Dow Up Sharply as Investors Seem to Regain Confidence
Market Overview
* Blue-chip stocks rose strongly Wednesday as investors returned with greater confidence after last week’s market plunge.
* Bond yields fell for the first time in five sessions, as the Treasury sold 10-year notes.
* Oil prices plunged on new fears of a supply glut.
Stocks
The market’s tone was much improved from Monday and Tuesday, when investors were still reeling from the Federal Reserve Board’s decision to raise interest rates last Friday.
The Dow industrials gained 25.89 points to 3,931.92, and advances led declines by 1,289 to 850 on the New York Stock Exchange. Broader market indexes also rose.
The Dow, which plunged 96 points Friday after the Fed move, has now recouped almost two-thirds of that drop.
Investors are “beginning to put two and two together: that whatever happened Friday was an aberration,” said William LeFevre, senior market analyst at Ehrenkrantz King Nussbaum.
Many analysts say that while short-term interest rates may move higher this year, rates are still low enough to allow the bull market to continue.
Indeed, industrial stocks continued to lead Wall Street’s rebound, indicating strong belief in the vitality of the economy’s recovery.
Buyers were also cheered as bond yields eased a bit and oil prices slumped.
Among Wednesday’s highlights:
* Industrial issues that rose sharply included AlliedSignal, up 2 1/2 to 79 7/8; truck maker Paccar, up 2 1/4 to 59 1/2; Alcoa, up 1 1/8 to 80 1/2; Inland Steel, up 1 1/2 to 36 1/2; Rockwell, up 1 to 42 3/8; Federal Mogul, up 7/8 to 37 1/2, and Timken, up 7/8 to 36 7/8.
The Big Three auto stocks, however, were hit by profit taking as Ford announced earnings. Ford eased 1 to 68 1/2, GM fell 1/2 to 64 1/4 and Chrysler was off 3/4 to 61 3/8.
* Shipping stocks, which are also tied to the economy, rallied. American President soared 1 5/8 to 31 5/8, Roadway jumped 1 3/4 to 71 1/4 and Consolidated Freightways added 1 to 28 3/8.
Among airlines, USAir lost 5/8 to 13 1/2. Brokerage CS First Boston downgraded the stock to “hold” from “buy” and slashed earnings forecasts, citing USAir’s new low fares.
* Investors snapped up many technology and telecommunications issues. Compaq surged 2 1/8 to 90, Adobe Systems gained 2 to 29 1/2, AST Research rocketed 1 3/8 to 32 1/4 and 3Com shot up 3 to 63.
* On the downside, WMX Technologies fell 3 1/4 to 25. The waste management firm reported quarterly earnings below estimates.
In foreign trading, London’s FTSE-100 index eased 11.1 points to 3,429.1 and Frankfurt’s DAX index lost 21.92 points to 2,085.29.
In Tokyo, the Nikkei index slid 409.85 points to 19,841.38 on fears that the government’s new fiscal stimulus plan won’t be enough to halt the economy’s slide.
In Mexico City, profit takers clipped 21.54 points off the Bolsa index, to 2,859.63.
Other Markets
Interest rates eased across the board as the Treasury sold $12 billion in 10-year notes at an average yield of 5.92%, which was near expectations.
The yield on the Treasury’s 30-year bond closed at 6.40%, down from 6.45% on Tuesday. Shorter-term yields also fell.
The bid-to-cover ratio on the 10-year notes, which measures the number of bids offered to the number accepted, was 2.58 to 1, a level about even with auction results over the past three years.
“It was a decent auction that provided some hope for the market in terms of finding some sort of bottom after Friday’s Fed tightening,” said Anthony Karydakis, senior financial economist at First Chicago Capital Markets.
The Treasury concludes its quarterly refinancing today with the sale of new 30-year bonds.
On Friday, the bond market faces another test: The government reports on wholesale inflation in January. If the number is higher than expected, it could fuel fears that the Fed will tighten credit another notch sooner rather than later.
Many bond buyers are betting that the Fed’s quarter-point increase in rates last week is not the first shot in a rapid succession of rate increases. However, bad news on the inflation front could force the Fed’s hand.
Elsewhere:
* Oil futures fell sharply on the New York Merc after weekly reports from the American Petroleum Institute and the Department of Energy showed unexpected increases in U.S. crude oil supplies, despite frigid weather in the East.
March crude futures tumbled 61 cents to $14.60 a barrel, a four-week low.
* Gold added $1.70 to $384 an ounce on the Comex; silver rose 6.5 cents to $5.34.
