``I think that the issue really is one of can we, in a cooperative way, focus on accuracy and move so that we are moving in tandem. And that's a pledge that I've made to (lawmakers) and I'll make again today,'' he said on CNN.