FINANCIAL MARKETS : No Gloom and Doom Here as Dow Soars to Another High
The stock market defied expectations again Monday, climbing to another record close as investors cast aside concerns about the economy and the outlook for corporate profits.
The Dow Jones industrial average benefited from renewed buying interest in stocks of economically sensitive companies, which had encountered selling lately amid signs of slower growth. The blue-chip indicator surged 40.47 points to 4,383.87, exceeding the previous peak of 4,373.15 set Wednesday.
Computer-guided program buying gave a boost to a range of stocks, which participated in the rally that developed in afternoon trading.
Among the broad measures that advanced, the New York Stock Exchange composite index hit a new high of 281.68, up 1.78 points. Standard & Poor’s 500-stock index rose 3.84 points to 523.96, surpassing its peak of 520.54 set Thursday, and the Nasdaq composite index spurted 5.76 points to 849.29, about a point shy of its record high.
Gainers beat losers by about 2 to 1 on the Big Board, where volume retreated to 291.83 million shares from Friday’s 342.39 million.
Wall Street’s strength confounded market professionals who have been expecting the extended advance in stocks to stall after months of record-setting sessions.
Long-simmering doubts about the durability of the economic expansion bubbled to the surface Friday when the government reported a surprising jump in the nation’s unemployment rate last month. The deteriorating employment picture generated speculation that the hoped-for “soft landing” was turning into a bumpy ride, with the economy possibly in danger of veering off into recession.
But instead of focusing on the negative implications of an economic slowdown--and how that could impair the earning power of companies--investors welcomed the likelihood that slower growth will lead to lower interest rates. With that in mind, investors favored stocks of companies that stand to reap rewards from a retreat in credit costs.
Consequently, one of the sectors that attracted buyers was home construction. Lower interest rates, which make mortgages more attractive, are expected to boost real estate sales.
Treasury bond yields inched higher Monday in mild profit taking after last week’s big rally, but analysts said the market showed remarkable resilience.
At the close, the yield on the benchmark 30-year bond rose 0.01 point to 7.03%, hovering just above Friday’s 7.02% level. Its price, which moves in the opposite direction, fell 5/32 point, or $1.56 per $1,000 in face value.
The yield has been driven down by signs that the economy is slowing, which was expected to keep the Federal Reserve Board from further raising interest rates.
Meanwhile, the dollar fell against most major currencies Monday amid speculation that proposed U.S. trade sanctions against Japan would be detrimental to the already-ailing U.S. currency.
The dollar closed in New York trading at 83.35 Japanese yen, down from 83.95 on Friday. It was was changing hands in New York at 1.369 German marks, down from 1.374.
Among Monday’s highlights:
* W.R. Grace rose 2 3/4 to 61 1/4 amid reports that it might be a takeover target or could ultimately sell its National Medical Care unit for a higher price than already offered by the subsidiary’s chief.
* An improving outlook for home building as mortgage rates fall helped related issues. Among the winners, Centex rose 2 5/8 to 29 1/8, Kaufman & Broad was up 1 1/4 to 15 3/8, Continental Home gained 2 1/8 to 15 3/8 and Toll Bros. rose 1 5/8 to 15 1/4.
* Some shares of companies involved in the packaging business fell after CS First Boston downgraded the group, citing difficult earnings comparisons in the second half of the year. Sealed Air lost 7/8 to 43 1/2, Sealright fell 1 1/2 to 17, Kerr Group was down 3/8 to 7 1/2 and U.S. Can fell 7/8 to 19.
* Meanwhile, insurers posted robust gains as analysts said insurance stocks appeared ready for a technical rally. General Re rose 3 5/8 to 133 3/4, Aetna Life & Casualty added 1 1/8 to 59 3/4, American International Group was up 3 3/4 to 112 1/4, and Geico, which posted stronger first-quarter earnings, rose 3 7/8 to 54 3/8.
* Harte-Hanks lost 3/4 to 23 1/4. Goldman cut its rating on the stock.
* Apple Computer, which unveiled the next generation of its Mac OS operating system, rose 1 1/2 to 40 3/8
Overseas stocks were little changed. Coming back from a five-day holiday, Tokyo’s 225-share Nikkei average rose 15.03 points to 17,103.69. Market Roundup, D8
