Stocks scored widespread gains and bond yields fell sharply Friday amid a fresh report of moderating economic growth, with the widely followed Standard & Poor’s 500 index surpassing 500 for the first time and several other market averages reaching record highs for the third time this week.
The Dow Jones average of 30 industrial stocks was among the record setters, gaining 50.84 points to 4,138.67. It was the blue-chip gauge’s biggest daily advance since March 10, when it rose 52.22 points. The yield on the benchmark 30-year Treasury bond dropped to 7.36% from 7.44% late Thursday.
Stocks jumped out to a fast lead at the opening after the Commerce Department reported that orders to U.S. factories for “big-ticket” durable goods fell 0.8% in February, the first decline in four months.
The report signaled to Wall Street that the economy is not growing so fast that it presents an immediate threat of higher inflation, and therefore is unlikely to prompt the Federal Reserve Board to raise short-term interest rates any time soon.
The central bank’s policy makers are scheduled to meet Tuesday, “but about 99% of the market agrees they won’t do anything,” said Eric T. Miller, chief investment officer at Donaldson Lufkin & Jenrette Securities Corp. in New York. “The only surprise would be if they raised rates, but I also think that is very unlikely.”
The drop in orders of durable goods--items such as carpets and computers expected to last more than three years--dropped to a seasonally adjusted $163.2 billion in February.
It was the first decline since October, although growth had slowed in December and January from a 3.4% surge in November. The seven interest rate increases engineered by the Fed over the past 13 months have softened demand for manufactured goods, economists said.
That was applauded by investors, as gainers outpaced losers by more than 2 to 1 on the New York Stock Exchange. Big Board composite volume was a heavy 438.8 million shares, up from 387.3 million on Thursday.
The S&P; 500 index rose 5.02 points to 500.97, easily breaking its record of 496.15, set Monday. The Nasdaq composite index also hit a new high, surging 7.27 points to 818.66.
Miller said several other factors were at work in the market’s advance, including a rally in bond prices and for the U.S. dollar.
The Treasury’s 30-year bond surged nearly a point, or $10 for every $1,000 in face value. Bond prices rise when yields fall.
The dollar, meanwhile, recovered somewhat from its recent drubbing against the Japanese and German currencies. In late New York trading, the dollar was quoted at 88.98 Japanese yen, up from 88.15 late Thursday, and it rose to a two-week high of 1.4176 German marks from 1.4033.
Stocks also benefited because many short sellers who had sold shares on the bet that they would fall in price were instead forced to buy and cover their positions, pushing prices higher still.
Latin stocks listed on U.S. exchanges rallied sharply in response to a big gain in the Mexican stock market. In Mexico City, the Bolsa index soared 107.33 points, or 6.6%, to 1,723.03.
Among Friday’s market highlights:
* Technology issues continued their recent rally. Digital Equipment rose 3 to 35 1/4, Motorola climbed 1 1/4 to 55 3/8 and, in Nasdaq trading, Cisco Systems rose 1 5/8 to 36 3/8.
Adobe Systems soared 11 1/2 to 50 1/4 in trading of more than 5.5 million shares after the software company reported a first-quarter profit that was up sharply from a year earlier and that exceeded analysts’ expectations.
* On the Big Board’s active list, Ford Motor rose 3/8 to 25 1/2, General Electric was up 1/2 at 55 and Corning gained 2 1/8 to 36 1/2. But Coca-Cola dropped 1/4 to 57 3/4.
* Kaufman & Broad Home slumped 1 3/4 to 11 1/4 after Salomon Bros. changed its recommendation on the stock to “sell” from “hold.”
* Among Latin stocks, the American depositary receipts of Telefonos de Mexico rose 3/4 to 27 3/4, and Grupo Televisa was up 5/8 to 15 1/4.
Stocks also rallied in major overseas markets, except in Tokyo, where the 225-share Nikkei index tumbled 63.64 points to a 31-month low of 15,749.77.
In London, the FTSE-100 average climbed 17 points to 3,153.40, its highest level since Sept. 9, and Frankfurt’s 30-share DAX average edged up 0.79 point to 1,935.87.
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S&P; 500 Surpasses 500
The Standard & Poor’s 500 stock index surpassed a major milestone Friday, closing at a record high of 500.97--its first close above the magic 500 mark. Although the Dow Jones industrial average of 30 stocks gets far more publicity and is easier to calculate, stock market professionals actually pay as much or more attention to the S&P; 500. Designed to mirror corporate America, it includes big companies and small companies alike. Companies are chosen because they are representative of their industries.
The S&P; 500 does such an effective job of measuring the health of the overall stock market--itself a sign of the health of the economy as a whole--that it’s considered a leading economic indicator, one government economists have tracked since 1968.
Some key differences between the Dow 30 and the S&P; 500, and the S&P; 500 since January, 1976, quarterly closes except latest:
* Accuracy: Over the past 20 years, the movements of the S&P; 500 has deviated from the movements of the entire market by just 0.01%. The Dow often deviates from the market, sometimes going one direction for weeks while the market in general goes the other way.
* Representation: The S&P; 500 firms are changed far more frequently than Dow companies in an effort to more closely resemble the current economy. The Dow will only add a company if it is an established industry giant.
* Volatility: Because it has so many more companies than the Dow, the S&P; 500 is not thrown dramatically up or down by the movement of just a few stocks.
* Weighting: The Dow is based on stock prices, which means that higher-priced stocks have much more influence on the index than lower-priced stocks. The S&P; 500 is weighted by market capitalization, so that companies influence the index in proportion to their size. This means it is not a good index for watching small companies.
Friday: 500.97, up 5.02
Sources: Datastream, Times reports. Researched by JENNIFER OLDHAM / Los Angeles Times; compiled by DANIEL GAINES and KATHY M. KRISTOF / Los Angeles Times
New orders, in billions of dollars, seasonally adjusted:
Jan. 1995: 163.2
Source: Commerce Department