Bond yields tumbled to seven-month lows and stocks hit new highs Tuesday in a powerful market rally triggered by fresh indications that the economy has slowed from last year's brisk pace.
The yield on the Treasury's bellwether 30-year bond slid from 7.45% on Monday to 7.36%, the lowest since last Aug. 17. The yield has dropped from 7.88% just since year-end.
In the stock market, the Dow Jones industrials hit yet another record, rising 23.52 points to 4,048.75, surpassing their old high of 4,035.61 set last Friday.
What's more, the Nasdaq composite index of mostly smaller stocks hit a record for the first time in nearly one year. The index jumped 5.93 points to 808.24, finally topping the old high of 803.93 set on March 18, 1994.
Analysts said the same optimism that has pushed yields down and stocks up for the past three months--with only minor interruptions--continued to dominate markets on Tuesday.
The government's report that retail sales in February were weaker than expected convinced more investors that the economy is headed for a "soft landing"--a period of moderate growth and low inflation that could allow interest rates to stabilize or decline further.
"The stock market is trading up because of the outlook for steady growth with the potential for lower interest rates," said Joseph DeMarco, head of equity trading at HSBC Asset Management. "Lower interest rates and continued growth are good for everybody."
"Clearly the retail sales report is a very powerful signal that economic activity has slowed in 1995," said Bruce Steinberg, macroeconomics manager at Merrill Lynch & Co. in New York. "Consumers are really taking a breather here. The pace of their spending was excessive late last year, and they are making up for it this year."
Longer-term bond yields were lower almost across the board Tuesday, though yields on three-month Treasury bills inched up slightly. Analysts said that may indicate that some investors in short-term securities were selling out and lengthening the maturity of their bonds.
On Wall Street, winners outnumbered losers by 14 to 8 on the New York Stock Exchange and by 15 to 13 on Nasdaq. NYSE volume was a heavy 346 million shares.
Stocks and bonds were helped by a firmer dollar, after last week's free fall in the currency. It closed at 1.417 German marks in New York, up from 1.407 on Monday, and at 90.85 Japanese yen, up from 90.73.
Still, analysts warned that financial markets may be getting so giddy that they are vulnerable to any economic signals that aren't consistent with the soft-landing scenario.
Today, the government will report on February wholesale inflation and industrial production; on Thursday a report on February consumer inflation is due.
Among Tuesday's highlights:
* Blue-chip stocks leading the Dow and the Standard & Poor's 500 index to record highs included Boeing, up 2 1/8 to 48 7/8; 3M Co., up 1 3/4 to 57 5/8; Procter & Gamble, up 1 3/8 to 68 5/8, and Union Carbide, up 1 3/8 to 28 5/8.
* Stocks of consumer companies that typically perform better in slowing economies rallied sharply. Pfizer jumped 1 3/4 to 84 1/2, American Home Products added 1 3/4 to 73 1/4, Campbell Soup leaped 2 1/4 to 48 7/8 and Kellogg was up 1 1/8 to 58.
* On the downside, some tech stocks weakened. Apple Computer plunged 3 1/8 to 35 in heavy trading after brokerage Morgany Stanley downgraded the stock to "neutral." Apple had cut prices on some key computers on Tuesday.
Also falling were Compaq, off 1 1/8 to 32, and Dell, down 2 to 43 1/8.
Some analysts warn that a slump in tech stocks, which have been the market's leaders in recent months, could be a warning sign of a near-term market top.
* Another big loser Tuesday was Sports & Recreation, which tumbled 7 3/4 to 10 3/4 in heavy NYSE turnover. The retailer's quarterly results disappointed Wall Street and prompted at least one analyst to slash the investment rating of the stock.
In overseas trading, Tokyo's 225-share Nikkei average fell 231.82 points to 16,245.82.
But in London, the FTSE-100 average closed at 3,050.6, up 38.8 points. In Frankfurt, the DAX average inched up 0.96 point at 2,000.45.
In Mexico City, the Bolsa index finished the day at 1,591.07, up just 5.05 points after a strong early rally. Argentina's Merval index surged 7.7% to 349.37, continuing its rebound.