FINANCIAL MARKETS : Dow Pushes to Another Record High : Economy: Stocks rise despite surprise gain in durable goods orders, which casts doubt on economic ‘soft landing’ idea.
Wall Street overcame early profit-taking Friday to finish modestly higher, keeping the Dow industrial average above the historic 4,000 mark for a second consecutive session.
The day’s gains were surprising in part because fresh data on the economy suggested that business activity isn’t slowing--challenging the idea of a “soft landing” that would allow interest rates to stabilize or continue declining.
Contrary to analysts’ expectations, orders for durable goods--items expected to last at least three years, including everything from washing machines to tanks--rose 0.6% in January to a seasonally adjusted $163.1 billion, the government reported Friday.
The month’s rise was the third in a row and underlined the manufacturing sector’s vigor, despite the Federal Reserve Board’s efforts to brake the economy with higher interest rates over the past year.
The durable-goods figures “are extremely significant as they suggest that the slowdown in manufacturing . . . may not be as rapid as market participants have been hoping for,” said economist Marilyn Schaja at DLJ Securities.
On Thursday, the Dow industrials jumped 30.28 points to a record 4,003.33--the first-ever close above 4,000--largely on hopes that the Fed is finished raising rates, and that the economy is slowing to sustainable pace.
Indeed, Fed Chairman Alan Greenspan helped stoke stocks’ rally Thursday by suggesting to Congress that the Fed is already looking ahead to a time when it will begin cutting interest rates.
On Friday, worries that the economy remains too strong caused bond yields to rise early in the day, which weighed on stocks. But bonds rallied in the afternoon, allowing stocks to rebound.
At the close the Dow index was up 8.41 points to a record 4,011.74.
In the broad market most stock indexes also inched higher, though winners outnumbered losers by only a thin margin on the Big Board. Trading was moderate.
The bond market recovered from its early selloff after enough traders decided that the durable-goods report, while healthier than expected, “wasn’t a powerhouse” indication of economic strength, said Robert Giordano, bond fund manager at Bank Leumi Trust.
Analysts said that although the report showed that business spending on capital equipment remained high, consumer spending accounts for the lion’s share of economic activity. And weaker consumer spending is expected to be the principal drag on the economy this year.
The 30-year Treasury bond yield, which rose as high as 7.57% Friday from Thursday’s close of 7.54%, rallied to close at 7.52%, a 5 1/2-month low. Shorter-term yields also were mostly lower.
Wall Street bulls noted that Friday’s market activity remained true to the pattern of recent months, as investors overcame potentially bearish news to push stocks up and bond yields down.
“We’re feeling pretty good about things right now,” said Doug Person, vice president at Bridges Investment Counsel. “Rates are stable and possibly trending lower, and it looks like the economy is slowing but not so much that we’re looking at a recession.”
In addition, continued declines in some key foreign markets--including Japan and Mexico--could encourage more global investors to buy U.S. stocks, some analysts say.
Tokyo’s 225-share Nikkei index plunged 357.08 points to 17,472.94 on Friday on fresh concerns about the yen’s new strength, while in Mexico City the embattled Bolsa index lost 3.6% to a 2-year low of 1,553.89 as the peso fell again.
Among Friday’s U.S. highlights:
* Stocks that usually fare best in times of slower economic growth led the market. Winners included Philip Morris, up 1 1/4 to 60 3/4; Colgate-Palmolive, up 2 to 64 7/8; Ralston-Purina, up 1 3/8 to 48, and Coca-Cola, up 3/4 to 54 3/4.
* Financial stocks also were strong. First Chicago added 1 to 51 1/8, SunAmerica rose 3/4 to 42 7/8 and Chase Manhattan rose 3/4 to 35 7/8.
* On the downside, some industrial issues lost ground. GE eased 5/8 to 54 3/4, Caterpillar fell 1 1/4 to 51 3/4 and Georgia-Pacific slumped 2 3/8 to 76 1/4.
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Durable Goods
New orders, in billions of dollars:
Jan. 1995: $163.1
Source: Commerce Department
