Bond Rally Pushes Ahead; Stocks Mixed : Market Overview
The rally in long-term Treasury bonds raced ahead, pushing yields to historic lows once again.
* The Dow industrials hit a new high, but stocks overall failed to sustain Wednesday’s momentum as profit takers moved in.
Credit
In what has become a recurring event this summer, heavy buying of 30-year Treasury bonds pushed yields to their lowest levels since the government began selling such bonds in 1977.
The 30-year bond yield slumped to 6.20% from 6.25% on Wednesday. As recently as Aug. 1, the bond’s yield was 6.56%.
Shorter-term interest rates also declined. The yield on five-year T-notes fell below 5% to 4.95%, from 5.02% on Wednesday.
Investors have been scrambling to lock in yields in recent weeks on the assumption that economic growth will remain slow at best, keeping pressure off interest rates.
The bond market got another push Thursday after the government reported a huge jump in the nation’s trade deficit in June. Slowing demand for U.S. exports suggested that foreign economic weakness will continue to be a drag on the U.S. economy.
But while many investors are buying bonds for what they expect will be the long haul, analysts warn that speculators are increasingly driving the market now: Whenever a market appears to have momentum--either up or down--speculators hop aboard for the ride, further magnifying the move.
At the first sign of profit taking, however, those speculators may abandon bonds, analysts warn. That could cause an abrupt reversal in rates, although it would probably just be temporary if the economy remains weak.
Stocks
Stocks closed mixed as sellers hit the NASDAQ market while blue-chips rose to new highs.
The Dow industrials gained 7.27 points to 3,612.13--the third straight record close--with most of the gain coming in the final minutes.
Volume on the New York Stock Exchange remained heavy at 293.3 million shares.
Another blue-chip index--the Standard & Poor’s 500--finally topped its previous high set in March. The index rose 0.39 point to 456.43, edging the old peak of 456.33.
But in the NASDAQ market of mostly smaller stocks, the composite index lost 4.35 points to 730.48, and losers topped winners 11 to 10.
Analysts said profit taking in smaller stocks was expected given that the NASDAQ market has far outpaced bigger stocks this month.
Experts also said it wasn’t surprising that the market ignored the trade deficit report, because investors have low expectations for the economy in the short term.
Meanwhile, a report from the New York Stock Exchange on Thursday illustrated the high level of disbelief that has accompanied this bull market surge.
The NYSE said “short interest” jumped to a record 1.096 billion shares this month from 1.039 billion in July.
Short interest measures the number of shares that have been borrowed and sold in the open market by traders speculating on a market decline. If they are correct and stocks plunge, these speculators can buy new shares in the open market at lower prices to replace what they’ve borrowed. Thus, they profit from the spread.
But if stocks continue to advance, high short interest becomes bullish for the market, because the short sellers must rush in to close out their positions before their losses spiral out of control. Such buying can add to a new bull market surge.
Among U.S. market highlights:
* Technology stocks slumped after surging earlier in the week. Microsoft Chairman Bill Gates hurt sentiment after he repeated earlier forecasts that his company’s profit margins will fall this year.
Microsoft tumbled 3 to 74 1/4, Intel lost 1 1/2 to 64, Apple fell 1 to 27 1/2, Adobe Systems dropped 2 1/8 to 23 5/8 and Cisco Systems eased 2 to 54 3/4.
But Maxtor jumped 1 3/8 to 6 3/4. Korea’s Hyundai Electronics is buying a 40% stake in the computer disk drive maker for $150 million.
* Many industrial stocks were also hit by profit taking. PPG fell 1 to 69 1/8, PACCAR lost 1 to 61 1/4, Varity eased 1/2 to 36 1/4 and Monsanto gave up 5/8 to 63. But Eaton surged 2 to 47 1/4 and GM rebounded 1 1/8 to 45 1/2.
* Consumer stocks’ recent rally lost steam. Kellogg rose 2 to 52 3/4 and Warner-Lambert gained 3/4 to 70 5/8, but Lilly eased 1/4 to 47 5/8 and Quaker Oats lost 7/8 to 68 3/4.
* AT&T; shareholders continued to react negatively to the firm’s planned purchase of cellular phone giant McCaw Cellular. AT&T; fell 1 3/8 to 58 1/4. The recent peak was 65.
In London, the FTSE-100 index eased 8.1 points to 3,065.5. In Paris, the CAC-40 index gave back 21.55 points to 2,139.20. And in Tokyo, the Nikkei average finished down 85.71 points at 20,687.47.
Commodities
A new selling wave hit the gold market, driving near-term gold futures down $3 to $371.30 an ounce on New York’s Comex. Silver fell 5.2 cents to $4.65.
Market Roundup, D6
