FINANCIAL MARKETS : Dow Rises 42 on Hopes of Rate Cut
Stocks shot to record highs Thursday, boosted by falling bond yields, as a surprisingly high jobless claims number heightened hopes that the Federal Reserve Board may soon lower interest rates.
The market was also pushed higher as investment managers bought heavily to add stocks to their portfolios before the second quarter ends June 30.
By the close of trading, the Dow Jones industrial average had surged 42.54 points to 4,589.64, well above its previous closing record of 4,553.68 on Monday. On the New York Stock Exchange, advancing issues led decliners by more than 2 to 1. Big Board volume was heavy at 422.02 million shares, up from 398.22 million on Wednesday.
Broad-market indexes also hit record highs, boosted by seemingly unstoppable momentum in technology issues.
The NYSE composite index rose 3.32 points to 294.93. The Standard & Poor’s 500-stock index added 7.09 points to 551.07.
The Nasdaq composite index, which is heavily weighted with technology issues, rose 10.90 points to 940.09, and the American Stock Exchange market value index rose 1.90 points to 495.97.
Stocks followed the bond market higher from the opening bell, after the U.S. Labor Department reported that for the week ended June 17, first-time unemployment claims rose 20,000 to 395,000, the highest level in 17 months.
The 30-year Treasury bond yield plunged to a 16-month low of 6.47%, down seven basis points from Wednesday’s 6.54%. The long bond’s price, which moves in the opposite direction, rose 15/16 point, or $9.38 per $1,000 in face value.
The surprising jump in jobless-benefit claims this past week persuaded some market strategists to downgrade their forecasts for employment for all of June. The Labor Department report for the month should appear in early July.
That sentiment, along with remarks earlier this week by Fed Chairman Alan Greenspan, fueled optimism that the Fed’s policy-setting committee will decide to cut interest rates at its meeting July 5-6 in an effort to stimulate a sagging economy.
Another factor pushing stock prices up this week is end-of-the-quarter “window-dressing”--that is, investment managers rushing to get high-performing equities, and those with good earnings prospects, on their books by the end of next week, when the quarter ends.
Window-dressing was especially prominent in the technology sector, which has been flying high for months. After a slight setback on Wednesday, tech stocks reclaimed their position as market leaders and were running ahead Thursday.
Among the market highlights:
* Banking and brokerage stocks rose on the prospect of lower interest rates. BankAmerica was up 3/4 to 54 1/2, Chase Manhattan rose 1/8 to 48 5/8 and Morgan Stanley added 2 to 84 3/4.
* Drug stocks rose as data indicating a weak economy prompted investors to seek shelter in recession-resistant sectors. Merck rose 3/4 to 49 7/8, Pfizer jumped 1 7/8 to 93 1/2, Johnson & Johnson added 1 1/2 to 71 1/8 and Schering-Plough shot up 2 1/4 to 45 1/2.
* On the Big Board, IBM rose 3/8 to 97 1/2. Motorola jumped 1 5/8 to 66 7/8. Advanced Micro Devices was up 1 1/4 to 36 5/8, and Storage Technology leaped 1 3/8 to 26 3/4.
* Intel, another computer stock leader, rose 1 19/32 point to 65 1/4, leading the volume in Nasdaq trading.
* Acquisitions also continued in the technology sector, with Adobe Systems announcing after the market closed that it will buy Frame Technology for $500 million. Adobe was up 2 1/8 to 65 1/2, and Frame rose 1/2 to 26 3/4.
* Elsewhere, Broderbund Software rocketed 4 to 60 3/4 and network company 3Com rose 1 5/16 to 67 3/16 after both firms reported quarterly results that exceeded Wall Street expectations.
* Borland International fell 1 1/4 to 12 3/4 after Novell said it was not interested in buying the software company.
* The Dow 30 components were led higher by International Paper, up 3 3/8 to 82 3/4. Champion International rose 2 5/8 to 52 1/2, and Georgia Pacific added 3 3/4 to 83 3/4. Paper stocks rose after Champion said it would buy back nearly 8 million common shares. Further, the paper industry is not likely to add capacity, which should keep prices aloft, and lower interest rates would spur housing starts, which would in turn boost lumber and wood demand.
Overseas, London’s FTSE-100 average closed up 25.5 points at 3,403.8. In Frankfurt, the 30-share DAX average ended at 2,148, up 4.99 points, while Tokyo’s 225-share Nikkei average fell 24.84 points to 14,926.37.
Mexico’s Bolsa index ended with a 29.07-point gain at 2,047.67.
Elsewhere, the dollar advanced as nervous traders tried to assess the outcome of contentious U.S.-Japan auto-trade talks in advance of next week’s U.S.-imposed deadline for levying stiff tariffs on 13 Japanese luxury cars.
In New York, the dollar closed at 84.55 Japanese yen, up from 84.05 on Wednesday.
