FINANCIAL MARKETS : Stocks Soar as Yield Hits New Low : Market Overview
* The stock market roared ahead, lifted by falling interest rates and a receding inflation menace.
* The yield on the Treasury’s key long-term bond fell to a second consecutive low, which strengthened its price.
* The dollar settled mixed in moderate, uneventful trading.
Stocks
Stocks advanced steadily throughout the day, encouraged by the bond market rally and the accompanying drop in yields.
Financial stocks and the shares of companies whose fortunes are closely tied to the economic cycles--such as transportation, auto, chemical and heavy machinery--rose sharply.
The Dow Jones industrial average jumped 39.31 points to 3,530.20. The Big Board volume of 242.09 million shares was down from 210.43 million on Friday. Advancing issues outnumbered declining ones by about 7 to 3 on the New York Stock Exchange.
Falling bond yields help the stock market because investors seeking better returns move money out of interest-bearing holdings and into the stock market. And low interest rates mean companies can borrow money more cheaply.
“The bond market rally justifies higher prices for stocks,” said Michael Metz, an investment strategist with Oppenheimer & Co.
* Interest-sensitive stocks, such as banks and brokerages, rallied sharply. Citicorp rose 5/8 to 30, Merrill Lynch rose 2 1/4 to 80 5/8 and Morgan Stanley jumped 2 to 68 1/2.
* Also boosted by the renewed optimism about the economy were the so-called “cyclical” stocks. Caterpillar rose 2 5/8 to 75 1/4, Dow Chemical jumped 3/4 to 55 1/4 and General Motors rose 1 1/4 to 44 3/8.
The buying also coincided with institutional investors gearing up for the quarter’s end Wednesday. Many investment managers try to spruce up portfolios at the end of each fiscal period, when holdings will be more closely evaluated.
Metz said that such thinking is particularly relevant now because many mutual fund managers have accumulated significant amounts of cash in anticipation of stock prices declining, while the market has actually moved higher.
The market gained some impetus from stocks abroad. In Tokyo, the 225-share Nikkei average closed 227.19 points higher at 19,886.76. In Frankfurt, the DAX 30-share average was up 11.96 points at 1,707.20. London’s Financial Times 100-share average gained 9.5 points to close at 2,897.0.
Among the day’s highlights:
* Northern Telecom fell 8 1/8 to 28 7/8 after the Canadian manufacturer of telecommunications equipment forecast lower 1993 earnings.
* Damon Corp., the clinical lab company, rose 5 7/8 to 22 5/8 after saying it was reviewing a $23-a-share purchase offer from Corning. Last week, National Health Laboratories offered to buy Damon for $16 a share.
* Eli Lilly & Co. fell 1 7/8 to 49 3/8 after the company’s board of directors on Friday fired the chief executive. He was replaced with AT&T; Vice Chairman Randall Tobias.
* In NASDAQ trading, 3Com Corp., the maker of computer communications systems, rose 1 3/4 to 28 3/4 on the heels of an upbeat earnings forecast last week. The stock soared on Friday.
Credit
The bond market’s advance, its ninth in as many sessions, came as several economists estimated that June employment figures, due out Friday, will indicate weaker economic growth than recently anticipated.
The yield on the Treasury’s main 30-year bond fell to 6.67%, below a 16-year low of 6.70% late Friday. The bond’s price, which moves in the opposite direction from the yield, rose 15/32 point, or $4.69 per $1,000 in face value.
Many in the market were buying bonds expecting that June employment figures will provide further evidence of a lethargic economic recovery. A weak recovery would ease the risk of inflation eroding the value of long-term, fixed-income securities. News of slow growth also lessens the chance that the Federal Reserve Board will raise short-term interest rates to control inflation.
An increase in short-term rates would hurt the value of already-sold short-term securities.
Short-term Treasuries were up 1/16 point and intermediate maturities rose 3/16 point to 5/16 point, the Telerate Inc. financial information service reported.
The federal funds rate, the interest on overnight loans between banks, was 3.063%, up from 2.938% late Friday.
Other Markets
The dollar settled mostly lower in Europe and turned mixed as trading shifted to domestic markets. The U.S. currency was pressured by speculation in the market that job growth in June would be well below widespread market estimates.
In New York, the dollar settled at 106.25 Japanese yen, up from 106.15 yen Friday. The greenback closed at 1.696 German marks, down from 1.704 marks.
The British pound rose to $1.497, more expensive than Friday’s $1.4780.
In commodities trading, precious metals futures were weaker in trading on the New York Mercantile Exchange.
Gold for current delivery settled at $375.20 an ounce, off $2 from Friday. Silver for current delivery settled at $4.448 an ounce, down from $4.490 on Friday.
Crude oil futures were slightly higher in trading on the New York Mercantile Exchange in reaction to the muted response to the raid on Iraq. Light, sweet crude oil for August delivery was 6 cents higher at $18.90 a barrel.
