Blue-Chips Hit Record High on Economic Data : Market Overview
A fresh batch of good economic news pushed blue-chip stocks to their second consecutive all-time high Tuesday, but the broader market ended mixed as interest rates continued to rise.
* Treasury bond rates were pushed higher as investors reacted to an unexpected spurt in sales of new houses, the latest sign of economic growth to depress the credit markets.
* The dollar hit an 11-week high against the German mark after Germany’s central bank president said he was untroubled by the greenback’s increasing strength.
Stocks
Early in the session, stocks followed Treasury bond prices lower as investors worried about the rising yields that come with lower bond prices. By midafternoon, stocks had recovered somewhat.
A storm of buying shares of International Business Machines Corp., which led the NYSE most-active list, also helped push the Dow industrials higher. IBM rose 3 1/8 to 50 7/8 after an analyst at Donaldson, Lufkin & Jenrette Securities upgraded the stock.
The Dow rose 5.03 points to 3,697.64, eclipsing the previous peak of 3,692.61 reached Monday. Big Board volume came to a heavy 304.78 million shares, up from 256.03 million traded in the previous session. Meanwhile, in the broader market, declining issues outnumbered advancing ones about 5 to 4 on the New York Stock Exchange.
Long-term interest rates rose for a second day, following news that the economy may be picking up steam. Economic growth can mean inflation, which erodes the value of fixed-income investments such as bonds.
Rising yields are often discouraging to stock investors because the trend could eventually make shares less appealing.
“There has been no real alternative investment to the stock market, but that might be changing, and investors are worried,” said Bill Allyn, managing director at Jefferies & Co.
The Commerce Department said its main economic forecasting gauge, the index of leading indicators, rose 0.5% in September, indicating moderate growth into 1994. Economists had predicted a 0.4% gain for September.
Later, the government said sales of new houses shot up 20.8% in September to the highest level in nearly seven years. The change was substantially higher than the 0.4% increase many economists had expected.
The so-called cyclical stocks, shares of companies whose success is closely tied to the overall economy, tumbled in the morning but recovered late in the day. Alcoa rose 1/4 to 68; Caterpillar rose 1/8 to 92 3/8.
“If you have been gloomy about the U.S. economy, this is a slap in the face,” said Peter Canelo, chief investment strategist at NatWest Securities. “There has been a change in economic perceptions.”
Overseas, Germany’s 30-share DAX average closed at a new high of 2,095.58, up 33.46 points, or 1.62%. In Tokyo, the Nikkei average closed at 19,381.24, down 57 points. London’s Financial Times 100-share average dipped 0.3 point to 3,164.1.
Among the market highlights:
* Bank stocks tumbled with bond prices. Bank profits have been at record high levels over the past year, partly because of an unusually wide spread between the rates banks pay on deposits and what they earn from loans and investments. Morgan Stanley, for example, fell 2 1/2 to 76 1/2. Chemical Bank dropped 7/8 to 40 1/2 and Wells Fargo lost 1 1/2 to 110 3/4.
* Also on the NYSE, Great Western Financial rose 1 3/8 to 20 3/8 in dividend-related trading.
* Kmart rose 1/8 to 24 7/8 after it announced the sale of its PACE Membership Warehouse stores to Wal-Mart Stores. Wal-Mart gained 7/8 to 27.
* Forest products stocks gained as timber prices rocketed on surging housing demand. Louisiana Pacific gained 3 1/8 to 41 1/2; Weyerhaeuser added 1 3/8 to 42; Champion International rose 1 1/2 to 30 3/4.
* The Nasdaq composite index, meanwhile, rose 1.89 to 785.66. Geotek was among the leaders, rising 2 3/4 to 13 1/2 after it was announced that a partnership including George Soros will invest $40 million in the company.
Credit
As bond market yields rose, prices tumbled to a six-week low.
But analysts said the recent sharp price decline could be a temporary setback for a market that until recently was regularly setting new highs. Several major, fixed-income investors were said to be prepared to buy bonds again.
The Treasury’s main 30-year bond yield ended at 6.06%, the highest level since Sept. 23. It closed Monday at 6.03%. The long bond’s price fell 3/8 point, or $3.75 per $1,000 in face value.
Prices of short-term Treasury securities posted smaller losses, falling between 1/32 point and 3/32 point. Intermediate maturities were lower by as much as 11/32 point, the Telerate Inc. financial information service reported.
The latest news of economic strength further fueled fears of inflation and rising interest rates, conditions that tend to reduce the value of bonds.
Investors who are worried that the Treasury market may have peaked are selling U.S. bonds and buying foreign securities that offer more room for price appreciation, said Kathleen Camilli, chief economist at Maria Fiorini Ramirez.
The federal funds rate, the interest on overnight loans between banks, was 3%, down from 3.125% on Monday.
Other Markets
The dollar jumped after Germany’s central bank president, Hans Tietmeyer, told reporters he was not concerned about the dollar’s advance against the mark. He also said Germany had not been selling dollars and buying marks to maintain the exchange rate, as some investors had suspected.
“Once that statement came out, the dollar went straight up,” said John Nelson, director of foreign exchange at Barclays Bank in New York.
Earlier, the dollar got a boost from the positive news about the U.S. economy. But it fell back before Tietmeyer’s comments.
In New York, the dollar closed at 1.695 German marks, up from 1.694. It also finished at 107.80 Japanese yen, down from 108.23.
Currency traders said the dollar has been gaining strength from a growing perception that the interest rate gap between the United States and Europe is narrowing. While long-term U.S. bond rates have been climbing, promising better returns for dollar-denominated investments, European rates are expected to stay low as those countries work their way out of recession.
In commodities trading, gold prices rose in the United States and fell overseas.
On the New York Comex, gold for current delivery closed at $362.70 an ounce, up $1.50 from Monday. On the New York Comex, silver closed at $4.182 an ounce, off 3.3 cents. The energy markets recovered much ground lost to Monday’s sharp selloff, as traders evened up their positions in advance of an industry report on U.S. oil stocks. Light, sweet crude oil for December delivery fell 31 cents to $17.12 a barrel.
Market Roundup, D8
