FINANCIAL MARKETS : Stocks’ Rally Pushes On but at Slower Pace
Wall Street extended Tuesday’s big rally on Wednesday, though stocks rose at a much slower pace.
Bond yields closed mostly unchanged, while the dollar advanced sharply amid expectations of another Japanese interest-rate cut.
In the stock market nearly all major indexes rose, with most reaching record highs.
The Standard & Poor’s 500 index, for example, added 1 point to a record 570.17, while the Nasdaq composite index gained 4.98 points to a record 1,044.28.
But the market’s gains were modest compared with Tuesday’s rally, when the Nasdaq index shot up 19.83 points.
The Dow Jones industrial average rose 13.73 points to 4,683.81 on Wednesday after adding 22.54 points on Tuesday. The Dow, unlike most major indexes, remains below its record high of 4,736.29 set on July 17.
Although some analysts were disappointed that the market’s momentum ebbed on Wednesday, many believe the current environment remains extremely favorable for stocks.
In particular, many investors appear convinced that interest rates will either continue to drop or at worst will remain stable for the next few months, thanks to moderate economic growth.
The Federal Reserve Board is widely expected to lower short-term interest rates another notch by mid-November.
“If investors aren’t convinced of a further Fed easing, they’re thinking there won’t be a further Fed tightening, at the least,” said Eugene Grandone, money manager at Northern Investment Counselors, which oversees about $6 billion in assets.
Lower or stable interest rates benefit stocks by reducing the relative attraction of bonds and other interest-paying securities compared to stocks.
The bond market itself slogged through a dull session on Wednesday. Yields were little changed, with the 30-year Treasury bond yield inching up to 6.58% from 6.57% on Tuesday.
Still, yields remain at or near seven-week lows.
“The market needs to take a little breather,” said Steven Saslow, executive managing director at HSBC Securities in New York.
The dollar, however, appears poised to restart its summer rally.
The dollar leaped Wednesday after the Bank of Japan took the currency market by surprise and bought dollars for yen.
The intervention came after Tokyo announced its “current account” trade surplus in July fell 20% to $9.22 billion--a potentially bearish sign for the yen.
The dollar continued its rally in New York, where it closed at 98.83 yen, up sharply from 97.50 Tuesday. It also rose to 1.477 German marks from 1.462.
Speculation also intensified Wednesday that the Bank of Japan may soon cut interest rates again to help the struggling Japanese economy. Rates are already at record lows in Japan.
Among Wednesday’s highlights:
* Technology shares continued to rebound, though the rally was more uneven than Tuesday’s.
Computer-chip maker Micron Technology leaped 5 7/8 to a record 87 1/4 after rising 5 on Tuesday. Goldman Sachs and SoundView hiked their fiscal 1996 and 1997 earnings estimates on the company and raised price targets.
Rick Whittington, an analyst at SoundView, raised his estimate for Micron’s fiscal 1996 earnings to $10 a share from $7.50.
Another chip firm, National Semiconductor, jumped 2 1/4 to 32 1/8 after reporting strong quarterly earnings.
* Other winners in the tech group included Computer Associates, up 1 7/8 to 46 7/8; Dell, up 4 1/2 to 85 1/4, and Compaq, up 1 1/4 to 50 5/8.
But Intel lost 1 3/16 to 62 1/2 and Microsoft fell 1 1/2 to 93 1/2.
* Transportation issues showed big gains for a second straight session, led by airline and railroad shares.
CSX rose 1 1/2 to 86, Delta Air Lines added 7/8 to 77 5/8 and Federal Express shot up 1 3/8 to 74 1/8.
Also, USAir added to Tuesday’s gains, rising 7/8 to 10 5/8. It rose 1 3/4 Tuesday after the company forecast a third-quarter pretax profit.
On Wednesday, the firm’s chief executive said he would step down.
* Owens-Corning rocketed 3 3/4 to 43 3/4 after news of a favorable settlement with one of its major insurers for non-products insurance coverage for asbestos.
In commodities trading, cotton prices slumped for the second consecutive day as traders took profits off a recent rally based largely on fears of insect problems afflicting the U.S. crop.
