FINANCIAL MARKETS : Stocks Buoyed as 30-Year Bond Rate Drops : Market Overview
Stocks rallied broadly as interest rates fell. Smaller stocks again hit record highs.
* Interest rates slid across the board, pushing the 30-year Treasury bond yield below 6%, on relief that the Federal Reserve Board has apparently decided against raising interest rates anytime soon.
* Gold slumped as Russia’s political situation appeared to calm. Oil gained slightly on news of a new OPEC production cap.
Stocks
The bond market’s rally provided a solid underpinning for stocks, and buyers swarmed for most of the day.
The Dow industrials rose 24.59 points to 3,567.70, gaining back some of last week’s 70-point loss. Big Board trading was moderate at 245 million shares.
Once again, smaller-company stocks reached new highs. The Nasdaq composite index of mostly smaller stocks rose 5.30 points to a record 759.95. So far this month, the index is up 2.3%.
But the Nasdaq market’s breadth suggested the market may be tiring. Winners topped losers by 13 to 10 on Nasdaq, compared to nearly 2 to 1 on the New York Stock Exchange.
Analysts said the market opened with leftover good will from Friday’s late report on the Fed’s August meeting, at which the Fed abandoned its “bias” toward higher interest rates, favoring a neutral approach.
The threat of higher interest rates has spooked some stock and bond investors over the last month. But with the Fed’s finger apparently off the trigger, “once again, investors are expecting a slow-growth, low-interest-rate environment, and they are comfortable with that,” said Mary Farrell, investment strategist with Paine Webber in New York.
Investors’ next big test: the quarterly corporate earnings reports that will flow starting next week. Traders warn that investors’ expectations remain high, especially for smaller companies.
Among the market highlights:
* Technology stocks again led the market. Intel surged 1 5/8 to 70 3/8, Microsoft jumped 2 1/4 to 82 1/4, Motorola leaped 3 to 102 1/2, Lotus Development gained 1 3/4 to 46 3/8 and Computer Sciences was up 1 3/8 to 93 5/8.
* Energy stocks were mostly higher, even though oil prices rallied only slightly in response to OPEC’s newest attempt to limit oil production. Chevron rose 2 1/8 to 93 1/4, Atlantic Richfield jumped 2 to 112 3/8, Mobil gained 7/8 to 79 1/2, Phillips added 3/4 to 31 7/8 and Amoco rose 1 to 55.
* Brokerage stocks surged. After the market closed, Charles Schwab said it expects to report quarterly earnings up 130% from a year ago. Schwab jumped 1 7/8 to 35 1/4, Merrill Lynch gained 1 5/8 to 99 5/8, Paine Webber added 1 to 33 1/2 and Morgan Stanley leaped 2 1/4 to 89.
* Casino stocks were hot. Mirage Resorts jumped 2 1/4 to 59 1/4, Caesars World gained 1 3/8 to 50 1/4, Promus added 1 1/4 to 77 3/4, Hilton surged 2 3/8 to 49 3/4 and President Riverboat leaped 3 1/4 to 45 3/4.
But Boomtown tumbled 3 1/4 to 22 3/4 after Hancock Institutional Equity cut earnings estimates and downgraded the stock to “hold,” citing expansion-cost concerns.
* Also on the downside, BankAmerica fell 1 1/4 to 45 1/2 after DLJ Securities removed the stock from its “recommended” list. And biotech giant Amgen lost 1 1/2 to 38 1/4 after brokerage Dillon Read cut earnings estimates and downgraded the stock to “neutral.”
Overseas, London’s FTSE-100 index rose 21.1 points to 3,026.3 and Frankfurt’s DAX index rose 26.32 points to 1,912.18.
But in Tokyo, the Nikkei index fell 213.42 points to 20,094.11.
Credit
Bond yields continued the descent they began Friday, after the Fed’s policy-making Open Market Committee revealed it had adopted a neutral stance on interest rates in August.
The Fed’s decision--a rejection of the previously disclosed Fed “bias” toward raising rates--indicated a concerned stance by the central bank about the slow economy, analysts said. That may leave the door open for new interest rate cuts, some said.
The bellwether 30-year Treasury bond yield tumbled to 5.94% on Monday from 6.03% on Friday. The new yield is the first close below 6% since Sept. 15.
Among shorter-term issues, the yield on three-year T-notes fell to 4.07% from 4.14% on Friday.
Traders said bond buyers also were encouraged by Monday’s report that sales of existing single-family homes nationwide fell 1.3% in August, the first drop in five months. That suggested more reason for the Fed to be looser with credit rather than tighter, experts said.
Other Markets
Crude oil futures ended moderately higher after losing most of the strong gains posted early in the session on the news that the Organization of Petroleum Exporting Countries had set an overall cap on production.
Though OPEC’s move is aimed at driving up prices, traders weren’t impressed. Light, sweet crude futures for November finished just 16 cents higher at $17.73 a barrel.
OPEC ministers raised their oil output ceiling for the fourth quarter to 24.5 million barrels a day. Though that is above the 23.6-million-barrel ceiling OPEC had set for itself in June, it would be just slightly below what the cartel is currently pumping, analysts said.
Still ahead is the trickier task of allocating production quotas among individual OPEC members, traders said.
In other markets:
* Gold futures on the New York Comex sank $3.70 to $353.70 an ounce, responding to a calmer political environment in Russia. Silver fell 7.1 cents to $4.05.
* The dollar was mixed against other currencies, as traders awaited the results of a U.S.-Japanese summit and watched the situation in Russia.
The dollar closed in New York at 106.05 Japanese yen, up from 105.85 on Friday. It fell to 1.629 German marks from 1.640.
Market Roundup, D10
