FINANCIAL MARKETS : Stocks Buoyed as 30-Year Bond Rate Drops : Market Overview
The Nasdaq market climbed into new record territory and blue-chips advanced Monday after long-term interest rates fell sharply.
* The Treasury’s 30-year bond yield plunged below 6% on news that the Federal Reserve’s policy-making panel decided against higher interest rates last month.
* Gold prices fell sharply with the news of a calming political situation in Russia and a lack of inflation signals.
Stocks
Investors were encouraged by word late Friday that the Fed’s policy-setting Federal Open Market Committee has abandoned its leaning toward higher interest rates, analysts said.
That removed fears that the economic recovery would sputter under the weight of higher rates, they said.
The Dow Jones industrial average rose 24.59 points to end at 3,567.70. At the same time, the Nasdaq index rose 5.30 points to 759.95, extending a string of gains to a third straight session.
Recently, the stock market has been tracking bonds more closely than the tenor of economic news, which has been mostly sluggish. Low interest rates make stock prices more attractive.
“Stocks reacted to the bond market,” said Mary Farrell, an investment strategist with Paine Webber. “Once again, investors are expecting a slow-growth, low-interest-rate environment, and they are comfortable with that.”
Falling interest rates pushed up financial stocks. Banks and brokerages have made significant profits recently on the spread between money they lend and the money they borrow. Citicorp, for example, rose 3/4 to 37.
Oil stocks rose after the Organization of Petroleum Exporting Countries agreed on a fourth-quarter production ceiling. The appearance of harmony among OPEC members could stem the slide in oil prices. Chevron rose 2 1/8 to 93 1/4; Atlantic Richfield gained 2 to 112 3/8.
The strength of European stock markets also helped push share prices higher. Although Tokyo’s, the 225-share Nikkei fell 213.42 points to 20,094.11, London’s Financial Times 100-share average closed 21.1 points higher at 3,026.3. Frankfurt’s DAX 30-share average closed up 26.32 points at 1,912.18.
In the broader market, advancing issues outnumbered declining ones about 9 to 5 on the New York Stock Exchange. Big Board volume totaled 244.92 million shares, up slightly from 248.27 million on Friday.
Among the market highlights:
* BankAmerica led the NYSE’s “most-active” list, falling 1 to 45 3/4. Donaldson, Lufkin & Jenrette removed the stock from its “recommended” list and reduced estimates of BankAmerica earnings for 1993 and 1994.
* Paramount Communications added 1 7/8 to 77 1/2 as the bidding war for the company appeared to heat up.
* Spiegel surged 5 to 41 1/2 on news that it has formed a joint venture with Time Warner to create two home-shopping services for cable television.
In Nasdaq trading, Amgen fell 1 1/2 to 38 1/4. Dillon Read cut earnings estimates for the pharmaceutical company and downgraded the stock after a company meeting with analysts last week. Boomtown fell 3 1/4 to 22 3/4. Hancock Institutional Equity Services cut its earnings estimate for the company and downgraded the stock.
Credit
The Federal Open Market’s Committee decision, combined with a Monday morning report of slow housing sales to give fresh momentum to this year’s roaring bull market.
The bellwether 30-year bond tumbled to 5.94% from 6.03% on Friday, boosting its price, which moves in the opposite direction, 1 3/16 points, or $11.88 per $1,000 in face value. The yield was just above the record low of 5.86%, reached on Sept. 8.
The Fed’s neutral interest-rate policy was viewed as positive for bonds, since higher interest rates on newly sold Treasury instruments can hurt the value of older securities with fixed rates of return, such as bonds.
In the housing report, the National Assn. of Realtors reported that sales of existing single-family houses nationwide totaled a seasonally adjusted annual rate of 3.81 million, down 1.3%. It was the first decline in five months. The market expected a rise of about 1%.
That seemed to put a further damper on expectations of higher interest rates, since higher rates can deter economic growth.
The federal funds rate, the interest on overnight loans between banks, was 3.188%, up from 3% late Friday.
Other Markets
The precious metals have bounded up or down daily since last Tuesday, when Russian President Boris Yeltsin dissolved the parliament.
Gold finished Monday at its closing price on Sept. 20, before the Russian power struggle began.
On the New York Commodity Exchange, gold for current delivery closed at $353.70 an ounce, off $3.70 from Friday; silver fell 7.1 cents to $4.045 an ounce.
“The Russian premium is slowly but surely going out of the metals,” said James Steel, metals analyst with Refco Inc. in New York.
Crude oil futures ended moderately higher after losing most of the strong gains posted early in the session on the news that OPEC had set an overall cap on production, an attempt to drive up prices.
Light, sweet crude for November delivery finished 16 cents higher at $17.73 a barrel.
Meanwhile, the dollar was mostly unchanged against other currencies Monday, as traders awaited the results of a U.S.-Japanese summit and watched the situation in Russia.
The dollar advanced slightly against the Japanese yen, closing in New York at 106.05 yen, up from 105.85 yen on Friday. The greenback fell to 1.629 German marks, down from 1.640 marks.
Market Roundup, D10
