Industrials Rocket as Yields Tumble
Industrial issues led the stock market’s dramatic rebound on Tuesday, as a rally in the bond market opened Wall Street’s door to eager bargain hunters.
The Dow industrials rocketed 82.06 points, or 2.3%, to 3,675.41, and the broad market--beaten down for the last 10 days--followed the blue-chip index higher.
On the NYSE, winners swamped losers by a 21 to 3 margin, about the same margin that losers had topped winners on the market’s worst days over the past week. Trading was heavy.
Most broad stock indexes, which by Monday’s close were off 8% to 10% from their record highs, gained 2% to 3% Tuesday.
Traders noted that the recent heavy selling of stocks had left the market ripe for a rally on any good news, which came Tuesday in the form of falling interest rates.
The yield on the 30-year Treasury bond, which had zoomed to a 15-month high of 7.40% on Monday, fell to 7.24% on Tuesday after the government’s report on February leading economic indicators suggested a slowing economy.
Short-term interest rates also slumped, indicating that some investors were losing their fear that the Federal Reserve will hike short-term rates again soon.
“The market is taking heart from the idea that the leading indicators are down a little bit,” said Robert Brusca, chief economist at Nikko Securities.
“Bonds have been beaten up and bloodied, so they bounce back. (But) I don’t know whether this is the end of a cheap horror movie, where they bounce back just to fall back in the grave,” Brusca said.
Indeed, traders said most investors continue to have a wait-and-see attitude toward bonds: If yields stabilize here, more buyers may enter the market. But if Tuesday’s rally invites more selling by bond holders trying to exit the market, yields could begin to rise again, traders warned.
In the stock market, the Dow was up 50 to 60 points for much of the day, until a late burst of buying drove prices even higher.
The bulls took heart from the rush of money back into industrial, technology and transportation issues in particular. Those kinds of companies are expected to show the greatest earnings gains as the economy strengthens. Thus, their stocks are viewed as the leaders of any new bull market surge.
Among Tuesday’s highlights:
* Industrial shares in hot demand included Caterpillar, up 3 to 116 1/4; GM, up 2 1/4 to 57 1/4; Chrysler, up 2 7/8 to 54 1/2; United Technologies, up 3 1/4 to 65 1/2; Illinois Tool Works, up 2 1/8 to 41 3/4, and Kennametal, up 2 3/8 to 54 3/4.
* Among transportation stocks, Conrail surged 3 to 59, Roadway gained 1 1/8 to 25 1/2 and Airborne Freight was up 1 5/8 to 35 1/8.
* Tech stocks were led higher by Compaq, up 2 3/8 to 100 7/8; Microsoft, up 3 1/4 to 87 3/4; Cabletron Systems, up 5 3/4 to 113 1/4, and Motorola, up 3 5/8 to 104 5/8.
* Retailers also were strong. Sears soared 2 3/8 to 46 5/8, J. C. Penney leaped 2 3/4 to 56 1/2, Dayton Hudson gained 3 to 76 1/4 and Nordstrom surged 2 3/8 to 42 1/8.
In foreign markets, healthy gains overnight helped Wall Street’s bullish tone. In Tokyo, the Nikkei index soared 440.99 points to 19,563.21, while Frankfurt’s DAX index added 25.18 points to 2,158.29 and London’s FTSE-100 index was up 29.8 points to 3,116.2.
In Mexico City, however, the Bolsa index lost more ground, falling 31.34 points to 2,234.15.
In other U.S. markets, the dollar surged, while gold eased $1.90 to $384.40 an ounce.
* COMING THURSDAY: A report on how bond mutual funds performed in the first quarter and their outlook.
