Stocks rise on Cisco results, Fed statement
EmptyNEW YORK -- Stocks surged Wednesday as solid results in the technology arena and renewed demand for risky debt soothed investors a day after the Federal Reserve said the economy should keep expanding.
However, a late-day plunge and recovery revealed investors' persistent unease over how problems in lending might hurt corporate America, despite the Fed's assurances.
The Dow Jones industrial average initially surged more than 190 points, dropped into negative territory in the last hour of trading, reportedly on rumors that Goldman Sachs would release some negative news. When that speculation disappeared, the Dow rebounded to finish up more than 150 points.
On the whole, Wall Street was pleased to hear that computer network equipment maker Cisco Systems Inc. posted a 25% jump in quarterly profit and raised its revenue forecast for the year. The upbeat technology news, along with strong recoveries in the beleaguered financial and homebuilding sectors, came a day after the Federal Reserve suggested that the lending environment isn't difficult enough to trip up the economy.
The Fed's suggestion that it wasn't overly worried about the credit markets appeared to reinvigorate them: Risky, high-yielding corporate bonds rose, while safe, low-yielding government bonds fell.
However, the stock market's movements Wednesday showed that sentiment can turn quickly. The stock market has been ricocheting up and down in recent weeks on worries that borrowing will get tougher because of losses in the subprime mortgage market.
"It's hard for me to envision that all the potential problems with subprime have been resolved in two days," said John O'Donoghue, co-head of equities at Cowen & Co. "We'll have to see how the dust settles here in the next few days ... I don't think the market has made up its mind what it wants to do."
According to preliminary calculations, the Dow rose 153.47, or 1.14%, to 13,657.77.
The Standard & Poor's 500 index rose 20.77, or 1.41%, to 1,497.48.
The technology-dominated Nasdaq composite index added 51.38, or 2.01%, to 2,612.98.
The Russell 2000 index of smaller companies gained 21.53, or 2.78%, to 795.66.
Bonds plummeted as stocks rose, with the yield on the 10-year Treasury note rising to 4.85% from 4.77% on Tuesday.