FINANCIAL MARKETS : Stocks Gain Broadly as Yields Drop
Market Overview
* A late round of computer-driven program buying pushed stocks broadly higher Tuesday, encouraged in part by falling interest rates. Smaller company stocks also rebounded.
* Treasury bond yields fell for the first time in six trading days, pushing prices briskly higher on a perception that investors had overreacted to recent news of economic strength.
Stocks
Stocks skipped higher in the morning, languished later in the session, then rose sharply in the last minutes of trading, roughly following the bond market’s trajectory.
The Dow Jones industrial average closed at its high for the day, rising 27.30 to 3,783.90 on Big Board volume totaling 326.6 million shares.
Smaller-company shares bounced back after the previous session’s declines, buoying the Nasdaq composite index, which rose 3.52 to 774.28.
In the broader market, advancing issues outnumbered losers by about 4 to 3 on the New York Stock Exchange.
“Stocks took their cue from the strong bond market,” said Ricky Harrington, senior vice president at Interstate/Johnson Lane.
Stock investors like to see bond prices rise because that makes share prices more appealing and cuts the cost of money to corporations.
Harrington also attributed the late activity to the so-called January effect. The seasonal trend is the result of market players buying back losing stocks sold off at the end of the year to offset gains on winners.
Other analysts pointed out that early January is typically the strongest period of the year for the influx of new capital to money managers, who then must turn around and invest.
Among the market highlights:
* Leaders on the NYSE were economically sensitive, or cyclical, shares such as International Paper, up 1 5/8 to 69 5/8; General Motors, up 1 1/8 to 56 1/2, and Caterpillar, up 1 5/8 to 91.
* Among individual stocks, drug company Bristol-Myers Squibb became the latest firm to announce job cuts, saying it will slash its work force by 5,000 worldwide in a restructuring. Its shares closed up 1 3/8 to 58 7/8.
* In the technology group, Intel rose 2 1/2 to 63 3/4 and Apple Computer gained 1 5/8 to 31 1/2. * Still, MCI Communications which led the Nasdaq most-active list, lost 1 7/8 to 26 5/8. The company said that, along with partners, it plans to invest more than $20 billion to create new services.
* Time Warner fell 2 1/4 to 41 7/8. Alex. Brown downgraded the stock to “buy” from “strong buy,” citing a larger than expected slowdown in the media giant’s cash flow.
Stocks ended lower abroad. Mexican stocks rebounded in late trading to close up sharply on reports that civil unrest in the southern state of Chiapas appeared to be easing, traders said. The Bolsa was up 56.66 points at 2,558.89.
In Tokyo, the 225-share Nikkei average edged 47.50 points lower to 17,369.74. London shares fell on profit taking. The Financial Times 100-share average ended down 9.9 points at 3,408.5. In Frankfurt, the 30-share DAX average closed down 14.4 points at 2,253.58.
Credit
The bond market strength came in extremely volatile trading, and the outlook remained generally bearish ahead of Friday’s report on December employment.
The monthly jobs report is expected to add to recent signs that the economy grew vigorously in the last quarter of 1993, raising the prospect of higher demand for goods and services, which could accelerate inflation.
The yield on the Treasury’s key 30-year bond receded to 6.34% from 6.42% on Monday. The long bond’s price, which moves in the opposite direction, jumped 31/32 point, or $9.69 per $1,000 in face value.
Bond strategists traced the rebound to a perception that the weakness Monday was an overreaction that created bargains in the market. Enticed by Monday’s price decline, many traders had set up “short-selling” strategies that allowed them to profit from further price declines.
In short selling, traders borrow bonds, then sell them immediately, anticipating that the value will decline. If it does, the traders buy contracts at the lower price, then repay the loan and pocket the difference.
But many of these traders bailed out by buying bonds when prices began rising Tuesday, generating what is known as a short-covering rally.
However, prices fell sharply around early afternoon as the market’s recent bearish sentiment crept back in. Then, in yet another turnaround, prices reversed course in a last-minute rally that some analysts traced to fresh indications of economic weakness.
Other Markets
The dollar fell against most major currencies.
Elsewhere, gold for current delivery closed at $394.10 an ounce, up 40 cents on the New York Comex. Silver closed at $5.20 an ounce, off 2 cents.
Meanwhile, light, sweet crude for February delivery rose 11 cents to $14.67 a barrel on the New York Merc.
