FINANCIAL MARKETS : Dow Again Hits Record Despite Drop in Dollar
Stocks climbed to record heights Thursday for the second day in a row, despite budget brawling in Washington that sent bond yields higher and the dollar lower. Technology issues surged.
Stocks rose despite a sharp drop in the dollar and an increase in the Treasury’s main 30-year bond yield to 6.28% after President Clinton convened a Cabinet meeting to discuss how to shut the government down if Congress does not reach an agreement with the White House on the budget. On Wednesday, investors were more optimistic about the federal wrangling and the yield dropped to 6.25%, a level unseen since January, 1994. Bond prices and yields move in opposite directions.
The President was holding to earlier threats to veto legislation, passed by the House late Wednesday, that would limit spending in many programs to as little as 60% of last year’s levels.
Unless a spending bill is enacted by midnight Monday, when a previous stopgap measure expires, the federal government could be forced to take the unprecedented action of defaulting on its debt. Such a default could wreak havoc in the bond market or at least raise interest rates, some analysts have warned.
“The decline in the dollar and bond market clearly reflects the growing worries, particularly among foreign investors, that the U.S. government might become involved in a technical default,” said Hugh Johnson, First Albany Corp.'s market strategist, “even though that possibility is remote. The game of chicken between the House and the Administration is very disheartening to outside observers.”
But the equity markets showed no concern. The Dow Jones industrial average rose 11.56 to 4,864.23, topping its previous closing high of 4,852.67 set on Wednesday.
Technology stocks made sharp and broad gains, reversing Wednesday’s action, after the Semiconductor Industry Assn. said its October book-to-bill ratio was a surprisingly strong 1.18. That means that for every $100 of chips shipped, the industry received orders for $118 worth of chips.
Many technoloy indexes, which generally reached their all-time highs in mid-September, are again flirting with those peaks.
Advancing issues had a slim lead on decliners on the New York Stock Exchange. But Big Board volume was substantial at 379 million shares as of 4 p.m., up from 359.77 million Wednesday.
The NYSE’s composite index and Standard & Poor’s 500-stock index both edged past Wednesday’s record highs, with the NYSE index up 0.42 at 315.97, and S&P;'s 500 up 1.55 at 593.26.
The budget impasse aside, investors were optimistic that the Federal Reserve will soon lower short-term interest rates. That position was encouraged when U.S. Labor Department reported that wholesale prices fell 0.1% in October, and unemployment claims rose by 9,000 last week.
Among market highlights:
* Among the technology stocks were Micron Technology, which rose 3 to 65, Motorola, up 2 7/8 to 67 5/8, National Semiconductor, up 1 7/8 to 23 7/8, and Cypress Semiconductor, up 1 3/8 to 17 3/4. On Nasdaq, Intel rose 3 1-16 to 69, Cirrus Logic rose 1 1/2 to 30 1/8, Microsoft rose 3 3/4 to 99 and Applied Materials rose 4 1/4 to 52.
* Netscape Communications Corp. closed Thursday above $100 for the first time, roughly four months after the Internet software company became publicly traded.
* Investors sold some economically sensitive stocks. International Paper fell 5/8 to 34 7/8. Deere lost 1 to 90, while Chrysler slid 1 1/8 to 47 3/4.
* Gold stocks rose with gold prices. Battle Mountain Gold shares rose 3/8 to 8 7/8.
In overseas trading, the Nikkei index in Tokyo slipped .24%, and the CAC index in Paris lost 0.73%. But the FT-SE 100 index in London rose 0.13%, and the DAX index in Frankfurt added 0.94%.