Market Reacts to Low Interest Rates
THE Dow Jones industrial average has gained about 5 percent since Feb. 18, the day after President Clinton announced his plan to increase taxes as part of an economic recovery program also intended to cut the federal deficit.
Bond prices soared and the stock market jumped to record highs on March 8 in a new display of the powerful effects of tumbling long-term interest rates. A scarcity of attractive investments elsewhere has helped push Wall Street upward.
Democratic proposals in Congress to further cut the deficit by $63 billion exerted a powerful downward force on interest rates. The government's 30-year bond, an important barometer of long-term interest rate trends, sank to 6.72 percent on March 8.
The Dow average of 30 big-company stocks climbed 64.84 points to close at 3,469.42 on March 8, exceeding the previous high of 3,442.14 set Feb. 5. Markets also rose in Japan and Europe, creating a spillover effect that boosted buying here.
Low interest rates have led many companies - as well as individuals and governments - to refinance debt payments at the lower levels, saving money that could be used for economic expansion.