FINANCIAL MARKETS : Stocks Advance on Renewed Hopes for Fed Rate Reduction
U.S. stocks rose Wednesday as bond yields slid and the dollar strengthened, but Wall Street’s gain was surprisingly modest given the backdrop, some analysts said.
The Dow Jones industrials added 11.20 points to 4,766.68, as winners topped losers by 13 to 9 on the New York Stock Exchange.
A sharp rally in the bond market at midday seemed to set a positive tone for stocks, as long-term yields fell near 21-month lows after a flurry of economic reports suggested business activity is slowing.
The government’s index of leading economic indicators slipped in September, and a corporate purchasing managers report showed manufacturing activity nationwide dipped in October.
The reports--which contradicted more bullish economic data released Tuesday--resurrected hopes that the Federal Reserve Board will cut short-term rates again soon.
The Fed’s policy-setting Open Market Committee is “going to give us a Christmas present” and lower rates at its December meeting, predicted Joseph Barthel, director of investment strategy at Fahnestock & Co.
That sentiment pushed interest rates lower across the board Wednesday, sending the 30-year Treasury bond yield to 6.29% from 6.33% on Tuesday. The T-bond yield’s had reached a 21-month low of 6.28% on Oct. 17.
Among shorter-term securities, the yield on two-year T-notes dropped to 5.52% Wednesday from 5.62% on Tuesday.
The economic news overpowered any negative response by bond investors to further uncertainty over the federal budget battle and the pressing need for Congress to raise the nation’s debt ceiling.
The Treasury Department announced plans to sell $18 billion in three-year notes next Tuesday and $13.5 billion in 10-year notes Wednesday. But in an unusual cautionary note, the Treasury said the plans could be scuttled if budget talks collapsed between President Clinton and Congress.
Clinton and Republican leaders met Wednesday but came to no agreement on the budget or the debt ceiling.
On Wall Street, analysts said the stock market’s hesitancy in the face of falling interest rates may reflect concerns that a sluggish economy will further pressure corporate earnings growth.
“The key point to be concerned about is earnings,” said Rick Harrington, a trader at Interstate/Johnson Lane Inc. in Charlotte, N.C. “Analysts have some very high expectations.”
Among Wednesday’s market highlights:
* Industrial shares were mixed in the wake of the latest economic data. DuPont slipped 5/8 to 61 3/4, GE lost 1 to 62 1/4 and Scott Paper fell 1 1/8 to 52 1/4, while B.F. Goodrich gained 1 7/8 to 67 3/4 and Air Products & Chemicals gained 2 3/8 to 54.
* Boeing climbed 2 1/2 to 68 after the Wall Street Journal reported that Japan Air Lines plans to buy five of the company’s 777-300 twin-engine jets for $800 million.
* The prospect of lower interest rates brightened banks’ earnings outlook, spurring a rebound in many bank shares after a recent bout of profit taking in that group. Citicorp rose 2 3/8 to 67 1/4, BankAmerica jumped 1 1/4 to 58 3/4, First Bank System surged 1 3/8 to 51 1/8 and Banc One added 1 to 34 3/4.
* Most brokerage stocks also rose as rates fell. Merrill Lynch leaped 2 7/8 to 58, Lehman jumped 1 3/8 to 23 1/8 and Charles Schwab gained 1 1/2 to 24 3/8.
* Some classic consumer growth stocks gained as investors searched for “defensive” issues, reacting to weak economic data. Procter & Gamble jumped 1 3/8 to 82 3/8, Warner Lambert advanced 2 1/4 to 86 5/8 and Nike Class B shares added 7/8 to 57 1/2.
* In the technology sector, Internet-related software companies continued to rise after Spyglass reported strong quarterly earnings. Spyglass surged 7 to 56 3/4. Other winners included Netscape, up 1 to 89, and America Online, up 6 1/4 to 86 1/4.
But in the biotech field, Chiron plunged 6 to 85 after its quarterly earnings report disappointed Wall Street.
* Among new listings, Brazilian telecommunications giant Telebras began trading on the NYSE, and closed at 40. Its ticker symbol is TBR.
In foreign markets, Mexico’s Bolsa index stabilized, adding 3.91 points to 2,305.92 despite another decline in the peso’s value. In Canada, the TSE-300 index dipped 6.15 points to 4,453.01.
In currency markets, the dollar surged to a six-week high against the yen as Japanese investors sold off domestic investments and sent money overseas.
In New York trading, the dollar closed at 103.15 yen, up from 102.06 yen Tuesday and its highest finish since hitting 104.67 yen on Sept. 20.
