Dow Increases 27.01 on Good Earnings News : Market Overview
* Blue chip stocks posted impressive gains after Wall Street got some surprisingly good earnings news from such key companies as Microsoft, Pepsico, Motorola and Merrill Lynch.
* Treasury bond yields were mixed, with the long-term bond yield rising slightly after a report showed department store sales running strong in October--a sign of an improving economy.
Stocks
The Dow Jones industrial average rose 27.01 points to 3,201.42, after leaping 37.83 points Monday. The Dow had reached its lowest close of the year Friday, 3,136.58.
On the New York Stock Exchange, advancing issues outnumbered decliners by 13 to 9. Volume was 186.65 million shares, up from 126.67 million in Monday’s light Columbus Day session.
The market continued to gain from rumors of new cuts in interest rates in the United States and abroad. Optimism over rates was rekindled by comments by Federal Reserve Chairman Alan Greenspan on Saturday. He said the presidential election would not alter the Fed’s money policy.
Some investors believe that Germany will lower its interest rates when the Bundesbank meets on Thursday, setting the stage for a U.S. rate cut.
“At the moment, people are speculating,” said Marshall Acuff, investment strategist at brokerage Smith Barney.
In Germany, rate rumors helped send Frankfurt’s DAX stock index up 32.96 points, or 2.3%, to 1,465.50.
Share prices also rose in London, where the Financial Times 100-share average jumped 27.5 points to 2,584.70.
Tokyo stocks ended higher on a technical rebound, with sentiment encouraged by easing short-term interest rates. The Nikkei average rose 188.66 points to 17,490.67.
In the United States, meanwhile, Acuff said a clutch of robust earnings reports on Tuesday “provided a little leadership, a little confidence to the market.”
Investors had been concerned that third-quarter corporate earnings wilted in the weakening economy, but the latest reports suggest that many companies are doing well.
Among market highlights:
* Among classic growth companies, Pepsico rose 3/4 to 38 5/8 after reporting operating earnings up 20% for the third quarter. Also, Motorola surged 1 1/2 to 91 after saying quarterly earnings rose 39%. And Microsoft added 3/8 to 84 1/4 on its earnings report, which showed profit up 45%.
Philip Morris gained 1 1/4 to 84 on the expectation of a strong profit report due Thursday.
* Among industrial companies, International Paper gained 1 3/8 to 62 7/8 despite reporting earnings down 15%. It cited pricing pressures. GE slipped 1/2 to 74 7/8 after reporting earnings up 8%.
* Brokerages provided some of the day’s most surprising profit reports. Merrill Lynch said earnings shot up 50% to a record $2.05 a share in the quarter, and its stock leaped 3 1/2 to 51 1/2. Also, PaineWebber gained 1 3/8 to 18 3/8 on news of a 35% profit gain.
* Airlines were strong, but it wasn’t clear if the market had digested news late in the day of another cut in fares on many key routes. AMR, parent of American, rose 2 1/4 to 57 3/8, Delta soared 2 1/8 to 56 7/8, and UAL, parent of United, advanced 2 1/2 to 114.
Commodities
Coffee futures prices reached a 4 1/2-month high on New York’s Coffee, Sugar & Cocoa Exchange as the market resumed an advance driven by expectations for tighter supplies.
On other commodity markets, oil futures fell; precious metals retreated; grains and soybean were mostly higher, and livestock and meat futures were mixed.
Unroasted coffee beans for December delivery climbed 1.65 cents to 63.45 cents a pound, the highest settlement of a near-term coffee contract since May 27.
The gain marked the resumption of an advance that had faltered Monday after eight straight days of higher prices. Near-term coffee deliveries have risen by nearly 32% since hitting a 17 1/2-year low of 48.10 cents a pound Sept. 9.
Coffee prices have been bolstered by perceptions that the International Coffee Organization, a cartel of coffee producing and consuming nations, is moving closer to its first price-support agreement in more than three years.
Meanwhile, oil futures prices declined across the board in technically driven trading. Light, sweet crude for delivery in November, which fell 7 cents on Monday, lost another 21 cents to settle at $22.09 on the New York Mercantile Exchange.
Stronger stock prices continued to draw investors away from precious metals. On New York’s Commodity Exchange, October gold fell $1.20 to $344 an ounce; December silver dropped 3.7 cents to $3.715 an ounce.
Credit
Short-term interest rates rose while most long-term rates eased, as bond traders seemed to reject the idea that another Federal Reserve rate cut is imminent.
John V. Sebastian, analyst at Clayton Brown & Associates in Chicago, said the market was quiet until a survey by the retail research firm Johnson Redbook showed department store sales gaining in October.
That suggested a strengthening economy, which might keep the Fed from easing credit again.
The Treasury’s bellwether 30-year bond fell 5/32 point, or $1.56 per $1,000. Its yield was 7.53%, up from 7.52% Friday. The U.S. bond market was closed Monday for Columbus Day.
The federal funds rate, the interest on overnight loans between banks, rose to 3.750% from 2.938% Friday.
Currency
The dollar closed lower against major European currencies but edged higher against the Japanese yen in a session dominated largely by technical market forces.
In New York, the dollar rose to 121.10 Japanese yen from 120.85 Monday. It fell to 1.464 German marks from 1.469.
There has been widespread speculation that the Federal Reserve will cut interest rates again if the economy takes a dramatic turn for the worse. A cut in rates would drive down the dollar’s value against other currencies.
Curtis Perkins, currency trader at Chemical Bank in New York, said some European traders were selling the dollar on the expectation that Democrat Bill Clinton will win the Nov. 3 election. A Clinton victory is viewed as potentially destabilizing for financial markets, despite Clinton’s avowed moderate policies.
