FINANCIAL MARKETS : Stock Rally Continues in Blue Chips
Blue chip stocks on Monday retained some of the gusto from last week’s rally, with cyclicals such as papers, airlines, chemicals and technology again taking the lead. The Dow Jones industrial average rose 17.80 points to 3,898.85, the index’s highest close since March 18.
In the bond market, the yield on the Treasury’s 30-year bond hovered at Friday’s close of 7.49%. The dollar rose slightly against the German mark.
Other indexes rose less dramatically than the Dow. “We’ve got the generals leading, but the rest of the troops are staying quite a few steps behind,” said Walter Revis, market analyst at Hamilton Investments, referring to the Dow index’s moving more dramatically than the broader market.
The lack of broad participation in the stock market had some market watchers saying this rally could fizzle.
“I’d rather see this type of price action on the whole market, not just the Dow stocks,” said James Walline, vice president of equities at the Lutheran Brotherhood investment firm. “This has the potential to be a bit of a trap.”
Others, however, said investors were showing increased confidence in Wall Street’s latest upturn.
The Dow closed up 17.80 points at 3,898.85, after an initial jump to 3,910.83. It rose more than 125 points last week, its biggest weekly rise since February, 1993.
The only major announcement Monday was a Commerce Department report saying that Americans’ income rose 0.5% in July, which largely met analysts’ expectations. To come this week are the latest surveys of consumer confidence and the spending of the purchasing managers at the nation’s manufacturers. The most significant news will arrive Friday, when the U.S. Labor Department issues its monthly employment report, a key indicator of economic strength.
“We’ve got a lot of little bits and pieces of data, but I don’t think the market is willing to adapt a new tone until we get the Labor report,” said Hugh Johnson, chief investment officer, First Albany Corp.
The dollar ended slightly higher against the German mark and most other European currencies Monday after a report on Germany’s economy suggested that interest rates there may fall.
Traders said much of the activity focused on weakness in the German mark, which began after the Organization for Economic Cooperation and Development said Germany’s central bank could lower key interest rates in hopes of stimulating the economy without accelerating the inflation rate.
The OECD, a Paris-based group of the richest nations, made that assessment in its latest report on Germany, Europe’s dominant economy. Lower interest rates in Germany would lessen the attractiveness of mark-denominated investments.
“After that news, we started buying the dollar,” said Zlatko Glamuzina, senior trader at the New York branch of Banco di Sicilia, an Italian bank.
He said the dollar’s strength intensified as traders who had speculated on its weakness after its big run-up last week scrambled to buy dollars to cover their losses, a practice known as short-covering.
However, some foreign exchange traders described activity as light, which may have exaggerated the dollar’s moves in either direction. A business holiday in London Monday lessened the volume.
The dollar fetched 100 yen in late New York trading, off slightly from the 100.46-yen level in New York late Friday. Earlier in Tokyo, the dollar was fetching 100.20 yen; in Europe, it fetched 100.25 yen.
Among Monday’s market highlights:
* Eastman Kodak led the Dow’s advance, gaining 1 3/8 to 50 3/4 after saying it was selling its remaining Sterling Winthrop unit to British pharmaceutical company SmithKline Beecham.
Among other Dow stocks, Union Carbide rose 1 1/4 to 33 3/4, boosted by Wall Street analysts’ raising their earnings estimates for the company. ITT tumbled 4 1/8 to 82 amid concern over its decision to buy, in partnership with Cablevision Systems Corp., Madison Square Garden and two New York sports teams for $1.075 billion in cash.
* Nextel Communications stumbled 5 1/4 to 25 1/4 on disappointment that its wireless communications alliance with MCI Communications and Comcast was called off. OneComm fell 6 to 24 1/2, and Dial Page dropped 4 1/4 to 25 1/2. The two companies have deals to be acquired by Nextel for stock.
* Gold prices ended higher. On the Commodity Exchange in New York, gold for current delivery rose $3.80 a troy ounce to $387.10.
* Most foreign stock markets were subdued, with the London and Hong Kong markets closed for holidays.
Tokyo stocks closed with healthy gains after index buying was encouraged by the dollar’s rebound and the surge on Wall Street Friday. The Nikkei share average ended up 128.93 points, or 0.63%, to 20,600.42. In Frankfurt, German share prices shot higher after narrow official session gains. The DAX index of 30 leading shares closed floor trade 31.65 points or 1.46% higher on the day at 2,193.19, although most of this gain was a reflection of Friday’s post-bourse wins. In post-bourse trade the index then leapt to 2,215.72.
In Zurich, Swiss blue chips rose by more than 2% in active trading. Dealers said even private investors started returning to the market as Wall Street’s firm opening and a firm bond market supported that sentiment. The broad SPI put on 28.53 points, or 1.66%, to close at 1,745.41.