FINANCIAL MARKETS : Dow Gains Despite Another Rise in Yields
Market Overview * Many blue-chip stocks closed higher Friday, fighting for a second day to ignore a surge in long-term bond yields. In Europe, stocks rocketed in response to falling short-term interest rates.
* Nervous investors dumped Treasury bonds in a repeat of Thursday’s selloff, after Federal Reserve System Chairman Alan Greenspan gave an upbeat economic speech.
Stocks
Wall Street finished mixed, reflecting many investors’ simultaneous worry over a troubled bond market and joy over upbeat quarterly earnings from key companies.
Analysts noted that the market is increasingly looking like it should at this stage of an economic recovery: As hopes rise for faster growth, investors usually stop focusing on interest rates and instead pay attention to the potential for surging corporate profits.
“The economy is stronger than most investors have realized, and it is now being reflected in stock prices,” said Stefan Abrams, strategist at Trust Co. of the West.
Still, the bond market’s selloff clearly took a toll: The Dow industrials, up as much as 40 points early in the day, finished with a gain of 13.14 points at 3,649.30. For the week, the Dow added 19.57.
In the broad market Friday, losers edged winners on the NYSE, but the reverse was true on Nasdaq. And the Nasdaq composite added 1.40 points to 772.68.
Reflecting the high level of interest in stocks, the NYSE said volume for the week--1.5 billion shares--was the third-highest weekly volume ever.
Traders said buyers’ enthusiasm in the wake of some healthy third-quarter earnings reports was bolstered by Germany’s surprise interest-rate cuts Thursday, which boosted the odds of a European economic recovery in 1994.
European stock markets boomed after the rate cut. In Frankfurt, the DAX index jumped 31.48 points to a record 2,066.17. In London, the FTSE-100 index added 10.7 points to a record 3,199.0. Paris’ CAC-40 index also hit a new high, up 32.14 points to 2,231.86.
Optimism was high in Mexico City as well: The Bolsa index gained 15.71 points to a record 2,027.12.
Among U.S. market highlights:
* Industrial stocks led the market, benefiting from economic hopes and good third-quarter earnings reports. Caterpillar zoomed 4 to 89 7/8, Cummins Engine rallied 3 1/8 to 87, Litton Industries rose 1 3/8 to 67 3/8, Allied Signal gained 1 5/8 to 71 5/8, Bethlehem Steel rose 1 1/8 to 16 3/4 and United Technologies leaped 3 to 61 3/4.
* Some technology stocks also were strong. Novell rose 1 1/8 to 21 7/8, AST Research gained 1 1/4 to 19 1/2, Quantum jumped 1 3/4 to 12 and Cray Research added 1 7/8 to 26.
* The broad market was weighed down by new weakness in drug and food stocks. Pfizer fell 1 3/8 to 63 1/8, Upjohn lost 1 1/4 to 33 5/8, Quaker Oats sank 2 to 70 1/2, American Home Products fell 1 3/4 to 60 3/4 and General Mills eased 1 1/8 to 62 5/8.
* Utilities and other interest-sensitive stocks had a bad day. The Dow utilities index fell 2.44 points to 240.51. SCEcorp sank 3/4 to 20 7/8, Houston Industries lost 1/2 to 48 1/4 and Southern Co. fell 5/8 to 45 5/8.
Other Markets
The yield on the Treasury’s 30-year bond jumped to 5.97% from 5.92% on Thursday, as more bond owners began to fear that an improving economy will put upward pressure on interest rates.
Just one week ago, the T-bond’s yield was at its lowest in more than 20 years, at 5.79%. But this past week, some upbeat U.S. economic statistics and new hopes for a recovery in Europe raised the prospect of stronger U.S. growth in 1994, and thus potentially higher inflation.
On Friday, Fed Chairman Greenspan added to bond investors’ fears. In a speech, he said that the 1980s debt burden on businesses and consumers, which he once described as a 50-m.p.h. head wind facing the economy, has abated to 20 m.p.h. to 25 m.p.h.
The implication is that the economy may face less of a drag on growth in 1994--which could hasten the day the Fed tightens credit.
In other markets:
* The dollar was mostly higher, bolstered by European interest rate cuts. In New York, the dollar closed at 1.677 German marks, compared to 1.667 on Thursday.
* December gold futures eased $1.50 to $371.30 an ounce; silver slid 7.5 cents to $4.46.
Market Roundup, D4
