Financial Markets : Stocks Bounce Back After Dip; Dow Rises 5.86
The stock market shook off an early slump as a modest, late rally just overcame the investor profit taking that had held stocks lower for most of the day. The Dow Jones average of 30 industrials closed up 5.86 points at 2,483.87.
Advancing issues outnumbered decliners by a margin of about 8 to 7 in nationwide trading of New York Stock Exchange-listed issues.
Volume on the floor of the Big Board came to 178.60 million shares, down from 187.69 million in Tuesday’s session.
Blue chips began the day lower as investors took profits on the market’s recent rally and only started to edge onto higher ground in late afternoon trading following a rally in the bond market.
Market analysts expressed surprise at how little the stock market has sold off following last week’s climb, which took the Dow industrials above 2,500 for the first time since October, 1987.
“It’s a consolidation day,” said Philip Roth of Shearson Lehman Hutton. “Given the fact that the market has had such a big run, it’s not giving up a lot of ground.”
“I think the market is holding remarkably well,” said Trude Latimer of Josephthal & Co. “It should be coming down, but it isn’t.”
Analysts said the market was trendless for most of the day, with some investors taking profits amid mostly balanced buying and selling. Late in the day, however, traders said selling dried up.
“The market was pretty uneventful overall,” said Eugene Peroni, technical analyst with Janney Montgomery Scott. “The perceptions were mixed with respect to what the Fed is going to do.”
“Most of the interest was in stocks thought to be potential takeover targets,” Peroni said. “But there really was not any one focal point for the market today.”
Tuesday’s session focused on activity in the currency markets, with stocks declining amid speculation over whether the Federal Reserve would push U.S. interest rates lower to stem the rising dollar or whether Japan would raise its discount rate to support the falling yen.
Many analysts said Wednesday that despite earlier concerns that the dollar might be rising too fast--which could have negative implications for the U.S. trade deficit--the market continued to view the stronger dollar as an overall positive. The dollar strengthened further against the Japanese yen and major European currencies on Wednesday.
Market activity is expected to slow over the next two days going into the long Memorial Day weekend and then resume an upward trend next week, traders said.
Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 208.58 million shares.
Among actively traded issues on the NYSE, Avon Products added 1 1/8 to 35 7/8 on speculation that the cosmetics company may be the target of a hostile bid from Irwin L. Jacobs.
Oil stocks also showed broad-based gains, with Texaco up 1 to 55 5/8, Exxon 1/8 higher to 43 3/4 and Chevron up 7/8 to 56.
Shares of Gordon Jewelry jumped 6 3/8 to 36 1/8 after Zale Corp. said it signed a definitive merger pact to acquire Gordon for $36.75 a share in cash.
Merck continued to decline, losing 1 1/8 to 68 7/8. Other weaker drug stocks were Eli Lilly, off 3/8 to 55 7/8, and Warner-Lambert, down 1/4 at 88.
IBM gained 1/4 to 109 3/4, Prime Computer rose 1 to 16 3/8, and Digital Equipment slipped 2 1/2 to 92 1/8.
Warner Communications, meanwhile, fell 1/2 to 51 3/8, Ford fell 3/4 to 47 3/8, and Union Carbide lost 1/8 to 27 1/8.
In Tokyo, stock prices closed mixed in sluggish trading as investors awaited a rise in the discount rate to counter the dollar’s recent surge. Despite the worries, the Nikkei 225-share index closed up 35.21 points at 33,851.82, after dropping 251.25 points Tuesday.
Share prices fell sharply on the London Stock Exchange following a rise in key British lending rates. The Financial Times 100-share index fell 18.9 points, or 0.9%, to close at 2,132.7.
Currency
The dollar resumed its climb against all key currencies except the British pound and Swiss franc, breaking the 143-yen level overseas and hitting a 1 1/2-year high against the Japanese currency in domestic trading.
“It’s like a train. You can’t step in front of it or you’ll get run over,” said one investment banker, Jay Goldinger of Beverly Hills-based Capital Insight.
Meanwhile, gold prices were up domestically after losing in Europe and rising in Hong Kong. Republic National Bank of New York said the late bid for an ounce of gold was $362.40, up 55 cents from Tuesday’s close.
Currency dealers said trading was volatile here and overseas, with the dollar starting out weak after a mixed performance Tuesday but ending stronger in the absence of significant central bank intervention or signs of policy changes geared toward stabilizing exchange rates.
The British government boosted interest rates, which helped the sagging pound. But dealers said there was no indication that either West Germany or the United States would change their rates, and they said that helped strengthen the dollar.
Traders said the dollar firmed after reports of West German Bundesbank officials dismissing speculation that they would hold an emergency policy-setting meeting to possibly raise interest rates to support the mark.
After concerted central bank intervention Tuesday and dollar selling by the Bank of Japan on Wednesday, no central bank besides the Bank of England was evident in the European open market Wednesday.
Commodities
Energy futures prices climbed on the New York Mercantile Exchange, reflecting increased confidence that the OPEC nations will agree on production quotas for later this year.
On other markets, grain and soybean prices drifted lower, precious metals finished mixed, and livestock and pork prices plunged.
There had been speculation in the energy market that the Organization of Petroleum Exporting Countries would be unable to agree at its June meeting on production quotas for the second half of the year. There is greater confidence now, reflected in prices, that an agreement will be reached, said Robert Baker, an energy analyst for Prudential-Bache Securities in New York.
West Texas Intermediate crude oil was 44 cents to 62 cents higher, with the contract for delivery in July at $19.66 a barrel; heating oil was 1.75 cents to 2.11 cents higher, with June at 49.61 cents a gallon; unleaded gasoline was 1.13 cents to 2.59 cents higher, with June at 66.83 cents a gallon.
Grain and soybean futures drifted lower on the Chicago Board of Trade as rain continued to fall in growing areas.
“The price of the new-crop corn and soybeans were reflecting enhanced soil moisture,” said Ted Mao, an analyst for Shearson Lehman Hutton in New York.
Soybean futures suffered as some private forecasts suggested that the National Weather Service 6- to 10-day outlook will indicate above-normal rain in crop areas.
Wheat prices were up with news from exporters that Egypt bought about 300,000 metric tons of U.S. soft red winter and soft white wheat.
Corn prices were down but higher than the day’s low because of technical support and spillover from a rally in soybean futures.
Credit
Bond prices edged lower in what analysts called a technical consolidation in response to the market’s recent gains.
The Treasury’s bellwether 30-year bond fell 1/8 point, or $1.25 per $1,000 in face amount, while its yield, which moves inversely to its price, rose to 8.62% from 8.61% late Tuesday.
“The market has to sort of consolidate at these new levels and maybe give a little ground before it can move higher,” said Nancy Vanden Houten, a money market economist with Merrill Lynch Capital Markets.
Robert Brusca, chief economist with Nikko Securities Co. International, said that despite the small decline, the market showed continued strength.
“The bond market started out the day sort of in the hole, but for the most part it dug itself out,” he said.
Brusca noted that both the credit and stock markets have been strong lately, “and we’re seeing bonds and stocks holding up at very high levels.”
Both analysts said bond traders largely shrugged off a new round of interest rate hikes in Britain. The Bank of England increased its key lending rate a full percentage point to 14%, and British commercial banks subsequently raised their prime lending rates.
The federal funds rate, the interest on overnight loans between banks, traded at 9.75%, up from 9.68% late Tuesday.
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