Stocks and Bonds Stage Dramatic Rally; Dow Adds 54 : Markets: Surprising IBM profit report sparks optimism, while hints of economic slowdown help bonds.
The stock market staged a sharp rebound Thursday, driven by another rally in the battered bond market and by a surprisingly strong profit by beleaguered IBM Corp.
The Dow Jones industrials rocketed 53.83 points to end at 3,652.54 as buyers flocked back to many stocks that had been dumped in recent weeks, the victims of rising interest rates.
In the bond market, the influence of the Federal Reserve Board’s three credit-tightening moves this year seemed to recede, as investors rushed in and bond yields fell across the board.
The yield on the Treasury’s benchmark 30-year bond dropped to 7.21% from 7.31% on Wednesday.
Analysts said the continuing turnaround in the bond market, which has been rallying since Tuesday, appeared to be tied to belief that the U.S. economy is already slowing from the brisk growth of the past two quarters.
“I think what’s crept into the (bond) bears is a bit of doubt about the vigor of the economy,” said Dana Johnson, analyst at First Chicago Capital Markets.
Signs of an economic slowdown were evident in the government’s Tuesday report on the nation’s February trade deficit, experts say. A marked decline in export growth suggested that the manufacturing sector, which has surged in recent months, will soon see activity ebb.
More questions about the strength of the economic recovery were raised Thursday when the Labor Department reported that the number of newly laid-off workers filing claims for jobless benefits unexpectedly rose by 14,000 last week--the third straight increase.
Also, the Federal Reserve Bank of Philadelphia on Thursday released a regional economic report that described slower growth.
The stock market, which had failed to respond well to the bond market’s Wednesday rally, finally took some comfort Thursday from falling interest rates. Analysts said investors obviously are hoping that the economy slows only enough to stave off another Fed rate increase and not enough to fall into recession.
Meanwhile, International Business Machine’s surprisingly upbeat first-quarter earnings report helped ignite buying, traders said. IBM zoomed 6 1/8 to 58 3/8.
In the broad market, advancing issues swamped decliners by about 11 to 5 on the New York Stock Exchange. Trading was very heavy at 378.7 million shares.
Despite concerns about a slowing economy--which had crushed many industrial, transportation and technology stocks earlier in the week--buyers returned to those stocks Thursday.
The Nasdaq market of mostly smaller stocks also enjoyed healthy buying. The Nasdaq composite index surged 13.22 points, or 1.9%, to 718.74.
Still, many traders cautioned that stocks were overdue for some kind of rebound after the heavy selling of recent weeks. This may not necessarily indicate an end to the market’s “correction,” Wall Streeters warned.
“The stock market has been under some tremendous pressure,” said Paul Hennessey, vice president of trading at Boston Co. “It was looking for an opportunity to rally here, and when the bond market rallied, it rallied along with it.”
Others, however, noted that the strength of the rally was impressive. “People are beginning to feel halfway decent about things,” said Larry Kinney at Soundview Financial. “This is the best rally we have had in about three weeks.”
Among the market highlights:
* Many tech stocks followed IBM higher. Winners included Intel, up 2 3/4 to 60 1/4; Compaq, up 6 7/8 to 108 3/4; Cabletron Systems, up 8 1/8 to 103 1/4; Texas Instruments, which also reported strong earnings, up 6 3/4 to 71 1/2, and Cheyenne Software, up 3 to 25 3/4.
One of the few tech losers was Dell Computer, down 2 7/8 to 22, on word that it suffered losses on so-called derivative securities in the first quarter.
* Among industrial issues, Caterpillar surged 3 1/8 to 106 5/8, Chrysler rose 2 to 48, Eaton gained 1 3/4 to 51 3/4, Nucor leaped 2 to 59 5/8 and PPG Industries was up 1 1/8 to 71 7/8.
* Transportation issues rising sharply included Burlington Northern, up 2 1/2 to 55; United Airlines parent UAL, up 3 to 126, and Norfolk Southern, up 1 3/8 to 61 7/8.
* Most utility stocks extended their rally. Peoples Energy rose 3/4 to 29 7/8, Commonwealth Edison added 1/2 to 25 1/4 and Bell Atlantic gained 1 1/8 to 54 3/4.
* Consumer products stocks continued to be helped by stronger-than-expected earnings. McDonald’s, a Dow component stock, rose 2 to 58 7/8 on news of solid first-quarter results.
Other winners included Kellogg, up 3 5/8 to 52 3/8; Gillette, up 2 to 66 3/8, and Pfizer, up 1 3/4 to 59 1/2.
In foreign markets, Wall Street’s optimism spilled into Mexico. The Bolsa stock index zoomed 117.99 points, or 6.0%, to 2,075.32, reversing all of Wednesday’s steep loss.
In Tokyo, the Nikkei index eased 82.82 points to 19,799.36, while Frankfurt’s DAX index ended at 2,196.9, up 14.33 points, and London’s FTSE-100 index added 2.9 points to 3,101.2.
* IBM PROFIT SURGES: The giant computer maker earned $392 million in the first quarter. D2
