FINANCIAL MARKETS : Dow Tacks On 9.86, Led by the Cyclicals
Stocks sensitive to moves in the economy--so-called cyclical stocks--fueled an advance by the Dow Jones industrial average, with General Electric, International Paper and Goodyear Tire & Rubber leading the way.
“Consumer-cyclical stocks, like autos, housing and retailers, are starting to come back,” said Hugh Johnson, chief investment strategist at First Albany Corp. “The market is sending us signs that the economy is not about to role over and die.”
The Dow Jones industrial average managed to cling to most of the gain it rang up in the early going. It finished the session up 9.86 points at 4,693.32. Gainers outnumbered losers by about 6 to 5 on the New York Stock Exchange.
The U.S. dollar hit a 3 1/2-week high against the mark Monday, rallying on speculation among currency traders that Germany’s central bank would cut interest rates later this week.
Most U.S. stock indexes crept higher in a lethargic summer session as investors were wary ahead of the Treasury’s record quarterly refunding effort and inflation data due at week’s end.
The Treasury auctions are expected to show whether Japanese investors are stepping up dollar-denominated investments, something that could bode well for stocks. The Japanese historically have been among the major holders of U.S. securities and the Tokyo government might have enhanced their appetites recently by easing restrictions on foreign investment.
Data on inflation at the wholesale level is due out Thursday, followed a day later by the consumer price report. The important inflation figures will be scrutinized by the markets with hopes running high that the data will show the rejuvenating economy hasn’t incited price hikes.
The yield on the key 30-year Treasury bond was nudged down to 6.88% from 6.90% late Friday.
Although the dollar rose against the German mark, it held mostly steady against the Japanese yen. Since Japan introduced measures last week to make it easier for big investors to buy foreign securities, currency traders were waiting to see if the Japanese would buy U.S. assets.
“You have the Bundesbank meeting and the Treasury auction coming this week,” said Lynn Tierney, vice president at Shawmut Bank of Boston. “The market is watching both these things closely to see what happens.”
In late New York trading, the dollar was quoted at 1.4091 marks, up from 1.3970 late Friday and the highest level since its 1.4150 exchange rate July 13. The dollar was also trading at 91.39 yen, down from 91.43.
Rumors have circulated since last Friday that Germany’s Bundesbank might cut interest rates this week. Traders predict the central bank on Wednesday will reduce the 14-day securities repurchase agreement rate, also known as the repo rate, a barometer of short-term interest rate trends in Germany.
The next step, Tierney said, could even be a cut in the discount rate on Thursday when the Bundesbank’s policy-making committee reconvenes after a four-week summer recess. The discount rate, a key lending rate that was last cut on March 30, is the interest charged on loans to commercial banks.
Among market highlights:
* General Motors Class E shares spurted 2 1/2 to 46 1/8 in heavy NYSE volume. Investors accumulated the stock after GM announced a plan to spin off Electronic Data Systems Corp., the computer services company it bought from founder Ross Perot in 1984. GM’s Class E shares pay dividends based on the EDS unit’s performance and are to be exchanged for stock in EDS.
Chrysler gained 1 5/8 to 51 1/4. Salomon upgraded the stock and said the car maker is likely to enjoy the best near-term performance among the Big Three.
* Some technology stocks snapped back in what analysts described as a reaction to the aggressive profit-taking that the group has encountered recently. Investors apparently concluded that the selling of selected semiconductor, software and related computer issues had gone far enough. Texas Instruments rose 1 7/8 to 146 1/2, Intel was up 1 1/2 to 63 1/2, and Cisco Systems added 1 3/8 to 55 5/8. But Lattice Semiconductors shed 4 3/4 to 32 7/8. Needham downgraded the stock and cut its fiscal 1997 earnings estimate.
* After the close of trading, CPC International said it will buy the baking business of Philip Morris’ Kraft Foods for $865 million. CPC was off 1/8 to 62 1/2 and Morris rose 1/2 to 74 1/2.
Investors looking for inspiration from abroad received mixed signals. In Tokyo, the 225-issue Nikkei stock average lost 125.74 points, or 0.75%, closing at 16,615.46. As for European markets, prices firmed in Frankfurt and London but ended lower in Paris in light volume.
