Dow Up 10.73; Caution Keeps Volume Light : Market Overview
* Pockets of strength helped carry stocks higher, but the advance came in slow trading. Caution about upcoming economic data dampened activity, though a report showing improvement in corporate dividend increases was a positive.
The Dow Jones industrials, down 41.59 points the past two weeks, added 10.73 to 3,234.12.
* Treasury bond yields surged again, as traders continued to fret about the government’s massive upcoming bond sale. Long-term bond yields topped 7.80%.
Stocks
The market’s increasing confusion and caution showed in the Dow’s movement: Several stocks in the index jumped sharply, while several others plunged. The end result of this “push me/pull you” action was a small move.
In the broad market, advancing issues outnumbered declines 9 to 8 on the New York Stock Exchange, where trading volume totaled 182.13 million shares, down from Friday’s 197.60 million.
Analysts said investors were cautious ahead of a meeting of Federal Reserve policy-makers this week, and ahead of Friday’s employment report for January.
“The market’s searching for direction,” said Hugh Johnson, chief investment officer at First Albany Corp. “The No. 1 positive is the groundswell of movement out of cash, but that’s hitting a wall of skepticism by institutional investors who feel the market has gone too far and too fast.”
The Fed meeting and the Friday employment report could provide new clues to the economy’s direction and that of interest rates.
“It’s clearly a time of transition for financial markets,” said A. C. Moore, analyst at Argus Investment Management. Investors are trying to look ahead to an economic recovery and better corporate profits, though doubts persist.
One positive note Monday: Standard & Poor’s Corp. said the number of companies raising cash dividend payments to shareholders totaled 124 in January, up from 112 in January, 1991. Also, the number of companies cutting or omitting dividends fell to 22 for the month from 52 a year earlier.
The trend in dividends has begun to improve in recent months, after two years during which dividend increases dwindled and cuts and omissions rose sharply. Better dividends suggest an improvement in corporate profits is under way.
Among Monday’s highlights:
* Auto stocks surged after GM declared its regular quarterly 40-cents-a-share dividend, allaying worries that the company might cut the payout. GM gained 1 5/8 to 34, Ford jumped 2 1/4 to 32 3/4, and Chrysler added 5/8 to 15.
* Within the Dow, big winners included Goodyear, up 1 5/8 to 62; IBM, up 1 3/8 to 91 3/8, and Disney, up 3 3/8 to 139 7/8. Big losers included Merck, down 2 3/4 to 154 3/8, and Procter & Gamble, off 2 7/8 to 100 7/8.
* Retail stocks were strong, suggesting more investors expect consumers’ caution to end soon. Penney rose 1 to 55 3/4, Home Depot gained 2 to 63 5/8, Toys R Us added 1 1/2 to 34 3/8, and May rose 1 to 55 7/8.
* Insurance stocks recovered from Friday’s steep losses, when news surfaced that the White House wants to end the tax benefits of many now-popular annuities sold by insurers. Over the weekend, the White House said its proposal wouldn’t affect annuities sold before the law is enacted, assuming in fact that it is enacted.
Among insurers, Broad gained 3/4 to 18 5/8 after falling 2 1/8 Friday, Aetna rebounded 2 to 43 1/2, and CNA Financial added 3/8 to 88 5/8.
* In a disappointment for the highflying biotech industry, U.S. Bioscience plummeted 13 1/2 to 17 3/4 after the Food and Drug Administration failed to approve the company’s drug Ethyol, which purportedly helps chemotherapy patients. Other biotech stocks were largely flat for the day.
* Among Southland issues, Caesars World rose 7/8 to 35 1/2. Its New Jersey casino saw revenue soar 46% in January from last year’s depressed level. Elsewhere, Jacobs Engineering rocketed 1 5/8 to 32 3/8, a new high. There was no news.
Overseas, Tokyo stocks extended gains to a third successive day. The 225-share Nikkei average was up 116.54 points to 22,139.59.
A steady opening on Wall Street buoyed London’s shares, but the Financial Times 100-share average still dropped 11 points to 2,560.2. In Frankfurt, the 30-share DAX average rose 1.52 points to 1,689.01.
Credit
The yield on the Treasury’s bellwether 30-year bond shot up to 7.82% from 7.75% Friday, as the bond’s price fell $7.50 per $1,000.
The bond’s yield has climbed nearly a half percentage point since year’s end.
Analysts said bond investors continued to sell on worries about the massive amount of new debt the Treasury will have to issue this quarter. On Wednesday, the Treasury will detail its plans for next week, when it will sell new three-year, 10-year and 30-year bonds.
Bond yields often shoot higher before such sales on worries that the market will have trouble absorbing the new supply.
Meanwhile, investors also fear that Friday’s January employment report could show a slight decline in the jobless rate--to 7% from December’s 7.1%. If so, that would take further pressure off the Federal Reserve to ease interest rates.
The fed funds rate, the rate on overnight loans between banks, was 3.94% versus 4.50% Friday.
Currency
The dollar fell against European currencies but rose against the Japanese yen as the market appeared to worry about German inflation.
A wage settlement between German steel companies and their unions will mean a 6.4% pay raise, and many currency traders viewed that as inflationary.
Fear of inflation could prompt the German central bank to keep interest rates at their current high levels, said Paul Yarden, trader at Credit Suisse. That could mean that more money will flow to German bonds, away from U.S. bonds, thus depressing the dollar.
In New York, the dollar fell to 1.600 German marks from 1.611 Friday. It closed at 126.20 yen, up from 125.75.
Commodities
Oat futures prices rose as much as they are allowed in one day on the Chicago Board of Trade on predictions that farmers will divert a substantial portion of their oat acreage to wheat this spring.
Meanwhile, light, sweet crude oil for delivery in March gained 6 cents to $18.96 per barrel on the New York Merc.
On the Comex in New York, gold for February settled 30 cents lower at $356.70 an ounce; February silver was 0.9 cent lower at $4.16.
