FINANCIAL MARKETS : Stocks Surge Again as Bond Yields Slide
Stocks advanced strongly for a second straight day Tuesday as investors sought perceived bargains after last week’s selloff.
Another drop in bond yields also added fuel to stocks’ fire, after the Federal Reserve Board met and left short-term interest rates unchanged, as expected.
The Dow Jones industrial average ended the day up 40.81 points, or 0.9%, at 4,436.44--just one point below the all-time high of 4,437.47 set May 15.
Among broader indexes, the Standard & Poor’s 500-stock index, which climbed 4.94 points to 528.59, narrowly exceeded its previous record of 528.19 set May 16.
Also, strength in technology stocks, this year’s market leaders, boosted the Nasdaq composite index 8.46 points to a record high of 879.64.
Heavy trading volume on the New York Stock Exchange was regarded as a healthy omen for stocks. Big Board volume swelled to 362 million shares from 286 million on Monday.
Advancing NYSE stocks outnumbered decliners by about 7 to 4.
Analysts said the Fed’s decision to leave interest rates unchanged, announced at midday, initially touched off a brief flurry of selling in stocks, even though the central bank had been widely expected to take no action.
The Fed’s policy-setting arm, the Federal Open Market Committee, met privately for about three hours and adjourned until July 5.
Though stocks’ advance weakened at midday, buyers came rushing back in the final hour of trading.
Traders said a vibrant bond market lent support to equities. The yield on the benchmark 30-year Treasury bond fell to 6.86% from Monday’s 6.91%. Shorter-term yields also fell.
The government sold new two-year notes at an average yield of 6.17% on Tuesday, within expectations.
Analysts said the bond market in effect greeted the Fed’s decision to leave short-term rates alone with a sigh of relief.
And the “the power of the bond market translated directly into renewed strength in the technology area and also in the cyclical area,” said A.C. Moore, senior investment strategist at Dunvegan Associates Inc. in Santa Barbara.
After last Thursday’s slide in prices, which drove down the Dow industrials by about 82 points, investors have apparently viewed the decline as a gift allowing them to buy favorite stocks at slightly lower prices.
If interest rates remain tame, and the economy’s “soft landing” stays on track, many analysts believe it will be tough to derail the bull market.
Elsewhere Tuesday, the dollar ended mostly higher after recovering from a bout of weakness in Europe, where investors were drawn to German marks because of fears about the new French government’s economic agenda.
In New York trading, the greenback ended at 87.16 Japanese yen, down from 87.33. It was changing hands in New York at 1.443 marks, up from 1.441.
Among Tuesday’s highlights:
* Technology companies continued their strong advance, with Texas Instruments up 4 1/2 at 124 1/8, IBM gaining 2 to 97 1/4, Motorola up 2 1/8 at 61 7/8, Compaq up 1 7/8 at 41 3/4 and Intel up 2 1/2 at 116 1/2.
* Some profit taking was seen in cyclical stocks, analysts said. Among them, Caterpillar was down 2 1/2 at 60 1/4 and Deere lost 3 1/4 at 86 1/2.
* Among individual issues, Crown Cork & Seal soared 5 1/2 to 47 1/4 in reaction to the company’s $5.2-billion bid for France’s Carnaud MetalBox.
* EMC rose 1 1/2 to 23 5/8. On Monday, the company said MCI had decided to use one of its technologies.
* Republic Waste Technologies rose 2 11/16 to 10 7/16 as investors reacted positively to news that H. Wayne Huizenga plans to take the helm of the company.
* Rawlings Sporting Goods fell 1 1/2 to 10 1/8 after it reduced its 1995 revenue estimate.
Overseas, Tokyo’s 225-share Nikkei average finished ahead 127.03 points at 15,916.15.
Frankfurt’s 30-share DAX average ended down 2.82 points at 2,080.35. London’s FTSE-100 average closed at 3,291.8, up 7.3 points.
Mexico’s Bolsa index ended 6.02 points higher at 2,096.90.
