Takeover Issues Give Stocks a Small Boost
The stock market struggled to a small gain Wednesday after renewed interest in takeover issues helped the market recover from an early slide triggered by a fall in the dollar as traders returned from the July 4 holiday.
“The focus is on special situations, on rumors about buyouts or restructurings,” said George Pirrone, senior trader at Dreyfus Corp. Post-holiday trading was otherwise generally dull, brokers said.
The Dow Jones index of 30 industrials closed with a 3.79-point gain at 2,456.56. The key index had been down about 15 points at its mid-morning low in reaction to the dollar’s fall below 1.9 West German marks for the first time in two months.
Advancing issues outnumbered declines by about 3 to 2 in nationwide trading of New York Stock Exchange-listed stocks.
Volume on the floor of the Big Board came to 127.70 million shares, up from Monday’s 2 1/2-year low of 68.87 million.
The market recovered around noon, helped in part by futures-related buying. “But it’s hard to get a rally (going) this week,” Pirrone said. “Some people have decided to take the whole week off.”
Concern Over Slowdown
Investors also were cautious Wednesday as it was the first day of a two-day meeting of the Federal Reserve’s policy-making panel. Economists expect the central bank will move to ease credit soon to ward off a possible recession.
A few economists worry that the Fed, which tightened credit for a year up to March, 1989, may have erred too much toward restraint in its effort to curb inflation.
“There’s concern about a significant slowdown, not just a soft landing,” said Michael Metz, market strategist at Oppenheimer & Co.
“Investors are walking away from the arena,” he said. An economic slump would tend to erode corporate profits and reduce the attractiveness of stock holdings.
Many investors are waiting for Friday’s unemployment figures to get an indication of how the economy performed in June, traders said.
Philip Roth, a technical analyst at Shearson Lehman Hutton, said that while the market’s advance Wednesday was small, “it has been able to do well in the face of a fairly weak dollar and fairly weak bonds. I like the action.”
The dollar dropped nearly four pfennigs to close at 1.8832 West German marks on expectations of declining U.S. interest rates. Treasury bond prices tracked the currency’s decline.
The Federal Open Market Committee, the central bank’s policy-setting group, is meeting this week to consider what to do next. Evidence of its decisions may be forthcoming soon in the credit markets.
Fed policy and sentiment about interest rate prospects may well also be influenced by the Labor Department’s report Friday on the employment situation for June.
Gainers among the blue chips included Merck, up 1/4 68; American Telephone & Telegraph, up 1/2 at 35 1/4; General Electric, up 1/8 at 52 1/4, and Exxon, up 1/8 at 44 1/8.
Japanese stocks were strong for the second straight session. Matsushita rose 10 to 175, Pioneer Electronics soared 5 1/2 to 55 1/2, Honda Motor added 1 7/8 to 28 3/4, Hitachi rose 7 to 116 3/4 and TDK was up 3 to 86.
Prices closed firmer on the Tokyo Stock Exchange, but political and economic uncertainties held the advance in check. The 225-share Nikkei index rose 119.33 points to close at 33,309.71. It fell 46.04 points Tuesday.
On the London Stock Exchange, prices closed lower in light trading. At the close, the Financial Times 100-share index ended at 2,162.9, down 11.5.
Credit
Bond prices also followed the dollar lower, while short-term interest rates fell sharply amid continued speculation the Federal Reserve will ease its credit policies.
The Treasury’s bellwether 30-year bond fell 23/32 point, or about $7.19 per $1,000 face amount. Its yield, which moves inversely to price, jumped to 8.12% from 8.06% late Monday.
The financial markets were closed Tuesday for the Fourth of July holiday.
Bond traders attributed the downturn to the dollar’s across-the-board decline against foreign currencies. They also said heavy selling of U.S. bonds in Japan helped depress prices, with some pointing to the sale of $500 million of 30-year securities by a trust bank there.
Traders said the Japanese are concerned that the dollar would continue to decline as the Fed eases short-term interest rates to prevent the U.S. economy from falling into a recession.
Analysts said the only good news for the bond market was a 20% decline in auto sales in late June, indicating a slowing economy that makes long-term government securities such as bonds more attractive.
In the secondary market for Treasury securities, prices of short-term government issues rose 1/16 point, intermediate maturities were up 3/32 point to down 3/16 point and long-term issues dropped from 13/32 point to 23/32 point, according to Telerate Inc., a financial information service.
The federal funds rate, the interest on overnight loans between banks, was quoted at 9.375%, down from 9.438% late Monday.
Commodities
Corn, soybean and oat futures prices soared their permitted daily limits amid crop-threatening weather forecasts, leading a broad rise in commodity prices on U.S. futures exchanges.
Prices for future deliveries of wheat, cattle, coffee, precious metals and crude oil also rose sharply.
The exceptions to the rule were just as dramatic: Pork and sugar futures prices plunged.
On the Chicago Board of Trade, most corn contracts settled up the 10-cents-a-bushel limit, with the contract for delivery in July, which is not bound by the price limit, finishing 11.75 cents higher at $2.8375 a bushel; soybeans were up the 30-cent limit across the board except for the July contract, which rose 36 cents to $7.765; oats were 10 to 11 cents higher, with July at $1.68 a bushel, and wheat was 5 to 9.50 cents higher, with July at $4.04 a bushel.
The Board of Trade announced after the close that because of the limit-up closes in corn, soybeans and oats, the price limits in those markets would be expanded today by 50% through Monday in accordance with the exchange’s rules.
The run-up extended a rally begun on Monday--the markets were closed Tuesday for the holiday--and stemmed from a National Weather Service six-to-10-day forecast issued after the close of trading Monday, predicting below-normal rainfall in the Corn Belt.
Analysts said the likelihood of temperatures in the 90s in the Midwest later this week also bodes ill for the corn crop, which has entered its pollination phase and requires cooler, wetter conditions.
“Extreme heat with no moisture is an absolute no-no for corn this time of year,” said Jerry Zusel, Balfour Maclaine Corp.’s manager of trading floor operations at the Board of Trade.
Dry heat won’t do much harm to the soybean crop in its current stage of development, he said, but the strong rally in corn triggered heavy buying in all of the neighboring grain pits.
Soybean prices also were supported by the growing perception that extremely wet field conditions in the South and Southeast will prevent farmers from planting soybeans on land from which winter wheat is now being harvested, a common practice called “double-cropping.”
Frozen pork futures closed limit-down for the second consecutive session on the Chicago Mercantile Exchange as the market continued to reel from last Friday’s quarterly Agriculture Department hogs and pigs inventory, which showed fewer animals than the market had expected.
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