Small Stocks Lead Rally; Yields Ease
Technology shares paced a strong rally in smaller stocks Wednesday, as some healthy second-quarter earnings turned sidelined investors into buyers.
In the bond market, yields continued to ease, responding to another government report showing subdued inflation. A firmer dollar also helped bonds.
On Wall Street, the Nasdaq composite index of mostly smaller stocks leaped 9.76 points to 719.35, its highest close since June 20.
Winners topped losers by 15 to 11 on Nasdaq as this week’s rally in depressed technology issues gained more steam.
Blue chips, in contrast, had a relatively dull day. The Dow industrials finished up just 1.62 points at 3,704.28 on moderate Big Board volume.
Stocks and bonds were both buoyed by the Labor Department’s June consumer inflation report, which showed prices up 0.3% for the month--about in line with economists’ projections.
On Tuesday, the government reported that wholesale prices were unchanged overall in June.
The two inflation reports allayed some investors’ fears that interest rates were poised to go even higher, after their recent surge.
In the bond market, yields edged lower on short- and long-term securities. The 30-year Treasury bond yield ended the day at 7.67%, down from Tuesday’s 7.68%.
The beleaguered dollar fell early in the day but rebounded later and thus provided more inspiration for stocks and bonds. The greenback closed in New York at 98.30 Japanese yen, up from 97.50 on Tuesday. It also finished at 1.539 German marks, up from 1.529.
Still, currency traders cautioned against calling the solid one-day gains a reversal of the bearish trend that has crushed the dollar in recent weeks.
Tom Moore, a director at American Express Bank, said the dollar’s rebound was “not conclusive yet. . . . There is some buying interest, but this could be just a minor short-covering correction.”
Indeed, analysts said the rally in beaten-down tech stocks is also partly short-covering.
In a short sale, bearish traders sell borrowed stock, expecting to buy it back later at lower prices. If the market begins to rally, some short traders rush in to buy stock to cover their positions. Such short-covering can produce explosive, but brief, rallies in down markets.
Among Wednesday’s stock market highlights:
* Nasdaq technology issues rallying on their earnings reports included Chipcom, up 7 1/4 to 46 3/4; Seagate Technology, up 1 1/4 to 24 5/8, and Xircom, up 1/2 to 16 3/4.
Among other tech gainers, Intel gained 1 5/8 to 61 3/4, Compaq leaped 1 7/8 to 36 7/8, AST Research jumped 1 3/8 to 15 3/4, Sybase surged 2 3/4 to 48 1/2 and 3Com gained 3 7/8 to 55 3/4.
* Other stocks responding to second-quarter earnings reports included Hilton Hotels, up 1 3/8 to 62 7/8; International Paper, up 1 1/4 to 71 3/8, and First Chicago, up 1 to 49.
* In the takeover rumor mill, Quaker Oats jumped 2 3/4 to 77 on rumors Philip Morris may make a bid. Morris slipped 3/8 to 52 3/4.
* On the downside, Tustin-based nursing home chain Regency Health Services plunged 5 3/8 to 8 3/4 after saying that earnings, hurt by recent acquisitions, will fall below analysts’ expectations for the rest of 1994.
* Another loser was publisher Houghton-Mifflin, which sank 5 to 40 3/8 after its math textbooks received an unfavorable opinion from a California education panel.
Overseas, London’s FTSE-100 index jumped 41.4 points to 3,005.3, helped by positive inflation news in Britain. In Frankfurt, the DAX index added 5.95 points to 2,054.00.
In Tokyo, the Nikkei index rose 139.93 points to 20,540.41, while Mexico City’s Bolsa index lost 23.31 points to 2,264.97.
