Bond Prices Bounce Back; Dow Up 15.67 : Market Overview
* Treasury bond prices rebounded after Thursday’s big selloff, sending interest rates lower across the board once again.
* Strength in the bond market helped push stocks higher, snapping a three-day losing streak. The Dow Jones industrial average rose 15.67 points to close at 3,328.94, a net loss of 3.24 points for the week.
* Platinum prices continued to slide, but gold and silver stabilized after sharp losses in recent days.
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Bonds, which had plummeted in value Thursday after incoming White House Chief of Staff James Baker spoke in favor of tax cuts, rallied briskly as buyers jumped back into the market.
The price of the Treasury’s 30-year bond rose 23/32 point, or $7.19 per $1,000, regaining some of the $11.56 drop on Thursday.
The bond’s yield closed at 7.31%, down from 7.41% Thursday.
Buyers returned to bonds after the White House played down Baker’s comments about a tax cut, which had been viewed as a sign that the Bush Administration might disregard the federal budget deficit in its bid to get reelected.
What bond investors fear most is the prospect of runaway federal spending or too-fast economic growth that would stoke inflationary pressures.
White House spokesman Marlin Fitzwater said the bond market had probably overreacted to Baker’s comments. He said Baker’s remarks weren’t hinting at specific new programs.
Analysts said bonds also appeared to gain strength from the latest consumer confidence survey by the University of Michigan, which showed confidence in the economy remaining at low levels. That suggests a continuing weak economy, in which interest rates could fall further.
The Federal Reserve’s policy-making committee meets next Tuesday, and though bond traders don’t expect another rate cut so soon, the Fed could set the stage for a cut early in September.
The federal funds rate, the interest on overnight loans between banks, fell to 3.125%, down from 3.315% Thursday.
Stocks
Wall Street staged an impressive rally after three days of losses, though trading volume was typically low for a Friday.
On the New York Stock Exchange, advancing issues led declines 13 to 7. Volume fell to 166.82 million shares from 185.75 million Thursday.
The rally in bonds provided support for stocks, but analysts said the market was poised for a rebound anyway after two weeks of losses.
“I think the stock market is finally starting either the Republican convention rally or an extension of the summer rally, which could carry through into September,” said David Bostian, chief strategist at Herzog Heine Geduld.
The Republican convention begins Monday and runs through Thursday. “To the extent the Republicans make a unified presentation, the market will accept it favorably,” Bostian said.
Stocks were also helped Friday by a better showing in Japanese and British markets, which had been sharply lower earlier in the week, said Walter Murphy, international market specialist for Merrill Lynch.
Encouraging news on the British economy bolstered the London stock exchange. The Financial Times 100-share average jumped 38.8 points or 1.7% to 2,356.8.
In Tokyo, the Nikkei average rose 52.08 points to finish an otherwise dismal week at 14,820.25.
In Frankfurt, the DAX average closed at 1,547.80, up 6.82 points.
Among U.S. market highlights:
* Defense stocks were the big winners of the day, though analysts were at a loss to explain the gains. Many of the stocks have been strong in recent weeks.
United Technologies jumped 1 5/8 to 56 3/4, General Dynamics gained 3/4 to 79 7/8, Raytheon added 3/4 to 44 7/8, E-Systems rose 3/4 to 36 3/4, and Northrop was up 1/2 to 25 5/8.
* Some depressed industrial issues rallied. Ingersoll-Rand gained 1 1/4 to 26 5/8, Inland Steel rose 1 1/8 to 22 5/8, Dow Chemical added 7/8 to 57, and Reynolds Metals jumped 2 1/8 to 56 1/8. But Owens-Corning lost 1 3/8 to 33, and Black & Decker fell 1 1/8 to 19 1/8 after brokerage Goldman Sachs removed both from its recommended list.
* Auto stocks were mixed a day after manufacturers announced weak passenger car sales for early August. Ford was up 1/2 to 41 1/2, GM rose 7/8 to 36 7/8, and Chrysler eased 1/4 to 20 5/8.
* Telephone utilities continued their recent rally. Southwestern Bell rose 1 1/4 to 67 1/4, Pacific Telesis added 1/4 to 44, BellSouth jumped 3/4 to 53 7/8, and Bell Atlantic gained 5/8 to 48 5/8.
* Lowe’s Cos. tumbled 4 3/8 to 18 5/8. The building-materials retailer was downgraded by analysts after it reported disappointing quarterly earnings.
* Computervision, a new issue that was formerly Prime Computer, went public at 12 and closed at that price on the NYSE.
* Amgen lost 1 1/2 to 61 3/4 on worries about a bill in Congress that would cut government reimbursement for patients who receive the company’s anti-anemia drug.
* U.S. Surgical jumped 6 to 77 3/4, continuing to recoup from losses earlier this week. Kidder Peabody repeated a buy rating.
Currency
The dollar was mixed as traders waited to see if U.S. interest rates would fall and whether German rates might rise. Lower U.S. rates and higher foreign yields would make the dollar less attractive for investors.
In New York, the dollar closed at 126 Japanese yen, down from 126.50 yen late Thursday. The dollar also rose to 1.465 German marks, up from the previous day’s 1.456 marks.
The British pound fell to $1.921 from $1.934 Thursday.
Commodities
Platinum futures prices fell for the fifth straight day Friday as low inflation and relative calm in South Africa continued to chomp away at gains posted over the last four months.
Gold and silver futures rose slightly, halting similar slides in those markets.
Platinum for October delivery fell $3.70 on the New York Mercantile Exchange to $344.20 an ounce, the lowest settlement of a near-term contract since April 29.
On New York’s Commodity Exchange, September silver gained 2.2 cents to settle at $3.792 an ounce. Gold added 70 cents to close at $334.80 an ounce.
An ounce of platinum lost $34.40, or about 9% of its value, this week as speculative funds that had bet on rising prices bolted from the market. Gold fell more than 4% on the week, and silver more than 5%.
Meanwhile, crude oil futures settled slightly lower amid profit taking in light trading on the New York Mercantile Exchange. Light, sweet crude for September delivery slipped 0.06 cent to $21.28 a barrel.
On other commodity markets, livestock and meat futures rose; grains and soybeans were mixed.
