FINANCIAL MARKETS : Dow Finishes Week With a Another Record : Markets: But bond yields rose, showing mixed investor sentiment on the federal budget impasse.
The Dow Jones industrial average rose to a third consecutive record high Friday as investors brushed off an increase in bond yields that resulted from continued budget discord in Washington.
“The stock market is acting like things are calming down in Washington and is acting rationally, but bonds are not taking any heart from President Clinton’s offering to talk and are seeing a default is possible,” said Peter Canelo, chief investment strategist at NatWest Securities.
Bond investors, worried about the possibility of default, drove the yield of the 30-year Treasury bond up to 6.33%. However, this is still a lower yield than that of just two weeks ago. Activity was extremely light as most market players chose to wait and see how the budget battle will play out.
Broader stock market indexes ended mostly lower because of a mixed performance by technology issues as investors sold holdings to cash in on some of the best performers’ recent sharp gains.
The Dow overcame a midday 24-point loss to end 6.14 points higher at 4,870.37, topping record sessions on Wednesday and Thursday and ending the week with a 44.80-point gain.
But declining issues led advancers by about 5 to 4 on the New York Stock Exchange. Big Board volume was weaker than it has been in some time, with 297.97 million shares having changed hands as of 4 p.m., down from 379 million on Thursday.
The Standard & Poor’s 500 composite fell 0.54 point to 592.72, and the Nasdaq composite dropped 1.72 point to 1,063.87.
The gold market, a refuge in times of uncertainty, surged to its highest level in four months, aided by U.S. budget and Mexican peso concerns. On New York’s Commodity Exchange, the active December gold contract closed up $3.10 to $390.50 per ounce.
The dollar was not affected by the tension in Washington, rising against major currencies as investors took profits from a recent rally in the yen. The Mexican peso held steady, having rebounded from its latest drop. The dollar rose late Friday to 1.4175 German marks from 1.4112 at Thursday’s close, and to 100.90 yen from 100.38 on Thursday.
Stock investors were cautious in light of the widening rifts between Congress and the White House as the government approached its debt limit.
“The stock market above all hates uncertainty,” said Cummins Catherwood, managing partner at Rutherford, Brown & Catherwood in Philadelphia. The budget impasse “creates a diminution in confidence, often results in contraction of price-earnings ratios [as interest rates rise], because you don’t know what the heck is coming.”
Congress sent President Clinton a bill that would extend the government’s borrowing authority and increase the debt limit, but Clinton said he would veto the measure because it contained unacceptable provisions.
If legislation is not approved by early next week, the government could be forced to take extraordinary measures to keep itself running, or it could even default on some of its debt.
Still, there is an underlying buoyancy in the stock market tied to a strong belief that interest rates will be lowered again before the year’s end, after the budget fracas is over.
“I think there’s a general feeling that an actual default is unthinkable,” said Eric Miller, Donaldson, Lufkin & Jenrette Securities’ market strategist, “or that any problems would be very short-term.”
Investors brushed off reports that the University of Michigan’s mid-November index of consumer sentiment stood at 90.7, up from 90.2 in October.
Among market highlights:
* Technology stocks were mostly softer, led by a decline in semiconductor issues. In Nasdaq trading, Microsoft was down 2 1/8 to 96 7/8, Intel slid 3/4 to 68 1/4. On the Big Board, IBM fell 1 to 97 3/8, Micron Technology fell 3/8 to 64 5/8 and Cypress eased 1/4 to 17 1/2.
* Some interest-sensitive stocks fell as interest rates rose. Morgan Stanley shares fell 1 7/8 to 87 3/4.
European stock markets fell on discomfort over the budget crisis in Washington. But the Nikkei index in Tokyo edged up 0.13%.