FINANCIAL MARKETS : Stocks Advance Despite Jitters Over Earnings; Dollar Rallies
The U.S. stock market pushed ahead to record highs on Wednesday, despite a flurry of corporate announcements warning of weak near-term earnings.
Stocks also hit new highs in London and Frankfurt, as bull market fever spread.
In currency trading the dollar continued to rocket, topping 103 Japanese yen and 1.50 German marks in Tokyo early today.
On Wall Street the Dow Jones industrial average recovered from a midday slump to closed up 18.31 points at 4,765.52, its second consecutive new high.
The Dow advanced even though IBM, one of its key component stocks, slumped 2 7/8 to 94 5/8 after warning that third-quarter sales will be less than expected because of delays in shipping computers.
IBM’s drop was more than covered by price gains in other brand-name Dow stocks, some of which may be benefiting from Japanese buying as the dollar strengthens.
In the broad market most major stock indexes joined the Dow at record highs, though winners topped losers by a slim 12 to 11 on the NYSE. Trading was heavy.
Stocks got an early lift as the government issued another favorable inflation report.
But the bond market, which rallied sharply on Tuesday, spun its wheels on Wednesday. Yields closed slightly above the nine-week lows reached on Tuesday, with the 30-year Treasury bond at 6.52% versus 6.50%.
Some traders said they were nervous ahead of the government’s August retail sales report due today. Although inflation is clearly subdued, some bond investors want to see more definite signs of sluggishness in the economy to justify even lower yields.
Ironically, the stock market seemed to be offering ample signs of economic weakness on Tuesday.
Although IBM’s sales problems were blamed on a shortage of mainframe computer parts--not lower demand--several other firms issued earnings warnings tied at least partly to the economy.
Steel maker Nucor, for example, said it will have difficulty matching last year’s third-quarter earnings because of steel price cuts.
And Hilton Hotels warned of lower-than-expected quarterly results in part because of slower sales at a new vacation real estate project in Orlando, Fla.
But analysts say investors so far are treating such announcements as company-specific problems rather than drawing market-wide inferences about earnings.
What’s more, the dollar’s surge may be luring Japanese investors into U.S. shares, experts say, providing new support for the market.
Accelerated Japanese purchases of U.S. securities were credited with stoking the dollar’s advance on Wednesday. It closed at 102.75 yen in New York, up from 101.10 on Tuesday, and early today in Tokyo reached 103.50 yen--highest since June, 1994.
The dollar also jumped to 1.495 marks from 1.472 Tuesday and was at 1.501 in Tokyo early today.
Traders said the Bank of Japan intervened heavily to keep the dollar on an upward course.
Among Wednesday’s highlights:
* Multinational consumer stocks led Wall Street’s rally, as investors put aside worries about the rising dollar’s potentially negative effect on the companies’ earnings.
Coca-Cola rose 1 1/2 to 65 7/8, Pepsico gained 1 1/4 to 48 3/4, Eastman Kodak shot up 2 5/8 to 62 3/4, Procter & Gamble advanced 1 5/8 to 73 1/4, Colgate-Palmolive leaped 1 3/4 to 71 1/8 and Nike jumped 1 7/8 to 93 1/4.
* Financial stocks posted fresh gains on hopes for lower interest rates and more industry mergers. First Interstate jumped 3 5/8 to 103, Wells Fargo gained 7/8 to 187 5/8, Countrywide Credit soared 2 1/8 to 24 1/2 and Aetna rose 1 3/8 to 71 1/2.
* Technology shares were mostly higher despite IBM’s slide. Hewlett-Packard gained 1 5/8 to 85 1/4, Digital Equipment rose 1 5/8 to 43 1/2, Autodesk added 1 7/8 to 47 7/8 and BMC Software surged 4 1/4 to 48 3/4.
As for IBM, analysts said the shortage of power supplies that is delaying the firm’s shipments of new mainframes will merely push about $250 million in sales from the third quarter to the fourth.
Salomon Bros. cut its third-quarter earnings estimate for IBM by 10 cents a share to $2.30, but raised its fourth-quarter expectation by 10 cents to $3.67.
* Nucor slumped 1 3/4 to 47 3/8 on its earnings warning. Other industrial issues falling included Inland Steel, down 1 to 25 1/8; GM, down 3/4 to 47; Inco, off 1 to 36 1/8, and Alcoa, down 1 1/8 to 58 5/8.
* Hilton dropped 2 to 64 on its earnings forecast, which pinned most of the blame on restructuring charges and softness in its Las Vegas business.
In foreign trading, Frankfurt’s DAX index rose 24.65 points to a record 2,295.48, buoyed by the dollar’s recovery, which has given new hope to beleaguered German exporters. In London the FTSE-100 index jumped 34.9 points to a record 3,570.8.
Tokyo shares also advanced, with the Nikkei-225 index up 142.09 points to 18,614.26.
