FINANCIAL MARKETS : Tech Issues Lead Stocks Higher; Yields Steady
Technology, drug and food stocks paced a broad-based rally Wednesday, as bond yields held steady ahead of today’s key inflation report.
The Dow Jones industrials added 11.00 points to 3,766.76, but the stock market as a whole was much stronger.
The Nasdaq composite index of mostly smaller stocks, for example, gained 5.59 points to 728.20, its highest close since mid-June.
Winners topped losers by 15 to 12 on Nasdaq and by 12 to 9 on the New York Stock Exchange.
Analysts noted that tech stocks in particular have been coming on strong in recent weeks, despite a renewed rise in bond yields.
“The stocks that have been pushed down the most (in the first half of the year) are coming back,” said James Melcher, president of Balestra Capital in New York. “The stock market is doing better and people are looking for bargains.”
In the bond market, however, investors coped Wednesday with the second leg of the Treasury’s three-part quarterly “refunding.” The government sold $12 billion of 10-year notes at an average yield of 7.33%, about as expected.
The refunding concludes today with the sale of 30-year bonds. Yields on existing 30-year issues were unchanged Wednesday at 7.57%.
Analysts fear that a government report due today on July wholesale prices could spark another selloff in bonds, if the inflation number is higher than expected. And Friday the government will report on July consumer price inflation.
Any sign of a pickup in inflation could assure that the Federal Reserve Board will tighten credit next Tuesday, when the Fed’s policy-making committee meets.
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Fed Chairman Alan Greenspan, speaking to a House subcommittee Wednesday, warned that the economy generates inflation before it appears in the government’s main price gauges. Many analysts viewed that as another sign the Fed is ready to tighten credit again.
Yet the short end of the bond market actually rallied Wednesday, suggesting waning worries about the Fed. The yield on three-month T-bills tumbled to 4.47% from 4.54% on Tuesday.
Some traders cited heavy foreign buying of T-bills.
Elsewhere, the dollar was marginally higher as investors awaited the July inflation reports.
In New York, the dollar closed at 101.35 Japanese yen, up from 101.28 on Tuesday, and at 1.584 German marks, up from 1.582.
Among Wednesday’s stock market highlights:
* Tech stocks continuing to rally included Apple, up 1 to 34 5/8; Hewlett-Packard, up 2 1/2 to 82 1/4; Dell Computer, up 1 3/4 to 32 3/4; Micron Technology, up 3 1/4 to 42 1/4, and Texas Instruments, up 3 3/4 to 84.
* Software stocks were particularly strong. Lotus Development shot up 4 5/8 to 40 1/4 after the firm inked an agreement with chip giant Intel to develop Lotus’ popular Notes communications package to transmit images.
Other software winners included BMC Software, up 2 1/4 to 51 1/2; Powersoft, up 2 1/8 to 41 3/4; Broderbund, up 1 1/2 to 49 1/8, and Microsoft, up 5/8 to 54 1/8.
* In the telecom sector, LDDS Communications rose 1 1/8 to 21 after the long-distance communications firm said second-quarter earnings rose 60%.
Culver City-baed IDB Communications, which previously agreed to be purchased by LDDS in a stock swap, added 1/8 to 8 3/4.
* Drug stocks surged on renewed takeover speculation. Upjohn jumped 1 3/4 to 35 1/2, Bristol-Myers Squibb gained 1 3/8 to 55 5/8, Merck leaped 1 3/8 to 32 1/4 and Eli Lilly was up 1 7/8 to 50 5/8.
Among HMOs, Southland-based PacifiCare’s Class A shares rocketed 7 to 63 3/4--a record high--after a meeting between management and investors in New York raised optimism about the firm’s earnings prospects.
* Food stocks were strong, which some traders attributed to buyout rumors. Heinz rose 1 5/8 to 36 1/2, Kellogg jumped 1 7/8 to 53 3/4 and CPC was up 1 to 49 7/8.
* On the downside, Dillard Department Stores plunged 4 7/8 to 26 5/8. The big retailer announced disappointing second-quarter earnings of 30 cents a share, compared to 35 cents in the same quarter last year.
* Another big loser was New York State Electric & Gas, which sank 4 5/8 to 20 7/8 after it became the latest utility to warn that it may have to cut the dividend on its common stock.
Beset by increasing competition, a number of electric utilities have either cut their dividends this year or warned that cuts could be coming. But unlike previous such announcements, the news from NYSE&G; failed to spark a selloff in utility shares generally.
The Dow utility index added 0.79 point to 189.36 for the day. American Electric Power rose 1/4 to 31, Consolidated Edison gained 1/4 to 29 and Pacific Gas & Electric was up 1/4 to 24 3/8.
In foreign markets, Tokyo’s Nikkei 225-share average ended up 180.03 points at 20,770.25.
In Frankfurt, the DAX index eased 3.83 points to 2,160.37. In London, the FTSE-100 index 1.6 points to 3,167.00.
Mexico City’s Bolsa index also gave ground, losing 20.29 points to 2,574.67.
In Taipei, stocks tumbled from a four-year high on sudden concerns about inflation and interest rates. The weighted price index of the Taiwan Stock Exchange dropped 108.35 points to 6,836.56.
In U.S. commodity trading, orange juice prices fell sharply after a private forecasting firm projected an 11% rise in Florida’s orange crop next year.
According to traders, Citrus Consulting International, a firm in Orlando, surveyed Florida’s crop and projected the supply at 192.2 million 90-pound boxes.
September juice futures sank 3.65 cents to 93.3 cents a pound at the New York Cotton Exchange.
