Dow Adds 10; Bond Sale Goes Well : Market Overview
* Stocks closed broadly higher for the first time this week, encouraged by fresh favorable news on the economy. Industrial issues led the rally.
* Long-term interest rates fell sharply as the Treasury successfully sold new 30-year bonds at the lowest yield ever.
* Gold retreated after Wednesday’s strong gain, as inflation worries ebbed again.
Stocks
Stocks responded enthusiastically to government reports showing a decline in weekly jobless claims and a rise in January retail sales.
The Dow Jones industrials, down 29.72 points over the week’s first three sessions, rose 10.27 points to finish at 3,422.69. It had been up more than 20 points at midday.
More significant was the breadth of the market’s advance: Rising issues topped losers 11 to 8 on the Big Board and 11 to 9 on the NASDAQ market. Big Board trading remained relatively moderate, though, at 257.19 million shares.
With another dose of bright economic news, many investors returned to the industrial stocks that should benefit most from a strong recovery.
“People are back into the cyclicals,” said Tim Heekin, manager of block trading at Salomon Bros. “It’s a theme that comes and goes so fast that it’s tough to stay in front or on top of the trend.”
Among the market highlights:
* Industrial stocks leading the charge included Cummins Engine, up 3 to 84 1/2; ITT, up 1 5/8 to 76 1/8; Deere, up 1 1/2 to 48 1/2; PPG Industries, up 1 to 69 3/8, and TRW, up 3 to 56. TRW reported quarterly earnings above expectations.
* Auto stocks also had a good day, as GM reported a fourth-quarter operating profit. GM rose 1 1/4 to 40 1/2, Ford added 7/8 to 50 5/8, and Chrysler rose 5/8 to 40 7/8. Ford now is trading at its highest level since 1989, and Chrysler since 1987.
* Allied-Signal surged 2 5/8 to 66 7/8. The company said it received a $500-million contract to develop a navigation unit for the Army’s mobile rocket launcher.
* Lumber and paper stocks were strong, buoyed by hopes for the economy. Georgia-Pacific gained 2 3/8 to 67 1/8, Louisiana-Pacific leaped 2 7/8 to 78 1/2, and Weyerhaeuser rose 2 1/8 to 44 1/8.
* Drug and biotech stocks, laggards for the last year, saw some bargain-hunting. Schering-Plough rocketed 3 1/8 to 62, Pfizer was up 1 3/4 to 64 3/8, Warner-Lambert gained 1 to 66 7/8, Biogen added 1 3/8 to 36, and Immune Response surged 1 5/8 to 16. Immune Response reported a loss of $2.19 a share for 1992.
* Energy stocks staged another broad advance on the eve of a key OPEC meeting in Vienna. Mobil added 5/8 to 66, Arco gained 1 1/2 to 119 3/8, Texaco rose 5/8 to 62 1/4, Pennzoil was up 7/8 to 55 1/2, Sonat jumped 1 to 49 5/8, and Enron Oil & Gas added 7/8 to 35 7/8.
* On the downside, Hilton Hotels tumbled 4 1/8 to 48. Oppenheimer & Co. analyst Steven Eisenberg cut his 1993 earnings estimate to $2.40 a share from $2.70 and his 1994 estimate to $3 from $3.35.
Eisenberg said Hilton management was urging more conservative estimates, citing the addition of a glut of new hotel rooms in the key Las Vegas market later this year. In Beverly Hills, a Hilton spokesman confirmed that $2.40 for 1993 is “in a range that we’re thinking about.”
* Hair and skin care products maker Dep Corp. plunged 3 1/8 to 10 5/8. The firm, which makes such products as Lavoris, Topol and Dep hair gels, said earnings in the quarter just ended will be one-third year-ago results. Dep cited smaller sales gains and higher promotional expenses, and said higher expenses will hamper earnings through mid-year.
* Highway construction firm Kasler Corp. eased 1/8 to 10 3/4. The company said it won’t respond to an unsolicited takeover offer received Monday until considering all its options, including potential deals with other unnamed firms.
Overseas, London stocks advanced cautiously, with the Financial Times 100-share average closing up 17.9 points to 2,834.3.
In Frankfurt, the DAX index added 1.24 points to 1.651.04.
Tokyo’s financial markets were closed for a national holiday.
Credit
Despite fears that the Treasury’s sale of 30-year bonds would go poorly, bidding was strong. The government sold $9.25 billion of the bonds at an average yield of 7.22%.
That was the lowest yield since the 30-year auctions began in 1977, and was down from 7.66% at last November’s sale.
The bond sale was the final leg of a three-day sequence of auctions by the Treasury. This once-a-quarter “refunding” raises billions of dollars used to finance the federal government’s operations.
In the usual relief that follows such auctions, interest rates fell across the board on Thursday.
Concerns had been raised because the Treasury’s sale of 10-year notes Wednesday hadn’t gone well. But bidders came out of the woodwork for the 30-year bond.
It helped that the Treasury has cut the size of the 30-year auction over the last year, making the bonds scarcer.
In fact, rumors had been rife in recent weeks that the Clinton Administration might stop borrowing via 30-year bonds altogether, shifting the debt instead to shorter maturities that cost the government less in interest.
At 7.22%, analysts noted that the 30-year bond yield is more than double the expected inflation rate this year, which historically is a very generous return for a bond.
“We’re looking at benign inflation for at least the next year,” said Joseph Liro, senior vice president at S. G. Warburg & Co.
With investors relieved of pre-auction jitters, the market now will focus on President Clinton’s plans to cut the federal deficit over the next several years. Details of his plans will come in the State of the Union speech next Wednesday.
Other Markets
Gold and silver retreated on New York’s Comex amid profit taking after a big rally Wednesday.
Near-term gold fell $1.20 to $332.20 an ounce after rising $4 on Wednesday. Silver lost 0.5 cent to $3.76. It rose 6.2 cents Wednesday.
Metals prices had rallied in what analysts described as mostly a technical rally. With little inflation on the horizon, most analysts believe that it will be impossible for gold to advance strongly.
Elsewhere, oil futures crept higher on the Merc in cautious trading ahead of Saturday’s OPEC meeting, when new production cuts will be discussed. Near-term light, sweet crude futures added 8 cents to $20.26 a barrel.
In currency markets, the dollar closed mostly unchanged after a wild ride against the Japanese yen.
In New York, the dollar dropped to as low as 119.60 yen but rebounded to settle at 121.18, a hair above 121.15 Wednesday.
Japan has been under heavy pressure from the United States and other major trading partners to reduce its trade surplus, which surged to a record $107 billion last year. Speculation now has it that Japan will be encouraged to boost the yen’s value, which would effectively make Japanese goods more expensive abroad.
The dollar also eased to 1.658 German marks in New York from 1.660.
Market Roundup, D6
