CPI Boosts Dow 27; Yields Hit New Low : Market Overview

Stocks closed broadly higher Wednesday, bolstered by news that consumer inflation remained at bay in June. Smaller stocks hit new highs for the first time since February.

* Interest rates dropped across the board on the inflation report, and yields on long-term Treasury bonds hit a fifth consecutive historic low.

* Oil futures plunged on new worries of a growing supply glut.

Stocks

Buyers swarmed on Wall Street again, after the Labor Department said the consumer price index was unchanged in June--dousing any remaining inflation worries.

The Dow industrials surged in the morning, then traded flat the rest of the afternoon, trimming their gains a bit at the end. Still, the Dow closed up 27.11 points to 3,542.55, its highest level since June 4 and just under the record 3,554.83 reached May 27.

Meanwhile, the NASDAQ composite index of mostly smaller stocks finally topped its old high of 708.85 reached Feb. 4. The index jumped 4.02 points to 712.49.

Winners outnumbered losers by 12 to 8 on the New York Stock Exchange and 12 to 9 on the NASDAQ, and Big Board volume ballooned to 297.43 million shares.

Analysts noted that after two days of favorable inflation news, including the June wholesale prices report Tuesday, investors are losing any fear that interest rates might go higher soon. And as bond yields drop instead of rise, more investors are pushed into the stock market in search of better returns.

“The bottom line is we’re still in a bull market,” said Alfred Goldman, analyst at A.G. Edwards & Sons in St. Louis. “They (bull markets) surprise on the upside.”

Among the market highlights:

* Industrial issues were big winners as investors bet that low interest rates and low inflation will allow the economic recovery to continue. 3M Co. gained 1 to 107 3/4, International Paper added 1 to 64 1/8, Alcoa rose 3/4 to 71 3/8, Dover was up 7/8 to 46 7/8 and Cincinnati Milacron leaped 1 to 25.

* Transportation issues were hot, helped by another plunge in oil prices and by company-specific developments. The transports were led by UAL, parent of United Airlines, which jumped 6 3/4 to 133 partly on rumors that United pilots are trying to put together a buyout of the company.

Elsewhere, Federal Express zoomed 6 1/2 to 53 3/8 after saying its troubled international business could post a profit by 1995.

Among other transports, Conrail gained 1 to 50 1/8, Roadway Services added 1 to 58 and Southwest Airlines was up 3/4 to 46 1/8.

* Retailers came back to life. Sears rose 1 7/8 to 44 3/8, Penney added 3/4 to 45 1/2, Dayton Hudson gained 1 1/2 to 68 and Toys R Us was up 5/8 to 35 5/8.

* On the downside, financial issues were weak despite the decline in interest rates. Analysts blamed profit taking and the belief that bank profit margins are beginning to shrink as the economy turns up.

Among brokerages, Merrill Lynch sank 2 1/4 to 82 3/8, Schwab lost 1 3/8 to 27 5/8, Dean Witter slumped 1 1/4 to 35 5/8 and PaineWebber fell 1 to 28.

Among banks, Signet led the slide after the Virginia bank reported declining profit margins in the second quarter. The stock sank 4 to 54 1/2. Other bank losers included PNC Financial, off 1 1/2 to 30 3/8; Wells Fargo, down 3 to 107 7/8; First Union, off 2 to 45 3/8, and Barnett Banks, off 1 3/4 to 45 7/8.

* Bucking the trend in financials, Los Angeles brokerage Jefferies Group rose 1 3/8 to 31 1/4 after reporting sharply higher earnings.

Overseas, stocks ended slightly lower in Tokyo, with the Nikkei index off 41.31 points at 20,139.11.

In Frankfurt, the DAX average closed up 4.39 points to 1,811.55. In London, the FTSE-100 index eased 4.8 points to 2,832.2.

Credit

Interest rates fell on short- and long-term securities, boosting optimism that the powerful 1993 bond rally could be gaining new steam.

Encouraged by the June inflation report, investors rushed into long-term bonds again, driving the yield on the 30-year Treasury bond to 6.56%, its lowest since the government began selling the bonds 16 years ago. The yield had finished at 6.61% on Tuesday.

As the 30-year T-bond yield threatened to plunge below 6.50%--which many forecasters had thought would be the floor for long-term rates--some analysts began revising their target to 6.25% or lower.

That could have wider implications for the economy because bond yields are used to set a spectrum of interest rates, from home mortgages to auto loans.

Some participants said that for bond yields to hit 6.25% and lower depends on the Clinton Administration’s success in winning congressional approval for a budget package that substantially reduces the federal deficit.

Other Markets

Oil prices sank to post-Gulf War lows on news of a jump in the nation’s oil inventories and amid renewed concern that Iraq may soon be allowed to sell oil again.

On the New York Merc, August oil plummeted 64 cents to close at $17.49 a barrel, hovering near the post-Gulf War low of $17.45 reached Feb. 25, 1991.

American Petroleum Institute inventory figures showed an unexpected rise in crude oil, gasoline and distillate stocks recently, setting a bearish tone for the market.

Meanwhile, at the United Nations, diplomats said oil export talks with Iraq are approaching an agreement. That could bring hundreds of thousands of barrels of oil onto the already glutted market.

Elsewhere, metals prices declined as inflation worries dissipated. Gold for current delivery settled at $390.90 an ounce, down $3.10 on New York’s Comex. Silver tumbled 10.4 cents to $4.94 an ounce.

In currency trading, the dollar ended lower against most major currencies in light trading.

Market Roundup, D6