Dow Up 35.39 After Energy Stocks Rally : Market Overview

In a day of many cross-currents, blue chip stocks rolled up their sharpest gains so far in 1993 as long-term bond yields fell to new six-year lows. Yet the Dow industrial average’s gain of 35.39 points to 3,292.20 was largely thanks to a big rally in energy stocks, as oil prices spurted.

* The Treasury’s bellwether 30-year bond yield plunged to 7.19% from 7.29% Friday, a dramatic move that reflected investors’ increasing optimism about President Clinton’s deficit-reduction plans.

* Oil prices posted their biggest one-day jump in nearly 1 1/2 years--up 83 cents a barrel, to $19.66 for March crude futures on the New York Merc--as OPEC restarted talk of production cuts.

Stocks

Traders said stocks and bonds alike reacted explosively to Treasury Secretary Lloyd Bentsen’s comments Sunday about President Clinton’s plans for the economy.

Bentsen said the Administration plans a modest economic-stimulus program while taking concrete steps to cut the massive federal budget deficit. Some new taxes on consumption are likely, he added.

While his comments merely reinforced what Clinton has already telegraphed, the Administration’s constant hammering on the deficit has apparently persuaded many investors that something will finally be done to restrain spending.

In the stock market, buying was across the board Monday: Winners topped losers by 1,342 to 635 on the Big Board, though volume slipped to 288.74 million shares from Friday’s 293.36 million.

Both the NYSE composite index and the NASDAQ composite index reached all-time highs.

“The market is enjoying nirvana right now,” said Jim Craig, a money manager with the Janus mutual funds in Denver. With interest rates and inflation low, economic growth moderate and fourth-quarter corporate earnings looking better than expected, stocks are the natural place to be, he said.

But some Wall Street pros worry that the euphoria is reaching dangerous levels.

“The thought of solving the budget deficit is a very happy thought, but nobody’s really figured out the pain that’s going to be involved,” said Tracy Herrick, investment strategist at Jefferies & Co. in San Francisco. When investors begin to concentrate on the social and economic cost of federal spending cuts, the market may sober up quickly, Herrick said.

Among the market highlights:

* Oil stocks led the market higher, helped by talk of OPEC production cuts and by some better-than-expected earnings reports. Discussion of a new federal energy tax--opposed by the energy industry--failed to hold the stocks back.

Among major oil stocks, Exxon jumped 2 1/2 to 60 5/8, helped in part by its strong fourth-quarter earnings report. Also, Arco leaped 5 1/4 to 115 after posting fourth-quarter earnings well above expectations.

Elsewhere, Amoco jumped 3 to 51 1/2, Mobil surged 2 5/8 to 62 7/8, Unocal gained 1 1/2 to 25 5/8, Chevron was up 2 1/4 to 70, Texaco added 1 5/8 to 59 3/4 and Phillips rose 1 to 25 5/8.

* Many financial stocks advanced as interest rates eased further. Among Southland S&Ls;, Ahmanson rose 1 to 20 1/8 and Coast Savings jumped 1 to 14 5/8. Both were mentioned as favorites of investment guru Peter Lynch in the current Barron’s magazine.

Elsewhere, mortgage financier Countrywide Credit surged 1 5/8 to 27 5/8, insurer General Re gained 4 to 117 5/8, and annuity marketer Broad Inc. added 1 1/4 to 32 1/4. Broad reported sharply higher earnings.

* Industrial stocks moving higher included Alcoa, up 7/8 to 71 1/8; 3M Co., up 2 1/8 to 99 7/8; Illinois Tool Works, up 7/8 to 66 3/4; Weyerhaeuser, up 1 to 39 3/8, and control-systems maker BWIP, up 3/4 to 29.

* Retailers were strong as Sears jumped 1 7/8 to 50 3/4 on news of additional restructuring moves. Also gaining were Wal-Mart, up 2 to 64 5/8; Penney, up 2 3/4 to 74 3/4; Nordstrom, up 1 3/8 to 39 7/8, and Circuit City, up 1 5/8 to 54 1/4.

Overseas, Frankfurt’s DAX average lost 18.40 points to 1,569.24 after BMW gave a bearish 1993 sales projection. In London, the Financial Times 100-share index eased 9.3 points to 2,771.9.

In Tokyo, the Nikkei average lost 49.36 points to 16,287.45.

Credit

The drop in interest rates was across the board, but the slide in very long-term rates was again most pronounced.

At the closing yield of 7.19% Monday for the 30-year Treasury bond, the rate was the lowest since the 7.17% yield on August 20, 1986.

The bond’s price surged $12.50 per $1,000 face amount for the day.

Traders said investors were flocking to long-term bonds for a number of reasons, most related to the Clinton Administration: serious talk about cutting the federal budget deficit, an apparent tabling of plans for a middle-class tax cut and the probability of shifting more long-term Treasury borrowing to shorter maturities.

But Philip Barach, a managing director at Trust Co. of the West in Los Angeles, noted that investors also are responding to the fundamentals: Inflation remains low, which means that the real return from bond yields is alluring.

Even though oil prices surged Monday, Barach notes, the Commodity Research Bureau index of key commodity prices fell 1.38 points to 199.66, slumping under the psychologically key 200 barrier. That is an indication of the continuing deflation in many sectors of the economy.

Commodities

The surge in crude oil prices followed news that Saudi Arabia, Iran, Kuwait and Qatar have agreed in principle that production needs to be cut by at least 1 million barrels a day during this traditionally light demand period.

Saudi Arabia, which proposed the cut, said it should be shared among the 12 OPEC members in proportion to their production quotas. OPEC in November set a production ceiling of 14.6 million barrels a day for the first few months of 1993, but estimates indicate output has consistently exceeded that limit.

Tom Bentz, director of the energy division for Quantum Financial Services in New York, said investors believe production should be capped even further, but reacted to the first positive news in weeks.

“You walk in on a Monday morning and you’ve got news of OPEC in the market making cutbacks, you’re going to get this initial surge,” Bentz said.

However, traders said prices will likely steady at the $19-a-barrel level ahead of OPEC’s Feb. 13 meeting. Skepticism remains high that any OPEC cuts can stick, given OPEC’s constant infighting.

Elsewhere, near-term gold futures rose 20 cents to $328.80 an ounce on New York’s Comex, while silver slipped 1.6 cents to $3.69.

Currency

The dollar declined sharply in an across-the-board selloff, as falling interest rates lessened the attraction of U.S. bonds compared to foreign issues.

Traders had expected the dollar to surge this year, assuming U.S. rates rose with a stronger economy while foreign interest rates fell as overseas economies weakened.

But as U.S. rates drop while foreign rates remain high, foreign bonds appear to be a better bet for many global investors, traders said.

In New York, the dollar closed at 123.45 Japanese yen and 1.568 German marks, down from Friday’s 125.10 yen and 1.591 marks.

Market Roundup, D8