Interest Rate Hopes Push Dow Up 10.06 : Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* Rising expectations of an interest rate cut pushed stocks higher, but blue chips fell short of a record close as late profit taking hit. The Dow Jones industrial average added 10.06 points to 3,369.41.
* Treasury bond yields fell as investors showed exceptionally strong demand for newly auctioned 10-year Treasury notes.
Stocks
Stocks opened strong after substantial gains overnight in the Tokyo and London markets.
Around midday, however, trading slowed to a near standstill as the second leg of the three-part Treasury auction approached.
Activity then accelerated when it became apparent that there was healthy demand for the $11.1 billion in 10-year Treasury notes.
Rumors that the Federal Reserve may act to cut interest rates after April employment figures are released Friday also boosted investor enthusiasm, although many analysts said the effects of such a move already have been figured into the market.
“We have had a lot of anticipation about this additional Fed easing,” said Jack Conlon, analyst at Rothschild Inc.
Though the Dow’s gain was small, advancing issues outnumbered losers by 10 to 7 on the New York Stock Exchange. Volume was 199.33 million shares, versus Tuesday’s 200.55 million.
“People seem to have the attitude of ‘Hey, I don’t know really that I want to be in this market--but I also don’t want to miss the train if it comes,’ ” one trader said.
Rallies in London and Tokyo encouraged U.S. investors.
Tokyo’s beleaguered Nikkei average posted a 575.27-point gain, rising 3% to 17,878.66.
In London, the Financial Times 100-index soared 36.5 points, or 1.4%, to a record 2,698.7, boosted by hopes for economic recovery. The old record was set last September.
In Frankfurt, meanwhile, the DAX index rose 10.86 points to 1,743.50 on hopes for an end soon to the 10-day-long public workers’ strike.
Despite renewed strength in U.S. stocks, some analysts said the market is vulnerable to a selloff.
“The market looks like it is starting to struggle a little bit,” said Gregory Nie, analyst at Kemper Securities. “We have reservations about sustainability. We are looking for a pullback to occur in the May-June period.”
Robert Walberg, analyst at MMS International, warned that too many investors may be counting on another Fed move to lower interest rates. If it doesn’t happen, “the market will have to pull back and retrench,” he said.
Among Wednesday’s highlights:
* Many buyers returned to industrial issues that should benefit from a continuing U.S. economic recovery. Caterpillar gained 2 1/2 to 56, Deere jumped 2 1/8 to 51 3/8, Superior Industries rose 2 5/8 to 59 1/2, Owens-Corning leaped 2 to 36 1/8, and Trinova added 1 1/8 to 25 3/4.
* Technology stocks also continued to rebound. Autodesk was up 1 1/2 to 35 1/4, Computer Sciences gained 1 3/4 to 70 3/8, Micropolis leaped 7/8 to 11, and Sun Microsystems closed at 28 1/2, up 5/8.
* A surge in some airlines lifted the Dow transportation average. Southwest Airlines rocketed 2 1/4 to 44, a new all-time high. Also gaining was USAir, up 1 1/2 to 14 3/4 after reaching a new contract with its pilots that will cut salaries initially to help USAir return to profitability.
* California auto insurance firm Mercury General jumped 2 1/2 to 32 after reporting strong quarterly earnings. Competitor Twentieth Century Industries gained 1 3/8 to 20.
* Caesars World added 2 1/2 to 32 1/2 after plunging 5 1/2 on Tuesday on word of a disappointing first quarter. Oppenheimer & Co. repeated a buy rating on the casino operator.
* Employee Benefit Plans added 3/8 to 12 7/8. The stock, which has plunged from 64 because of recent earnings troubles, has attracted the Doheny family of Beverly Hills: The family’s El Camino investment firm said in a filing that it has purchased an 8.6% stake in EBP, which designs health benefit plans.
* Investors showed renewed interest in smaller NASDAQ stocks, many of which have been beaten down in recent months. Among Southland issues in demand were retailer Wet Seal, up 1 to 12; athletic shoe maker K Swiss, up 1 1/8 to 21 3/8; office-supply marketer Viking Office Products, up 7/8 to 18, and lingerie designer Body Drama, up 1/2 to 6 1/2.
Credit
Market interest rates tumbled as traders saw robust demand at the Treasury’s auction of $11.1 billion in 10-year Treasury notes.
Though the yield on the notes was the highest since last August, traders were encouraged by aggressive bidding that suggested investors’ appetite for government debt hasn’t waned.
The Treasury’s key 30-year bond gained 3/8 point, or $3.75 per $1,000. That pushed its yield down to 7.96% from 8.00% Tuesday.
“Most people were looking for this to be the weakest of the three auctions,” said Steven A. Wood, economist at BankAmerica Capital Markets Group in San Francisco.
Demand for the 10-year notes was a strong sign that many investors expect interest rates to drop further in the months ahead. Indeed, many stock and bond investors alike seemed to be betting that the Federal Reserve could act as early as Friday to again cut interest rates to keep the economic recovery on track.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.625%, down from 3.75% Tuesday.
Currency
The dollar ended mostly lower reflecting concerns about global interest rate trends.
Earl I. Johnson, trader Harris Trust in Chicago, said currency traders were concerned that Germany’s central bank will raise interest rates because of the difficult wage negotiations between public-sector employees and the government. The bank’s regular policy-making meeting is today.
If U.S. interest rates fall while German rates rise, the effect could be to draw money away from the U.S. and into Germany.
The dollar ended in New York at 1.629 German marks, down from 1.638 Tuesday, and at 132.25 Japanese yen, down from 132.90.
Commodities
Coffee futures sank to new 19-year lows, and analysts said there was little chance of a turnaround soon in the glutted market.
“You’re looking at a market that has increasing supplies every time somebody turns around,” said Melissa Trout, analyst with Cargill Investor Services.
Wholesale unroasted coffee for May fell 0.85 cent to 58.20 cents a pound, the lowest since early 1973.
Coffee’s ninth straight daily fall brought the market’s losses to 10.7 cents, or about 16%, since April 10, when the International Coffee Organization quit a meeting without a new price-support pact.
Meanwhile, light, sweet crude oil futures for June slipped 3 cents to $20.77 a barrel on the New York Merc.
On New York’s Comex, June gold eased 30 cents to $337.50 an ounce; May silver rose 1.2 cents to $4.07.
Market Roundup, D8
