The stock market surged Monday, with the Dow Jones industrial average jumping nearly 170 points, as Wall Street welcomed the Bush administration’s decision to tap Ben Bernanke as Federal Reserve Chairman Alan Greenspan’s successor.
The head of the president’s Council of Economic Advisers and widely thought to have been the front-runner for the job, Bernanke is considered to have a less aggressive position in the fight against inflation than Greenspan has.
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The longtime Princeton professor and former Fed governor, who accepted the job as top White House economist five months ago, “should be considered a dove as far as interest rates are concerned,” said Colin Robertson, director of fixed income at Northern Trust.
Stocks soared because many traders interpreted the Bernanke appointment as a signal that the Fed’s 16-month-long program of interest rate hikes now is more likely to end sooner, rather than later.
Equity markets, which were strengthening Monday morning, climbed further after reports indicated Bernanke’s appointment was soon to be announced.
The upturn accelerated following the noon announcement, and by day’s end the Dow had surged 169.78, or 1.7 percent, to a close of 10,385.
The rally, the largest single-day advance since April, was in marked contrast to the downward trend that has gripped stocks since the start of October, and it wasn’t limited to the blue chips.
The broader Standard & Poor’s 500 index rose 19.79, or 1.7 percent, to 1199.38. The tech-heavy Nasdaq composite index climbed 33.62, or 1.6 percent, to close at 2115.83. The Russell 2000 index of smaller companies gained 13.87, or 2.2 percent, to 646.60
Bond markets, however, appeared distinctly less enthusiastic about the Bernanke news. The benchmark 10-year Treasury note fell 14/32, to yield 4.44 percent.
Observers suggested that the unease in the bond markets was more a reflection of generalized worry regarding the Feb. 1 change of leadership at the Fed. Treasuries weakened sharply 18 years ago, for example, when the now-lionized Greenspan was first named to succeed Paul Volcker.
Monday’s reaction was much more muted.
“The [Treasury] markets will be a little bit more volatile,” predicted Robertson, but over time, despite Monday’s weakness, “I believe the market will look at the nomination more constructively.”
Many people, he noted, “think the Treasury market will continue the same path it’s been following” after Greenspan hands the job off to Bernanke.
As a known quantity with a reputation for being moderately pro-Wall Street, Bernanke represented an “easy choice” for a Bush White House that’s embattled on other fronts, including the controversial Harriet Miers nomination to the Supreme Court, said Michael Benhamou, managing partner of Louis Capital Markets.
Wall Street may find Bernanke “easier to understand” than the hard-to-pin-down Greenspan, Benhamou said. And his “pro-growth” bent makes him less concerned than Greenspan about a bubble in the housing sector, which could bode well for housing stocks, he said.
“To the extent that the [Treasury] market prices in a `risk premium’ to a new Fed chairman, Bernanke’s premium should be relatively narrow, and less than other candidates would have received,” said Nomura economist David Resler.
The market also got a boost from a further decline in the price of oil. In New York Mercantile Exchange trading, oil for December delivery dropped 31 cents, to $60.32 a barrel.
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