Declining Interest Rates Buoy Stock Prices : Market Overview
Stock market measures moved to still loftier levels Thursday in another record-making session, buoyed by declining interest rates.
* The rally in long-term Treasury bond prices raced ahead as long-term yields fell sharply on an unexpected surge in the nation’s trade deficit.
Stocks
Although the market’s recent advances have given investors a compelling reason to sell and collect profits, further declines in interest rates steered more money into stocks. Falling interest rates have been one of the chief forces supporting the stock market for months.
After staying close to even for much of the day, the Dow Jones industrial average benefited from a late buying surge and wound up with a gain of 7.27 at 3,612.13. It was the third straight record close for the blue chip gauge and the fifth in the last nine sessions.
But the breadth of the market’s advance was not impressive as profit takers tempered the market’s rise. The number of stocks advancing in price was almost the same as the declines on the Big Board.
Big Board volume contracted to 293.33 million shares from 312.94 million on Wednesday.
Other indicators also improved upon their previous best performances. The Standard & Poor’s 500-stock index edged past a record high reached in March. It rose 0.39 to 456.43.
The New York Stock Exchange composite index posted a second consecutive closing high, gaining 0.36 to 253.23.
Even the most profit-minded stock investors could not ignore developments in the bond market Thursday where interest rates tumbled to unprecedented levels.
A pause in the stock rallies overseas might have blunted some of the buying enthusiasm on Wall Street.
Frankfurt’s 30-share DAX average closed up 3.26 at 1,938.98, while in London, the Financial Times 100-share average fell 8.1 points to end at 3,065.5. Meanwhile, in Tokyo, the 225-share Nikkei average finished down 85.71 points at 20,687.47.
Among the market highlights:
* American Telephone & Telegraph slipped 1 1/2 to 58 1/8. Brown Bros. removed its trading buy rating and Cowen cut its 1993 and 1994 earnings estimates.
* Maxtor Corp. rose 1 3/8 to 6 3/4 on NASDAQ. Hyundai Electronics is buying a 40% stake in the company for $150 million.
* Cheyenne Software rose 2 5/8 to 38 1/8. Oppenheimer raised its 1994 earnings estimate and repeated a buy rating.
* Summit Technology jumped 2 3/4 to 23 1/4. Smith Barney Shearson initiated coverage with an outperform rating. Profit-taking in technology shares held back the NASDAQ index, Smith Barney’s Marshall Acuff said.
* SuperMac Technology slumped 3 5/8 to 12. Volpe Welty cut its rating to hold from buy, citing concerns about competition. Paine Webber raised its rating, saying the stock overreacted.
* Intel was off 1 1/2 to 64, Cisco Systems lost 2 to 54 3/4 and Novell was off 1 to 21 1/4. Microsoft ended off 3 to 74 1/4. The software giant’s chairman, Bill Gates, repeated earlier forecasts that the company’s profit margins will fall this year.
Credit
The buying spree was aimed mainly at 30-year bonds, as investors bet that the Treasury’s decision to slash sales of long-term maturities will create scarcity and drive up values in the secondary market.
The yield on the Treasury’s benchmark 30-year bond plunged to 6.20% from 6.25% Wednesday. The price, which moves in the opposite direction, shot up 11/16, or $6.88 per $1,000 in face value.
For the seventh time in two weeks, the long bond yield closed at its lowest level since the Treasury began regular auctions of 30-year issues in 1977.
The trade news was far worse than economists had predicted.
The Commerce Department said the U.S. merchandise trade deficit soared 44% in June to $12.1 billion, the worst imbalance in nearly six years, as exports slumped and imports hit a record high.
However, Thursday’s price surge was mostly limited to long-term maturities, which have benefited from expectations that the Treasury’s debt management shift--away from 30-year bonds to maturities of three years and less--will create a scarcity of the longer issues, driving up their value.
The federal funds rate, the interest on overnight loans between banks, was 3%, unchanged from late Wednesday.
Commodities
Gold prices fell. On the New York Commodity Exchange, gold for current delivery closed at $371.30 an ounce, down $3.00 from Wednesday. At the same time, silver for current delivery dropped 5.2 cents to close at $4.653 an ounce.
Gasoline futures trended lower but most crude oil and heating oil contracts were a little higher on the New York Mercantile Exchange. Light, sweet crude oil for September delivery was 1 cent lower at $17.65 a barrel.
Market Roundup, D6
