Interest Rate Hopes Lift Stocks; Dow Gains 7.16 : Market Overview
Highlights of Friday’s market activity, compiled from Times staff and wire reports:
* Treasury bond yields plunged on data indicating the economy remains weak and inflation is under control. The yield on the Treasury’s 30-year bond tumbled to 7.88% from 7.96% Thursday.
* Stocks rose modestly, buoyed by investor hopes for another cut in interest rates. The Dow Jones industrial average rose 7.16 points to 2,983.68, stretching its gain for the week to 21.96 points.
Stocks
In the broader market, advancing issues outnumbered declines by about 3 to 2 on the New York Stock Exchange.
Big Board volume slipped to 148.85 million shares from Thursday’s 164.24 million.
“People are expecting a rate cut,” said George Pirrone of Dreyfus Corp. “My feeling is as long as there’s anticipation that it is coming, people are still going to buy stocks.”
Underlying the belief that the Federal Reserve will move to cut rates was a report from the Labor Department that prices at the wholesale level rose a slim 0.1% in September, suggesting that inflation remains under control.
Low inflation is widely regarded as a condition for the Fed to lower rates to stimulate the economy.
Meanwhile, the Commerce Department reported that retail sales rebounded 0.7% in September, the largest gain in four months and better than expected.
But economists focused on an anemic 0.1% rise in retail sales excluding the volatile auto category, which indicated that consumer spending overall remains weak.
Analysts said weak consumer spending and slow growth in key industries such as automotive and retail are prompting investor caution in the early stages of the third-quarter reporting period.
“Some companies that are coming in with better-than-expected earnings are giving the market a nice bump,” said Thomas Foley, senior vice president at Unity Management Inc. “If they’re weak, you get your head handed to you on a plate.”
Among the market highlights:
* Many industrial stocks weakened on renewed concerns about the economy, despite the feeling that further interest rate cuts are coming. PPG Industries plunged 2 7/8 to 48 5/8 after reporting disappointing earnings.
Other industrial losers included Owens-Corning, off 2 to 32; steel firm Lukens, down 2 5/8 to 41 3/8; GE, off 3/4 to 66 1/2, and Deere, down 7/8 to 50 1/2.
* Some retail stocks rebounded from declines earlier in the week that were spurred by poor consumer spending figures. The Limited added 1 to 22 3/4 after a Smith Barney, Harris Upham analyst reiterated a “buy” rating. Other gainers included Nordstrom, up 1 1/4 to 37; Dayton-Hudson, up 1 1/8 to 67 3/4, and Dillard, up 4 1/8 to 126 1/8.
* Hilton Hotels closed up 2 3/8 at 39 5/8. Late Thursday, Hilton released third-quarter earnings that some analysts said exceeded their expectations. Meanwhile, casino firm Circus Circus slid 1 1/4 to 35 1/2, continuing a recent selloff.
* Schlumberger rose 2 3/4 to 67 5/8 after a Paine Webber analyst said he raised his rating on the oil field services company to “buy.”
* Pacific Enterprises, parent of Southern California Gas and Thrifty drugstores, slumped 2 1/4 to 26 3/8 on the heels of the resignation of its Thrifty chief. Prudential Securities downgraded the stock to a sell.
Overseas, London stocks closed lower. The Financial Times 100-shares average dropped 15.8 points to 2,555.0, putting the week’s loss at 69.9 points.
In Frankfurt, the 30-share DAX index ended up 0.47 points at 1,568.42.
In Tokyo, stocks ended lower in thin trading. The Nikkei average closed down 327.54 points at 24,157.72.
Credit
The Treasury bond market closed early before the Columbus Day weekend, but not before bond yields plunged on the wholesale inflation report. The bond market will be closed Monday.
The Labor Department reported that wholesale prices rose a tiny 0.1% in September. The rise in the producer price index indicated that inflation isn’t a threat to the economy. Thus, many traders rushed to lock in bond yields again, figuring the Federal Reserve now has more leeway to further reduce interest rates to help the economy.
The price of the key 30-year Treasury bond climbed 15/16 point, or $9.38 per $1,000, sending its yield down sharply. The closing yield, at 7.88%, compares to 7.78% a week ago. At midweek, the yield soared to almost 8% on worries that the Fed would balk at another rate cut.
Economists said the federal funds rate, the rate banks charge each other for overnight loans and a key indicator of interest rate movements, was quoted at 5%, down from 5 1/16% late Thursday. But economists said the move was technical and not a sign of easing.
Currency
The dollar settled broadly lower on world currency markets in choppy trading after the better-than-expected report on inflation raised the possibility of new interest rate cuts.
“The dollar was driven down considerably in an immediate knee-jerk reaction,” said Randolph Donney, research director at Pegasus Econometric Group in Hoboken, N.J. “There is no reason for the Fed not to ease at this phase.”
The dollar fell to 1.690 German marks in New York from 1.696 Thursday. It fell to 129.58 Japanese yen from 130.35.
Other late dollar rates in New York, compared to Thursday’s rates, included: 1.480 Swiss francs, down from 1.485; 5.758 French francs, down from 5.778; 1,264.00 Italian lire, down from 1,268.25, and 1.129 Canadian dollars, down from 1.129.
Commodities
Soybean futures prices took a battering on the Chicago Board of Trade as the market adjusted to prospects of a huge crop.
On other markets, orange juice futures soared more than 25% above Thursday’s price; platinum moved sharply higher and other metals advanced; and livestock and energy futures were mixed.
Soybean futures opened down the daily trading limit of 30 cents a bushel, an expected drop after the USDA late Thursday placed the current crop at 1.934 billion bushels, 6% above the forecast of a month earlier.
November soybeans closed at $5.45 1/2 a bushel, down from $5.81 3/4 a week ago.
On the Comex in New York, near-term gold settled $1.10 higher at $359.90 an ounce; December silver was up 7 cents at $4.15.
Energy futures were mixed on the New York Mercantile Exchange. Light, sweet crude oil for November delivery was 11 cents higher at $23.09 a barrel.
