Stocks up despite grim news
RTGAM
There was enough bad news on Thursday to sink the stock market equivalent of a battleship, but in the end North American investors sailed through.
They dodged comments from Richard Fisher, president of the Federal Reserve Bank of Dallas, who warned that aggressive rate cutting on the part of the U.S. Federal Reserve could "juice up" inflation - the second comment in as many days that the tonic investors are counting on might not arrive. They steered clear of a dismal forecast from Cisco Systems Inc., made on Wednesday night after markets closed. And they just plain ignored the fact that European stocks fell sharply on renewed fears of a U.S. recession and a global slowdown.
North American stocks ended the day higher, despite some waffling earlier. The Dow Jones industrial average closed at 12,247, up 46.0 points or 0.4 per cent. The broader S&P 500 ended at 1336.91, up 10.5 points or 0.8 per cent. And Canada's S&P/TSX composite index ended at 12,925.37, up 58.17 points or 0.5 per cent.
In the end, investors may have ignored the near-term turbulence for what looked like a concerted effort on the part of the world's major central banks to cut rates and get the global economy humming again. The Bank of England did it on Thursday, trimming its benchmark by 25 basis points (or a quarter of a percentage point). And while the European Central Bank held rates steady on Thursday, initially causing some concern among investors who want a rate cut, it sent out the right message later in the day that it may be open to rate cuts this year.
Stefane Marion, an economist at National Bank Financial, noted that the global policy rate among the G7 developed economies, after adjusting for inflation, is negative for the first time in three years, which usually works a powerful dose of medicine for an ailing economy.
"There may still be a lot of uncertainty regarding the impact of a U.S. recession on the global economy, but the good news is that central banks are responding," he said.
Copyright 2001 The Globe and Mail
