FINANCIAL MARKETS : Favorable Trade News Sends Blue Chips Up
Blue-chip stocks rallied Wednesday as investors cheered a sharp decline in the U.S. trade deficit and positive earnings reports, with the Dow Jones industrial average ending just shy of another record high. But the broader market fell amid worries about inflation and interest rates.
Technology and health maintenance stocks led the Nasdaq Stock Market lower after negative earnings reports in both sectors rattled investors. The Nasdaq composite index tumbled 9.19 points to 816.55.
The Dow industrials closed up 28.36 points to 4,207.49, slightly below the record of 4,208.18 set last Thursday. Still, about 12 points of the advance reflected movement in Eastman Kodak stock after the company posted strong earnings.
The Commerce Department said the U.S. trade deficit narrowed sharply in February, falling 24.6% to $9.01 billion. That helped lift the dollar off its record low against the Japanese yen, set Tuesday. For the past two days, the U.S. currency had been battered by concerns over growing U.S.-Japan trade friction.
The dollar’s better performance helped support stocks, said Hugh Johnson, chief investment officer at First Albany Corp.
Still, negative sentiment about the continuing decline of the U.S. currency prevailed Wednesday, said Peter Canelo, chief investment strategist at NatWest Securities Corp.
Investors worry that the ailing dollar will boost inflation and force the Federal Reserve Board to raise interest rates.
Since February of last year, the central bank has raised short-term rates seven times, hoping to slow the economy and forestall inflation. Now, however, economic reports have begun to indicate that the economy might indeed be slowing, and some analysts worry that any further rate increase could throw the country into recession.
“That concern is mostly behind today’s mixed performance by the stock market,” Johnson said.
Further evidence of that concern, he said, was a stronger performance by the bond market. A weak economy is seen as good for bond investors because it diminishes the risk of higher inflation, which erodes the value of fixed-income securities such as bonds.
Long-term bond yields declined. The yield of the Treasury’s main 30-year bond fell to 7.36% from 7.39% on Tuesday.
Earnings played another part in the day’s stock market performance. Eastman Kodak rallied 4 5/8 to 57 on surprisingly strong earnings for the first quarter of 77 cents a share, compared to 25 cents for those three months last year.
Technology stocks, however, were hurt by sour earnings from Lotus Development, which ended the day unchanged at 30 3/4 despite taking a tumble during the session. Another factor affecting the sector, analysts said, was selling to lock in profits in the shares, which rose sharply this spring.
Shares of managed health care companies, including several giant California HMO concerns, fell 10% or more Wednesday on worries about potential price wars and other pressures on profits.
Among California HMO companies, PacifiCare Class A shares plunged 7 3/4 to 67, FHP International dropped $2.81 to $23.94, and WellPoint Health lost 1 1/2 to 31 1/8.
Shares of American Science & Engineering, a maker of bomb-detection devices, rose 5/8 to 6 1/2 after a car bomb exploded at a federal office building in Oklahoma City.
Declining issues outnumbered advances by about 4 to 3 on the New York Stock Exchange. Big Board volume was a heavy 378.05 million shares as of 4 p.m., up from 344.46 million the previous session.
More than 453 million shares were traded on Nasdaq, making it the busiest day ever for the second-largest U.S. stock market.
Stocks ended mixed abroad. In Tokyo, the 225-issue Nikkei average gained 0.9%, and in London the FTSE-100 index lost 0.8%. Stocks fell 0.7% in Frankfurt and gained 1% in Paris.
Silver, a favorite with speculators, roared toward six-year highs but fell back later. May silver closed 7.0 cents lower at $5.795 an ounce.
