FINANCIAL MARKETS : Stock Prices Soar Again; Bonds Help
Stock prices rose Tuesday for the sixth time in seven trading sessions, topping last week’s gains and pushing the Dow Jones industrial average up 18.45, solidly above the 3,900 level at 3,917.30.
The closely watched blue chip index has added more than 166 points since Aug. 22 as fears of higher interest rates have abated.
Analysts said the Lockheed-Martin Marietta merger, which would create the world’s largest defense company, spurred the latest buying activity in stocks.
“Lockheed-Martin Marietta just perked up the whole defense industry, and that perked up the whole market,” said Jay Ferguson, analyst at Ferguson, Andrews & Associates.
Lockheed soared 10 3/4 to 76 3/4, and Martin Marietta finished up 1/2 to 48 3/4.
A drop in long-term bond interest rates helped stocks, analysts said. The yield on the Treasury’s 30-year bond slipped to 7.46% from Monday’s close of 7.50%.
“There was no selling this morning,” said Bruce Bittles, market strategist at J.C. Bradford. “So when the bonds turn positive, that ensured you had a further rally.”
Advancing issues outnumbered decliners by nearly 3 to 2 on the New York Stock Exchange, where volume totaled 294.52 million shares, up from 266.27 million Monday.
Broad market indexes rose as well.
“Everybody in the world is out there saying there will be more (mergers) in health care and more in defense,” said Robert Von Pentz, chief investment officer at Riggs Investment Management.
On the technical front, many large-volume traders have huge “short” positions that must be covered as the market continues to rise. A short seller sells a borrowed stock with the hopes of replacing it later at a lower price. If prices rise, a short seller is forced to buy the stock to replace it before it gets more expensive. That buying can exacerbate an upward movement in stock prices.
But investors should be wary of a reversal in the market as the Dow approaches its record closing high of 3,978.36, set Jan. 31, analysts said.
Stocks began their ascent early in the session, as bonds rose following a 10 a.m. release of a Conference Board report showing that its consumer confidence index fell to 89.0 from a revised 91.3 in July. Analysts had expected the number to rise.
A weaker-than-expected index indicates that consumers are likely to cut their spending on large, expensive items. That suggested a slowing economy, which further assuaged the bond market’s worries about inflation. Stocks have been tracking the bond market’s direction for some time.
Balanced against the weakening in consumer confidence was a report showing that sales of new single-family houses surged 8.3% in July, the largest gain since February. But the increase compared to especially weak sales the month before.
Among Tuesday’s market highlights:
* Defense stocks were the market’s big winners after Martin Marietta and Lockheed announced their merger. Loral rose 3/4 to 41 1/8, E-Systems jumped 1 5/8 to 42 1/2 and Northrop Grumman advanced 1 3/8 to 44.
* Paper stocks rose amid optimism about price increases in that industry. International Paper rose 2 to 76 5/8; Scott Paper rose 2 1/8 to 65 7/8.
* Utility stocks rose amid falling interest rates, pushing the Dow Jones utility average up 1.06, or 0.56%, to 189.89.
* U.S. Surgical rose 1 1/4 to 25 7/8. Traders linked the rise to market talk that its chief executive is stepping down. The company declined to comment.
* Foreign stock markets were mixed. Markets in Tokyo, London and Mexico City all closed lower, but the Frankfurt market rose.
* A surprise rise in French interest rates jolted the European currency market and helped weaken the franc because the rate increase was seen as an ominous sign for France’s economy.
Traders said that helped the dollar advance slightly against the franc. But the main impact was to help the mark, the dominant currency in Europe.
