Surprise Drop in Wholesale Prices Boosts Dow to Record
Blue-chip stocks surged to a record high and bonds rallied Tuesday as a surprising drop in August wholesale prices rekindled hopes that the Federal Reserve Board will lower interest rates soon.
The dollar shot above 100 Japanese yen--the highest level in eight months--as last week’s cut in Japanese interest rates prompted investors to buy U.S. and European assets for higher returns.
The Dow Jones industrial average ended 42.27 points higher at 4,747.21, surpassing the old record closing high of 4,736.29 set July 17. In the broader market, advancing issues led decliners 1,391 to 891 on active volume of 342 million shares on the New York Stock Exchange.
The Nasdaq Composite index ended 1.56 points lower at 1,065.00--snapping a five-day streak of record highs--as investors cashed in profits from recent gains in high-technology stocks.
Analysts said the good news for blue chips was a 0.1% drop in the Producer Price Index for August, which raised hopes that the Fed would lower interest rates in a non-inflationary environment. Wall Street had expected the overall index to increase by 0.1%.
The Fed’s policy-making Federal Open Market Committee meets Sept. 26 to decide the course of short-term interest rates. In July, the central bank cut interest rates for the first time in nearly three years.
In the inflation-wary bond market, the yield on the benchmark 30-year Treasury bond plunged to 6.50% from 6.59% on Monday.
“The Fed has been gearing interest rate policy over inflation along with economic growth. Now the Fed has leeway” to further ease rates after its policy-making meeting, said Tony Dywer, chief market strategist at Josephthal Lyon & Ross.
“Many people took the numbers as indicating that inflation is well behaved and nothing much is in the pipeline,” said Charles Lieberman, managing director of financial markets research at Chemical Securities Inc. in New York. “Chances are that the inflation news will be good again tomorrow.”
Marty Kearney, a trader at PTI Securities, said investors were hoping that the consumer price index, scheduled to be announced today, would similarly show no problems on the inflation front.
In late New York trading, the dollar rose to 101.10 yen from 99.98 yen late Monday.
Among Tuesday’s market highlights:
* International Business Machines headed the NYSE list of active issues, gaining 1 1/8 to 97 1/2, but the third-most-active Big Board stock, Micron Technology, tumbled 2 1/4 to 92 1/8. Nasdaq’s actives list contained similar ups and downs, with industry bellwether Microsoft off 1 3/8 to 96 1/4.
* General Motors slumped 1 5/8 to 47 3/4. The Big Three auto makers’ stocks came under pressure amid speculation of declining profitability in the industry. Ford Motor fell 1 1/8 to 30 7/8, and Chrysler fell 3/4 to 56 5/8.
Despite the market’s impressive showing, some analysts warned that Wall Street could be headed for a difficult fall and winter.
Dan Ascani, president and director of research at Global Market Strategists Inc. in Gainesville, Ga., said the Dow’s achievement could mean the market has entered the final phase of its current advance.
Ascani said he expects stocks to retreat during the autumn and experience directionless trading during much of 1996. He said next year could be a repeat of 1994’s lackluster market action.
But for now, investors seem unfazed by scattered predictions of a market retrenchment.
In commodities trading, meanwhile, surprisingly low government estimates of American wheat, corn and cotton production set off sharp rallies.
September wheat jumped 8.5 cents to $4.66 3/4 a bushel, December corn rose 5.75 cents to $2.98 1/2, and September soybeans rebounded to close three-quarters of a cent higher at $6.19 1/4. December cotton rose the 2-cent daily limit to 81.89 cents a pound.
Volatile coffee prices crashed again in a market that has seen prices soar to nine-year highs and then crash 50% in less than a year. December coffee sank 6.65 cents to 127.15 cents a pound.
October crude oil gained 17 cents to $18.64 a barrel before a report of a 3.4-million barrel drop in domestic crude stocks from the American Petroleum Institute. Gasoline stocks also fell.
October gasoline added 0.82 cent to 55.74 cents a gallon, and October heating oil rose 0.30 cent to 51.95 cents.
Overseas, London’s FTSE-100 finished 13.4 points lower at 3,535.9. In Tokyo, the 225-share Nikkei average closed down 13.94 points at 18,472.17.
In Mexico, the key Bolsa index of 37 shares fell 18.36 points to 2,603.85 points.
* LOWER INFLATION: Wholesale prices fall. D2
