Dow Reaches Record High; Bonds Recover : Market Overview
The Dow Jones average closed at an all-time high, sliding into record territory at the end of trading despite an unexpectedly bad inflation report from the government.
* The inflation report sent long-term Treasury bond yields surging and raised fears that demand would be weak at the Treasury’s afternoon auction of 10-year notes. But the auction results came in close to traders’ expectations, and bonds managed to recover some of their losses.
Stocks
After a day of up and down trading, the key Dow average closed at 3,482.31, up 13.56 points and eclipsing the April 16 record close of 3,478.61.
In the broader market, advancing and declining issues were just about even on the New York Stock Exchange. Big Board volume came to 256.68 million shares, up from 221.56 million in the previous session.
Earlier, stocks took a downturn when the government reported a sharp 0.6% jump in its producer price index for April. Excluding volatile food and energy prices, the index gained 0.4%.
Wall Street had been expecting the index to gain 0.4% and the “core” measure of inflation to rise just 0.2%.
But despite the higher bond yields and the fear of new inflation, stocks climbed from their losses.
“The market seems to have sloughed off those PPI (producer price index) numbers,” said Steve Poling, an executive vice president at Fortis Advisers. “I think most people think those were aberrations.”
Referring to the Dow’s record close, he added: “The market internally has been so volatile that people will be surprised to read there’s a new high in the Dow. It’s sort of crept up there.”
* Gold stocks rising on the news included American Barrick, which rose 1 1/8 to 22 5/8. Battle Mountain Gold, up 3/4 to 8, Homestake 1 1/4 higher to 17 1/2. Newmont Gold rose 2 3/8 to 43 1/2, and ASA jumped 2 5/8 to 49 1/2.
* Among the metal stocks that did well, Aluminium Co. of America rose 1 5/8 to 66, Phelps Dodge jumped 1 3/4 to 45, and Reynolds Metals rose 1 1/8 to 44 1/4. Metal stocks also rose on word that the aluminum industry has mounted an apparently successful offensive to carve an exemption from the proposed energy tax.
* Recent reports that President Clinton is running into trouble in Congress with his energy tax helped oil stocks. Atlantic Richfield rose 1 1/2 to 123 1/4, Chevron jumped 1 5/8 to 88, and Pennzoil rose 1 1/2 to 64 1/2.
Despite the Dow’s record high, the broad market’s performance was not strong, analysts said.
* Tobacco stocks were active again. RJR Nabisco ended down 1/8 at 5 7/8, and Philip Morris fell 1 1/2 to 50. The stocks have been volatile because of fears of a cigarette price war and possible new taxes on tobacco and alcohol.
* Wal-Mart rose 1 to 27 after reporting solid first-quarter earnings.
* Cypress Semiconductor rose 1 1/4 to 12 after saying Fujitsu has signed a letter of intent to buy its SPARC microprocessor unit, Ross Technology.
* Eastman Kodak gained 1 5/8 to 53 after the company’s chairman outlined an overhaul of the company that he said would lead to record earnings.
* Xerox jumped 3 to 76 1/2 after saying its Palo Alto research center has developed new digital writing technology.
Overseas, Tokyo’s 225-share Nikkei average ended 325.17 points down at 20,615.20. London shares finished sharply higher, with the Financial Times 100-share average closing up 24.7 points to 2,860.8. In Frankfurt, the 30-share DAX average closed 13.31 points higher at 1,629.46.
Credit
The results of the 10-year bond auction led to speculation that response would be solid at the Treasury’s sale of 30-year bonds today, the final stage of the government’s quarterly borrowing program this week.
The yield on the Treasury’s benchmark 30-year bond rose to 6.85% from 6.81% late Tuesday. Its price, which moves in the opposite direction, sagged 19/32 point, or about $5.94 per $1,000 in face value.
The Treasury sold $10.8 billion in notes at an average yield of 5.96%, just slightly higher than what traders were expecting. It was the lowest rate since the start of regular 10-year note auctions in 1978.
The federal funds rate, the interest on overnight loans between banks, rose to 3.25% from 2.937% late Tuesday.
Other Markets
In commodities trading, gold prices jumped to a 17-month high after the release of the producer price index.
On the Commodity Exchange in New York, gold for current delivery jumped $4.50 an ounce, surpassing the important $360 level to close at $361.20. Silver soared in New York as gold’s rally rippled through other precious metals markets. Silver for current delivery climbed 12 cents an ounce to $4.371.
On the New York Mercantile Exchange, light, sweet crude oil for June delivery fell 14 cents to $20.20 a barrel.
Meanwhile, in currency trading, the dollar drifted marginally higher, shrugging off the steeper than expected increase in April wholesale prices.
In New York, the dollar closed at 111.55 Japanese yen and 1.610 German marks, up from late 111.34 yen and 1.608 marks respectively on Tuesday.
Market Roundup, D6
