Plunge in Rates Sends Dow Up 25.49 to Record : Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* Treasury bond yields plummeted as the government concluded the latest in a string of bond auctions and as Federal Reserve Chairman Alan Greenspan pledged to cut interest rates again if necessary. The yield on the Treasury’s 30-year bond tumbled to 7.84% from 7.94% Tuesday.
* Stocks surged as rates fell, and the Dow Jones industrials hit a new high, up 25.49 points to 3,283.32.
Stocks
The Dow’s close just barely topped its previous record of 3,282.42 set on Monday. But Wednesday’s rally had power.
Advancing issues outnumbered declines 2 to 1 on the New York Stock Exchange, as volume swelled to 241.50 million shares from 210.35 million Tuesday.
The Dow’s 0.8% gain was bettered by the NASDAQ composite index of smaller stocks, which soared 11.00 points, or 1.8%, to 632.40. Still, the NASDAQ index remains below its record of 644.92.
Though stocks were helped by sliding interest rates, some investors also responded to a 1.5% rise in January durable goods orders. That helped persuade more investors that an economic recovery is indeed in the wings.
“For today anyway, we got signs of a better economy and a better bond market,” said A. G. Edwards analyst Alfred Goldman.
Yet analysts noted that the strongest stocks on Wednesday were classic growth names, not the industrial stocks that would benefit most from an economic recovery. So far this year, the industrial stocks have lead the market, while growth stocks have slumped.
Among market highlights:
* The surge in growth stocks was concentrated in health care issues. Drug giant Merck rocketed 6 1/8 to 158 5/8 one day after declaring a 3-for-1 stock split.
Among other health care stocks, American Home Products soared 2 3/4 to 78 3/4, Pfizer gained 1 3/4 to 76, Tokos Medical jumped 2 to 36 3/4, and U.S. Healthcare rose 3 1/2 to 50 1/2.
* Biotech stocks, which have plunged recently, sprang back to life. Big gainers included Amgen, up 3 1/8 to 66 5/8; Genzyme, up 4 3/4 to 48; Affymax, up 1 7/8 to 28, and Immune Response, up 2 1/8 to 28 5/8.
* Other leading growth stocks up sharply included Coca-Cola, up 2 3/8 to 82; Disney, up 2 5/8 to 155 3/4, and Home Depot, up 2 1/8 to 64 3/8.
* Retail stocks in general were hot, after Wal-Mart reported strong quarterly earnings. Wal-Mart surged 2 3/8 to 53 7/8, Penney zoomed 4 1/8 to 63 1/8, Nordstrom rose 1 5/8 to 40 5/8, Gap gained 1 1/8 to 50 5/8, and ClothesTime was up 7/8 to 12.
Also, Musicland Stores went public at 14 1/2 on the NYSE and closed at 16 in heavy trading.
* Gainers among industrial stocks included Ford, up 7/8 to 36 1/2; steel firm Quanex, up 7/8 to 28 3/4; Eaton, up 1 3/8 to 73 5/8, and Giddings & Lewis, up 2 to 45 1/8. Litton Industries rose 2 1/4 to 96 1/8 after reporting a 14% rise in quarterly earnings per share.
* Telefonos de Mexico jumped 2 7/8 to 57 7/8 on the NYSE, and the NASDAQ shares gained 1/8 to 2 7/8. The Mexican phone firm reported 1991 earnings of $3.96 per NYSE share, higher than expected.
* Among Southland issues, Special Devices soared 2 to 15 1/4. The Newhall-based company said it will begin making initiators for airbag systems in GM cars.
Overseas, stocks jumped in Tokyo as bargain hunters moved into the battered market. The Nikkei average rose 339.22 points to 21,364.77.
In London, the Financial Times 100-share average rose 18.2 points to 2,565.0. In Frankfurt, demand for Volkswagen shares helped spark a rally. The DAX average leaped 14.97 points to 1,737.27.
Credit
The rally in bonds sent the price of the Treasury’s key 30-year bond up $11.88 per $1,000 face amount. Yields fell across the board.
Fed Chairman Greenspan boosted sentiment by repeating that the Fed could cut interest rates again soon if the economy fails to show solid signs of recovery. Also, Greenspan suggested that the government begin limiting issuance of long-term bonds to help bring long-term interest rates down.
A smaller supply of the bonds would in theory make them more valuable and cause yields to drop.
Bond traders also were heartened by demand at the Treasury’s sale of five-year notes, which sold for an average yield of 6.75%. Bidding was described as very strong, suggesting that investors believe that rates are near their peaks for the time being.
In recent weeks, a flurry of Treasury bond sales have flooded the market, but buyers have held back. The Wednesday auction hinted that the supply-demand balance was returning to normal.
The federal funds rate, the rate on overnight loans between banks, was 3.88%, flat with Tuesday.
Currency
The dollar declined as interest rates fell. Traders said the dollar began to falter when the Malaysian central bank stepped in to sell dollars for German marks.
The greenback fell in New York to 1.645 German marks from 1.660 Tuesday. It slipped to 129.20 Japanese yen from 129.90.
Commodities
Wheat closed higher on the Chicago Board of Trade on reports that India may buy 1 million metric tons. March wheat jumped 7.75 cents to $4.16 a bushel.
Elsewhere, light, sweet crude oil for April lost 2 cents to $18.46 a barrel on the New York Merc.
On New York’s Comex, February gold settled 20 cents higher at $349.60 an ounce; February silver lost 4 cents to $4.06.
Market Roundup, D10
