FINANCIAL MARKETS : Bond Rally Powers Dow to Record : Market Overview
Blue chip stocks closed at record highs, powered in afternoon trading by a big rally in bonds.
* Interest rates tumbled, fueled by a weak economic report and unexpectedly brisk demand at an auction of five-year Treasury notes.
* The dollar fell to a record low against the Japanese yen and continued downward in early trading today in Tokyo, breaking 108 yen.
Stocks
The stock rally that began a week ago appeared to broaden significantly Wednesday.
The Dow Jones industrials jumped 23.53 points to a record 3,540.16, breaking the previous record of 3,523.28 set last Thursday.
In addition, the NASDAQ composite index of smaller stocks leaped 9.05 points, or 1.3%, to 704.09, just under the all-time high of 708.85 set in February.
Winners topped losers by nearly 2 to 1 on the New York Stock Exchange and by 11 to 9 on NASDAQ. Big Board volume rose to 278 million shares.
A drop in interest rates sparked stocks’ surge, and computerized program trading magnified the gains late in the session.
Despite lackluster economic reports of late, and volatile interest rates, the stock market has had a mind of its own, analysts note. Many experts say the market’s strength is a result of pent-up demand for stocks from portfolio managers who were too cautious about buying in March and April.
“The best explanation of what’s happening today is just the sea of cash that’s out there,” said David Bostian, investment strategist at Herzog, Heine & Geduld.
While that cash may eventually be used up, the market’s momentum is likely to keep the streak going for some time, many say.
Among the market highlights:
* Technology stocks, which have powered the NASDAQ market’s big gains this month, were standouts again. Intel surged 6 3/4 to 110 1/2 after Merrill Lynch raised its 1994 earnings estimate for the firm to $14 a share from $11.80. Merrill said it is bullish on sales prospects for Pentium, Intel’s latest-generation computer chip.
Other surging tech stocks included Compaq, up 3 to 59 1/4; Adobe Systems, up 1 7/8 to 70 3/4; Microsoft, up 4 to 95 1/4; IBM, up 2 3/8 to 52 3/4; Motorola, up 3 7/8 to 82 5/8, and Cisco Systems, which rose 2 3/4 to 56 1/4.
* Among the few tech losers, networking firm Novell lost 2 3/8 to 29 7/8 despite reporting a 31% gain in quarterly profit.
* Brokerage and banking stocks joined the rally, as interest rates fell. Merrill Lynch rose 2 3/8 to 76 1/4, Dean Witter jumped 2 1/8 to 36 5/8, Wells Fargo leaped 3 5/8 to 107 1/8, and First Interstate surged 2 1/2 to 60.
* Industrial stocks that saw renewed buying included Ford, up 1 1/8 to 52 5/8; PPG Industries, up 1 5/8 to 73 7/8; Owens-Corning, up 1 3/4 to 41 1/2; Cincinnati Milacron, up 1 3/8 to 28 1/4, and Caterpillar, up 1/2 to 70 3/8.
* Casino stocks jumped again. Argosy Gaming surged 5 1/4 to 29 after it moved one step closer to building a riverboat casino off Riverside, Mo. Other casino winners included Casino Magic, up 3 1/4 to 80 3/4; Mirage, up 1 3/8 to 45 1/8, and Hilton, which rose 1 3/4 to 49.
* On the downside, some retail stocks fell on worries about slowing sales. Dayton Hudson lost 2 to 72 3/4, Dillard fell 1 3/8 to 40 1/4, and Penney dropped 1 3/4 to 46 5/8.
Overseas, London’s FTSE-100 index rose 9.2 points to 2,846.9. In Frankfurt, the DAX index inched up 3.82 points to 1,622.00.
In Tokyo, the Nikkei index leaped 264.23 points to 20,895.99.
Credit
Interest rates fell across the board, responding first to news of weak durable-goods orders in April, then to a successful Treasury auction of new notes.
Expectations of a quick end to the budget fight on Capitol Hill also helped bonds, traders said.
By the close, the yield on the Treasury’s 30-year bond had fallen to 6.92% from 7.01% on Tuesday. Shorter-term rates also fell.
Traders said the market may have been primed for a rally given the extensive bearishness in recent weeks over inflation concerns.
When investors saw healthy demand at the Treasury’s sale of new five-year notes Wednesday, fears of higher interest rates in the near future appeared to evaporate.
The Treasury sold $11 billion in five-year notes at a high yield of 5.39%, which was better than had been expected. After the auction, the note’s yield fell to 5.27% as investors chased the securities.
Other Markets
The dollar continued its steep decline against the Japanese yen, as traders bet that the White House is happy to see the slide.
The dollar closed in New York at a new postwar low of 108.50 yen, down from 109.36 on Tuesday.
Early today in Tokyo, the dollar fell below the 108 mark to 107.65, despite massive intervention by the Bank of Japan.
Lawrence Summers, a U.S. Treasury undersecretary, said Wednesday that the Clinton Administration is not interested in seeing the dollar fall further. But many traders are sure that President Clinton views a weak dollar as a sure way to bring down Japan’s huge trade surplus.
The dollar also lost ground against the German mark, falling to 1.628 from 1.630.
In commodities, gold and silver were hit by profit taking on New York’s Comex. Talk of rising Russian gold reserves and weakening Chinese demand hurt sentiment.
Gold for current delivery settled at $375.20 an ounce, down $3.30. Silver slid 8 cents to $4.55 an ounce.
Market Roundup, D6
