If Alan Greenspan meant to squelch inflation fears by raising interest rates, he failed.
Wall Street gyrated Wednesday, falling more than 53 points in the opening minutes on inflation fears. Traders showed up in the morning to find that overseas markets had boosted the rates on 30-year Treasury bonds within hailing distance of 7 percent (6.92 percent to be exact).
Markets around the world were heading lower, some dramatically so, and for the same reason. Analysts around the globe pointed to the Federal Reserve’s Feb. 4 quarter-point increase in short-term rates, and especially fears of more hikes to come, as the basis for the drops in their markets.
With Japan and Europe in recession, world markets have become acutely sensitive to changes in the U.S., the strongest of all global economies.
But by midday, interest rates eased and blue-chip stocks, which benefit from strong economic activity, were on the rise, driving the Dow Jones industrial average into positive territory. The rally was not broad-based; decliners outnumbered advancers 2 to 1.
Traders had decided, at least for the moment, that the interest rate rise was overdone.
At the end of the day, which turned out to be the biggest turnaround day since Jan. 2, 1992, the Dow industrial average recorded its first positive close in a week. It rose 22.51 points to 3831.74. Broader indexes were mixed.
The Nasdaq index fell 5.17 to 783.47. The S&P 500 index inched up by 0.37 to 464.81. Volume was heavy, with nearly 364 million shares changing hands.
The benchmark 30-year bond closed unchanged from Tuesday’s 6.78 percent.
World markets still open when the comeback rally began also climbed back from steep losses. The Argentine stock market had a much wilder session than Wall Street.
The Argentine market opened sharply lower in sympathy with action on Wall Street, with the general index dropping by 6.2 percent at its lowest point. When the U.S. market turned upward, so did Argentina, closing the day up more than 1 percent.
That index had fallen more than 16 percent in the last few days, due in part to inflation jitters in the U.S.
In Mexico, stocks ended nearly 2 percent higher. The Mexican market has fallen nearly 14 percent from its all-time high established Feb. 8.
More Top Picks Best Docking Stations
The story was much the same in Canada, where stocks initially fell nearly 1.4 percent, then rallied. The Toronto Stock Exchange 300 composite index ended the session down 28.23 to 4362.20 after falling as much as 62 points.
Analysts in all those countries as well as Europe and Asia cited U.S. interest rates and the possibility of renewed inflation as primary causes for the declines.
In countries where trading had already ended when the U.S. rally occurred, markets generally finished lower.
Britain’s FT-SE 100 index declined 22.5 to 3248.1; France’s CAC 40 index fell 38.46, or 1.8 percent, to 2144.66; and Japan’s Nikkei 225 index fell 471.85 points, or 2.3 percent, to 19744.77.
Such global market instability perhaps inevitably brought speculation that the bull market that began in 1990 is ready to be put out to pasture.
Elaine Garzarelli, who became almost a cult figure after prophesying the 1987 October stock market crash, said Wednesday she has become less bullish. Garzarelli, chief market analyst at Lehman Brothers, has been a leading bull on U.S. stocks.
In a report, she said her market composite of 14 indicators had declined to a reading of 57.5 percent from 63.5 percent because of concern about rising short-term interest rates.
Heartland report
Interest rate fears are real enough, but so is an accelerated level of U.S. economic activity.
When the stock market turned around, it was big blue chips, generally companies that make substantial items, that led the rally.
All the auto stocks closed higher. General Motors gained $2.37 to $60.50; Ford Motor was up $1.62 to $63.87; and Chrysler rose $1 to $57.37.
Heavy machinery-makers also saw substantial gains. Caterpillar rose $3.12 to $112, and Deere picked up $1.25 to $85.12.