Dow Gains 15 as Bond Yields Fall : Market Overview

Treasury bond yields retreated on fresh signs of a weak U.S. labor market, moving the interest rate on the Treasury’s main 30-year bond down to 7.19% from Wednesday’s 7.24%.

* The stock market pushed ahead slightly, encouraged by news of stronger than expected economic growth and declines in interest rates.

Credit

Declining yields pushed the long bond’s price up 17/32 point, or $5.31 per $1,000 in face amount. Bond prices and yields move in opposite directions.

Earlier this week, the long-bond yield dipped close to 7.17%, the lowest it has been since August, 1986.

The Labor Department said the number of Americans filing first-time claims for state jobless benefits rose a slight 2,000 to 364,000 for the week ended Jan. 16. It was the third week in a row that new claims have risen and defied the predictions of Wall Street economists, who expected the number of new claims to drop by 15,000.

First, there was news that the head of the Senate Energy Committee had introduced a bill that would impose a fee whenever the price of crude oil on international markets falls below $25 a barrel.

Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Government Securities Inc., said the market sold on that news because it was considered inflationary. Inflation harms the value of fixed-income securities such as bonds.

Then there was a rally after Treasury Secretary Lloyd Bentsen indicated that the Clinton Administration wanted to propose spending cuts as a way to fight the deficit, rather than increase spending.

Credit markets liked that because increased spending could lead to inflation.

Mainly, Ricchiuto said, the market feels “a lot of uncertainty concerning Clinton proposals” and winds up spinning its wheels. The new President has gotten the benefit of the doubt so far, he said.

The federal funds rate, the interest on overnight loans between banks, was 3%, up from 2.875% late Wednesday.

Stocks

Blue chip stocks were also propelled higher by gains in oil issues after crude prices soared on the Senate proposal for an oil import fee.

The Dow Jones average of 30 industrials rose 14.86 points to 3,306.25. In the broader market, advancing issues nosed out declines in the daily tally on the New York Stock Exchange. Big Board volume totaled 256.98 million shares, against 277.50 million in the previous session.

The Commerce Department reported that the gross domestic product grew at a seasonally adjusted annual rate, after adjustment for inflation, of 3.8% in the fourth quarter of last year.

The figure exceeded most analysts’ estimates and lent support to the view that the pace of the economy picked up significantly in the latter stages of 1992.

But many economists have argued that this strength isn’t likely to carry forward at the same rate into the new year.

The Dow’s gain Thursday gave it a net plus reading of 5.14 points for January with one session remaining in the month--a noteworthy development for followers of the “January barometer.”

This theory, scorned by some observers but widely recognized nevertheless, holds that the market’s showing in the first month sets the direction it is likely to follow for the full year.

Among the market highlights:

* Service Merchandise tumbled 3 7/8 to 11 1/4. Late Wednesday the company reported flat fourth-quarter earnings.

* Chrysler Corp. gained 3/4 to 39 7/8. Fourth-quarter profit came to $1.12 a share, up from 33 cents a share in the corresponding period of 1991.

* Energy stocks were broadly higher as world oil prices rose. Exxon gained 1 to 61 1/2; Chevron 1 3/8 to 72 1/2; Atlantic Richfield 3 to 118; Amoco 7/8 to 53 5/8; Texaco 7/8 to 60 3/4, and Mobil 7/8 to 63 1/2.

* Other gainers among the blue chips included McDonald’s, up 1 1/4 at 48 3/4; Philip Morris, up 1 1/8 at 74 7/8; Walt Disney, up 3/8 at 46; Aluminum Co. of America, up 1 3/4 at 74 1/4, and International Paper, up 1 1/4 at 65 1/4.

* UAL, which posted a $223.9-million loss for the fourth quarter, dropped 3 1/4 to 122 1/4.

* Lotus Development, traded in the NASDAQ market, edged up 1/8 to 21 7/8 on sharply higher quarterly profit.

Overseas, stocks finished sharply higher in Tokyo on speculation of an interest rate cut. The 225-share Nikkei average was up 553.73 points, or 3.35%, to 17,063.41. Meanwhile, disappointing trade figures for December sent London stocks lower, with the Financial Times 100-share average losing 15.6 points to close at 2,816.9. Frankfurt’s 30-share DAX average rose 5.52 points to 1,567.84.

Other Markets

The dollar was mixed against other major currencies in quiet trading, as German firmness on interest rates held the currency from rising on a positive fourth-quarter economic report.

In New York, the greenback closed at 124.20 Japanese yen, up from Wednesday’s closing bid of 124.10 yen. The dollar settled at 1.586 German marks, down from 1.587. The British pound rose to $1.516 from Wednesday’s $1.511.

Meanwhile, in the commodity markets, gold rose in domestic trading, up 60 cents to $330.50 an ounce, and silver gained 2.6 cents to $3.708 an ounce on the New York Commodity Exchange.

Market Roundup, D6