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US Markets Move Up as Interest Rates Go Lower - 2001-10-02

U.S. stock prices moved modestly higher Tuesday, as the U.S. central bank cut short-term interest rates for the ninth time this year to their lowest level in nearly 40 years.

The Dow Jones Industrial Average went up 114 points (1.2 percent) to 8,951. The broader Standard & Poor's 500 Index climbed 13 points, (1.2 percent) to 1,051. The tech-weighted Nasdaq Composite Index closed 12 points (about 0.75 percent) higher at 1,492.

The rate cut was anticipated and welcome on Wall Street. The hope is that lower borrowing costs eventually will help turn the U.S. economy around. But the financial markets these days are dealing more with short-term reality, with A U.S. economy that was already fragile before the events of September 11. Almost no one sees any huge market moves to the upside any time soon.

Analysts say investor attitudes have changed, and have been changing all year, in response mostly to a bleak corporate earnings outlook. On Tuesday, investors showed once again a streak of caution, as they deal with a lot of economic uncertainty.

Economist Lyle Gramley says people seem to be pulling out of the shock that followed the September 11 terrorist attacks. He believes consumer activity, while somewhat diminished perhaps, will put the economy back on track sometime next year.

"I think there are some signs beginning to develop now where the public is returning to something more like normal behavior," he said. "Airline flights are filling up a bit. We're seeing more people go to movies last week than the week before. The shopping malls are filling up. If this continues, we'll get back to a more normal kind of behavior, certainly not to what we had before September 11, but more nearly normal economic behavior."

However, most analysts, including Mr. Gramley, concede recovery of the economy and the stock markets depends a lot on what happens in the war on terrorism. Byron Wien, an investment strategist with Morgan Stanley says, "You know, what you don't know is what the next event is going to be, if there's going to be another terrorist event. And you don't know the nature of our retaliation. So those are two big uncertainties. And the fact that they are there raises the risk premium for equities."

Experts note the U.S. central bank, in announcing the interest rate cut, acknowledged the possibility of continuing economic weakness for a while. It said the September 11 attacks heightened the degree of uncertainty.