FINANCIAL MARKETS : Late Technical Rally Boosts Dow 19.65 : Market Overview
* Technical factors set off a late rally in blue chips, against a backdrop of some disappointing corporate reports. Tokyo stocks fell below the key 20,000 level, a decline that continued early today.
* The dollar rallied to a three-month high against the German mark amid continued expectation of lower German interest rates.
* Bond yields were little changed; oil prices rose.
Stocks
The Dow industrials, which had been down 6 points before the final hour of trading, jumped near the closing to finish 19.65 points higher at 3,511.65. But the broad market was much weaker.
Analysts said the market was whipped around by several factors, including some troubling corporate reports, and by talk of further compromises in President Clinton’s economic plan.
But the major influence on stock prices in the last hour appeared to be technical trader posturing ahead of Friday’s “triple witching,” the quarterly expiration of key stock index futures, index options and individual stock options.
Advancing issues narrowly outnumbered losers on the New York Stock Exchange, where volume rose to 267 million shares. On the NASDAQ market, the composite index slipped 1.09 points to 696.25.
After the market closed, analysts warned of potential repercussions today from news late Wednesday of Senate Democrats’ proposal to levy a 10% surtax on high-income investors’ capital gains.
Among the market highlights:
* Energy stocks rallied, helping to lift the Dow, as crude oil prices rebounded and Senate Democrats scrapped the broad energy tax, proposed by Clinton, in favor of a motor fuels tax.
Exxon gained 1 1/2 to 66 1/4, Chevron rose 1 to 90, Unocal added 5/8 to 30 7/8, Sonat was up 1/2 to 63 1/8 and Texaco rose 1 1/4 to 65 1/8.
* Airline stocks were hurt by USAir’s projection of a second-quarter loss. The airline had been expected to show a profit. USAir tumbled 1 3/4 to 17 1/8, Delta lost 1 1/2 to 49 7/8, Southwest sank 1 3/4 to 41 3/8, and UAL, parent of United Airlines, fell 3 3/4 to 127.
* Another disappointing projection came from electronics giant Hewlett-Packard, which slumped 3 3/8 to 83 5/8 after it warned of slowing growth. HP stock rallied back from a midday low of 79 1/2 after the company clarified its remarks.
HP said global orders are running 19% ahead of last year so far this quarter, down from a 26% rise in its first fiscal half but still within expectations.
Other tech stocks were mixed. Intel fell 1 1/4 to 56 1/2 and Compaq lost 5/8 to 54, but Texas Instruments rose 1 3/4 to 70 1/2. IBM added 1/2 to 50 3/8; Pyxis soared 3 1/4 to 46 1/2.
* Drug stocks were mostly higher, continuing their recent rebound. Pfizer rose 1 1/8 to 74 1/4, Schering-Plough added 1 to 69, Bristol-Myers gained 3/4 to 60 1/2 and Warner-Lambert was up 3/4 to 72 3/8.
But Alza plunged 2 3/8 to 24 1/2. It said current-quarter earnings may not meet expectations because of lower royalty income.
* Many industrial issues were higher. GM rose 1 to 41 1/4, Phelps Dodge added 1 to 43 3/8, Monsanto jumped 1 1/2 to 59 1/8 and PPG Industries leaped 1 3/4 to 69 7/8.
* Riverboat gambling stocks recovered more of their recent selloff. Presidential Riverboat jumped 1 1/2 to 44 3/4 after reporting a quarterly profit, contrasted with a loss a year ago. Also, Promus gained 5/8 to 45 3/4 and Casino Magic added 1 to 80.
Overseas, Tokyo stocks took a drubbing that continued early today. The Nikkei index slumped 143.46 points to 19,902.42 on Wednesday, the first close below 20,000 since April 26.
At midday today, the Nikkei was off 197.27 points to 19,705.15 as opposition political parties called for a no-confidence vote on Prime Minister Miyazawa.
In Frankfurt, the DAX average rose 5.46 points to 1,689.56. In London, the FTSE-100 index added 13.0 points to 2,883.0.
Currency
The dollar shot up against the German mark and the rally spilled over into other currencies, giving the dollar a broad-based lift.
In New York, the dollar closed at 1.657 marks, up from Tuesday’s 1.646. The last time the dollar closed as high in New York was on March 17, at 1.662 marks.
The dollar’s rally came even though Germany’s central bank failed to cut one of its shortest-term interest rates during its regular weekly repurchasing operations. Many in the market thought a cut would signal the Bundesbank’s intention to ease its widely watched discount rate during its policy-making meeting today.
A widespread belief persists that the central bank will ease rates at its next meeting on July 1, said Michael Malpede, senior analyst at Refco Group Ltd.
Lower German interest rates would make U.S. bond yields more attractive and could boost foreign demand for the bonds and thus demand for dollars.
The dollar also rose against the Japanese yen, finishing at 106.45 yen in New York, up from Tuesday’s 105.75 yen.
Other Markets
Interest rates were little changed as the bond market mostly ignored reports of higher industrial production and housing construction.
David H. Resler, chief economist at Nomura Securities International Inc., offered the following description of market activity: “Dead is a good characterization.”
The yield on the Treasury’s main 30-year bond yield slipped to 6.81% from 6.83% on Tuesday.
In the municipal bond market, California sold $2 billion in short-term “revenue anticipation” warrants to help meet the state’s cash needs through Dec. 23.
The warrants, which have an average net interest cost to the state of 2.14%, may be called any time after Aug. 10.
With the state still without a budget for the new fiscal year, Treasurer Kathleen Brown warned that credit rating agencies are looking unfavorably on California’s continued reliance on short-term borrowing to pay for its accumulated deficit.
Some analysts believe California’s credit rating could fall another notch if the next budget fails to address the state’s entrenched fiscal problems.
In commodities trading, energy futures turned higher on the New York Merc, responding to industry data showing a decline in crude oil inventories that was greater than expected.
Light, sweet crude oil for July advanced 26 cents and settled at $18.84 a barrel.
In precious metals trading on the Comex in New York, gold for current delivery rose 70 cents an ounce, settling at $370.30. Silver added 4.7 cents an ounce to $4.33.
