Stocks and Bonds Stage Dramatic Rally; Dow Adds 54 : Markets: Jump in IBM profit fuels heavy trading on Wall Street. Report on ballooning trade deficit pushes yields down.
The stock market staged a dramatic rebound Thursday on the back of a huge rally in the battered bond market and surprisingly strong profit at long-suffering IBM Corp.
The Dow Jones industrial average climbed 53.83 points to end at 3,652.54. The New York Stock Exchange imposed its so-called collar on program trading to dampen volatility once the index rose 50 points.
In the broader market, advancing issues swamped declines by about 11 to 5 in very heavy trading, with 378.66 million shares changing hands, up from 362.02 million Wednesday.
Treasury bond yields plunged, pushing prices sharply higher, extending a brisk three-day rally touched off by sentiment that the U.S. economy may not be growing as fast as previously believed.
The long bond’s yield fell to 7.21% from 7.31% the day before. Its price, which moves in the opposite direction, jumped 1 5/32 points, or $11.56 per $1,000 in face value.
Bond prices have advanced 2 1/4 points since Tuesday, more than wiping out a sharp loss Monday in reaction to the Federal Reserve Board’s third increase in short-term interest rates this year.
The bond market rally was sparked by the Commerce Department’s report Tuesday that the trade deficit ballooned to $9.71 billion in February, partly because of a surge in imports.
A number of economic forecasters have since indicated they will revise downward their first-quarter growth assessments, which had generally been in the 4% range, to 3.5% or less. The government will release figures for gross domestic product late next week.
More questions about the strength of the economic recovery were raised Thursday when the Labor Department reported the number of newly laid-off workers filing claims for jobless benefits unexpectedly rose by 14,000 last week--the third straight increase.
Bond prices often rise on news of poor economic growth, because it lessens the likelihood of worsening inflation, which erodes the value of fixed-income securities.
Stocks rose in tandem with bond prices, which shot higher following a weak report on economic activity from the Federal Reserve Bank of Philadelphia.
Broad-market indexes also advanced. The NYSE’s composite index rose 3.52 to 248.18. The Nasdaq index of mostly smaller issues advanced 13.22 to 718.74, and the S&P; 500 index rose 6.77 to 448.73.
“The stock market has been under some tremendous pressure over the past two to three weeks,” 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.”
Added Larry Kinney at Soundview Financial: “People are beginning to feel halfway decent about things. This is the best rally we have had in about three weeks.”
The surge in the shares of IBM, which is a component of the Dow average, helped ignite the market’s upturn. The stock shot up 6 1/8 to close at 58 3/8 in heavy trading of more than 8.7 million shares, after the world’s largest computer company posted a strong $392-million profit for the first quarter.
On Wednesday, economically sensitive cyclical stocks took a beating, but analysts said that may have set the stage for Thursday’s rally.
Wednesday’s “selling was overdone,” said Bob Stovall, president of Stovall/21st Advisers.
Among the market highlights:
* Shares of computer makers rallied. Apple rose 1 3/8 to 29 5/8. Compaq, which reported strong earnings Wednesday, surged 6 7/8 to 108 3/4. Hewlett-Packard rose 2 7/8 to 78 7/8.
* McDonald’s, also a Dow component, rose 2 to 58 7/8, getting a lift from solid first-quarter results.
* Texas Instruments gained 6 3/4 to 71 1/2 after reporting a rise in first-quarter earnings. Intel gained 2 3/4 to 60 1/4 and Micron Technology gained 3 1/2 to 34 3/8.
* Utilities extended their rally. Peoples Energy rose 3/4 to 29 7/8 and Commonwealth Edison added 1/2 to 25 1/4.
Stocks were mixed in overseas trading. Mexico’s Bolsa index reversed all of Wednesday’s drop as investors found the lower prices for shares attractive, analysts said. The index closed up 117.99 points, or 6.03%, at 2,075.32.
Tokyo’s 225-share Nikkei average fell 82.82 points to 19,799.36. In Frankfurt, the DAX 30-share average ended at 2,196.9, up 14.33 points, while London’s Financial Times 100-share average gained 2.9 points to finish at 3,101.2. Hong Kong’s Hang Seng index tumbled 286.42 points, or 3.11%, to close at 8,934.59.
Elsewhere, the dollar posted sharp gains against the Japanese yen.
