Wall Street stocks took news of an interest rate hike in stride Tuesday, although Treasury bonds leaped after the Federal Reserve seemed to indicate a quarter-point rise in a key lending rate, to 3.5%.
The Fed has said previously it intends to safeguard the growing economy from inflation by preemptively raising interest rates, a bearish harbinger for bonds and stocks, particularly issues such as highly leveraged cable companies, utilities and banks.
“Any stocks that are rate-sensitive should continue to come under pressure,” said Bob Walberg, equity analyst at MMS Intl. But “the market got just what it was looking for — enough tightening to curb inflationary pressures but not enough to stifle the economy,” he added.
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Traders said while the cable sector’s long-term outlook is dimming because of the combination of rising interest rates and cable rate cuts, the sector performed fairly well Tuesday on relief the Fed had only raised its fed funds rate by a quarter-point, not more.
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Among cable stocks, Tele-Communications Inc. rose $ 1.13 to $ 24 per share, while Comcast edged up 13 cents to $ 20.25 and Cablevision Systems added 50 cents to $ 60.63. Jones Intercable Class A slipped 38 cents to $ 14.88 and Adelphia dipped 25 cents to $ 16.25. The Dow Industrials finished the session 2. 30 points lower, the S&P 500 gained 0.26 points to 468.80 and the Nasdaq composite index shed 0.96 points to 796.34.
Tuesday’s move, which is expected to be confirmed today, mimics one on Feb. 4 that battered bonds and triggered a 97-point loss in the Dow Industrials. This time the market was expecting the central bank to act, and consequently had priced in the move ahead of time.
“This morning when they did not tighten (policy), people were very nervous,” said one stock trader at a large Wall Street firm. “Then when they did, people liked it. It’s crazy.”
Market participants who worried the White House may have pressured Fed Chairman Alan Greenspan not to raise rates for political reasons were reassured by Tuesday’s move.
After the Fed’s normal intervention time passed with no sign of a rate hike, the bank in mid-afternoon issued a statement saying it had decided to increase pressure slightly on reserve positions. It expected that move would accompany a small uptick in short-term interest rates.