Another Dow Record as Cyclical Stocks Soar
Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* Blue chip stocks rose to record highs in very heavy trading, propelled by a surge of money into industrial stocks that would benefit from an economic recovery.
* The Dow Jones industrial average, up 60.60 points Tuesday, rose another 12.30 points to 3,258.50, hitting a new closing high for the sixth time in 10 trading sessions in 1992.
* Bond yields continued to inch higher as many big investors sold bonds to buy stocks.
Stocks
Investors bid aggressively for metals, forest products, airlines and other cyclical stocks that would benefit most from an improvement in business conditions.
Advancing issues outnumbered decliners by 5 to 3 on the New York Stock Exchange, as trading volume rocketed to 312.81 million shares from Tuesday’s 265.90 million.
Robert Stovall of Stovall/21st Advisers noted that investors were shifting their buying from the recent leaders--drug and food stocks--and rushing headlong into long-ignored industrial stocks. If the economy begins to grow significantly, orders for basic industrial goods would be expected to soar.
“This is a liquidity-driven bull market which anticipates an economic recovery,” said Heiko Thieme, manager of the American Heritage Fund. “The risk is that the recovery may not materialize, but I think there’s a more than even chance given the (Federal Reserve’s) willingness” to keep interest rates low.
Among Wednesday’s highlights:
* The industrial-stock surge was led by companies that make basic metals. Alcoa rocketed 4 5/8 to 67 1/8, Bethlehem Steel gained 1 1/8 to 14 3/4, Kaiser Aluminum jumped 1 1/4 to 12 1/2, and Reynolds Metals soared 4 1/4 to 55.
* Heavy-equipment companies were strong, including Caterpillar, up 2 1/2 to 45 1/8; Clark Equipment, up 1 7/8 to 24 1/2; Tenneco, up 2 to 35 1/4, and Deere, up 2 3/4 to 50 3/4. Litton Industries, a defense firm that has a division that designs industrial automation systems, rocketed 5 5/8 to 98.
* Among paper and lumber stocks, International Paper jumped 2 1/2 to 72 1/8, Georgia-Pacific soared 5 to 64, and Stone Container leaped 2 to 30 3/4.
* Computer-related companies, which also would benefit from an economic revival, continued their rally. IBM gained 3 to 95 3/8, helped by a strong buy recommendation from Shearson Lehman.
Digital Equipment rose 3 to 59, Hewlett-Packard jumped 2 1/2 to 63 1/4, and Motorola skyrocketed 7 to 77 5/8. Motorola on Tuesday said fourth-quarter earnings rose 17%.
* Bank and S&L; stocks also soared on optimism about the economy. Citicorp leaped 2 1/8 to 15 1/8, BankAmerica rose 1 5/8 to 41 1/2, Wells Fargo added 4 1/8 to 66 3/8, and Downey Savings jumped 1 1/4 to 13 1/2.
* Drug and biotech stocks were big losers, as profit taking set in and investors shifted dollars to cyclical stocks. Immune Response plunged 3 1/2 to 43 1/2, Johnson & Johnson dropped 5 1/4 to 108 3/8, Merck gave up 4 to 156 1/8, Amgen lost 4 1/2 to 73, and ALZA sank 2 5/8 to 49 5/8.
* Despite the industrial stocks’ rally, the Dow index’s 0.4% gain was once again overshadowed by smaller stocks: The NASDAQ composite index of small stocks rose 5.07 points, or 0.8%, to a record 630.82.
Overseas, investors rushed into German stocks, boosting Frankfurt’s DAX average 2.4% to 1,667.50. The 38.97-point gain came on hopes that German interest rates have peaked.
Stocks rose sharply in London, although prices ended off their session peaks. The Financial Times 100-share average closed 20.8 points higher at 2,537.1.
The Tokyo Stock Exchange was closed for a holiday.
Credit
The Treasury’s key 30-year bond lost 3/8 point, or $3.75 per face amount. Its yield, which rises when prices fall, climbed to 7.57% from 7.54% Tuesday.
Analysts said yields continued to inch up as some investors abandon bonds for stocks. “We’re seeing a great deal of money being sucked out of the bond market into the stock market,” said William Veronda, bond strategist at the Denver-based Financial Funds.
Some investors are also concerned that a reviving economy will mean that there’s no chance for still-lower interest rates.
The federal funds rate, the interest on overnight loans between banks, was at 3.938%, down from 4% Tuesday.
Currency
The soaring U.S. stock market and a growing belief that German interest rates have peaked sent the dollar higher against the mark and other major currencies.
It closed in New York at 1.625 German marks, up from 1.593 Tuesday, and at 128.66 Japanese yen, up from 126.85.
The greenback has been gathering momentum all week.
Dollar-buying has been encouraged by a growing sense that European interest rates have peaked, coupled with expectations of a recovery in the United States.
A stronger economy would attract more money to the United States, which would be positive for the dollar. Likewise, a peak in German interest rates would leave investors with less incentive to invest in German bonds, thus cutting demand for German marks.
Commodities
The question of whether the former Soviet Union can pay its U.S. food bills swept the Chicago Board of Trade, first depressing prices, then driving soybean futures up sharply.
“Soybeans and all the grains seem to be betting on the Soviets coming up with some money” to make payments on the principal of $1 billion in U.S. export loans, said Joel Karlin, an analyst with Research Department Inc.
Elsewhere, crude oil futures continued their recent seesaw pattern on the New York Merc, with light, sweet crude rising 38 cents to $18.85 a barrel. Oil fell 32 cents Tuesday.
Meanwhile, January gold futures declined on New York’s Comex to $354.70 an ounce, down 50 cents. Silver for January was 6.1 cents higher at $4.14.
Market Roundup, D8
