FINANCIAL MARKETS : Dow Closes In on 5,000 Mark; Weak Data Fuels Rate Cut Hopes
U.S. stocks rose to new highs on Thursday, striding closer to the 5,000 mark as financial issues rallied on optimism the Federal Reserve Board will lower interest rates by the end of the year.
Stocks were also supported by Friday’s double expiration of options and futures contracts, a quarterly event that often adds to trading volatility.
The Dow Jones industrial average rose 46.61 points to 4,969.36. While it ended more than 30 points below the 5,000 mark, the blue-chip index did record the sixth record high in the last seven trading sessions.
Reports of merger talks between Boeing Co. and McDonnell Douglas Corp. and bond yields’ slide to a 21-month low fueled the rally. Investors bet that President Clinton and Congress will resolve their deadlock over the budget, even as the two sides show no signs of compromise.
“It looks like the Dow wants to go to 5,000,” said Robert Freedman, chief investment officer at John Hancock Mutual Funds, which oversees $18 billion. With a resolution to balance the budget on the horizon, he said, “there is the strong possibility of another rate cut in December.”
Minnesota Mining & Manufacturing Co., J.P. Morgan & Co., United Technologies Inc. and Boeing were the biggest advancers in the Dow industrials. All except J.P. Morgan closed at record highs.
Broad market indexes also rose. The New York Stock Exchange composite and the Standard & Poor’s 500 composite both topped record highs set on Wednesday, with the NYSE index rising 2.01 points to 318.48 and the S&P; adding 3.38 points to 597.34.
On the NYSE, advancing issues led decliners by about 7 to 4. Volume was heavy at 423.28 million shares, up from 376.1 million on Wednesday.
The Nasdaq Composite Index, which contains benchmark tech companies Microsoft Corp. and Intel Corp. among others, climbed 2.63 points to 1044.48. The index last set a high at 1067.40 on Sept. 13. Cisco Systems Inc., MCI Communications Corp. and Sun Microsystems Inc. led the advance.
Stocks got a big boost from the bond market. The 30-year Treasury rose 1 point, pushing its yield, which falls when prices rise, to 6.22%, the lowest level since Jan. 28, 1994.
“The market action is basically because the bond market is rocking and rolling,” said Gerald Perritt, a money manager at Capital Growth Fund Inc. in Chicago, which oversees $100 million.
Bonds rallied after President Clinton canceled a trip to Japan, boosting expectations for a speedy resolution to the budget impasse. Further indications of a softening economy also fueled the bond market; the Federal Reserve Bank of Philadelphia said its index of area business activity plunged to 7.9 in November from October’s 25.5. And the National Assn. of Home Builders said its Housing Market Index dropped 7 points to 50 in November.
The data stoked investors’ hopes that once the budget tussling was over, the Fed would be free to lower interest rates before the end of the year.
The Fed’s policy committee left rates unchanged Wednesday.
Now investors say they are convinced the Dow industrials will surge to 5,000 this year, chalking up more than a 1,000-point gain in a year. Given the pace of ascent this week, the Dow could hit the mark today.
Among market highlights:
* Boeing and McDonnell Douglas gained on reports they are discussing an exchange of assets or a merger that would create the world’s largest aerospace company. Boeing shares jumped 1 7/8 to 75 7/8 and McDonnell Douglas climbed 4 3/8 to 90 5/8.
* The prospect of lower rates boosted shares of banks and brokerage houses . Citicorp’s stock added 1 3/4 to reach 67 1/4; BankAmerica Corp. shares rose 1 1/8 to 60 1/2; and Merrill Lynch & Co.'s stock jumped 2 1/4 to 59.
* Losses in Microsoft Corp. tempered gains on the Nasdaq after Goldman, Sachs & Co. took the company off its list of stocks it expects to “significantly outperform” the overall market. Microsoft’s shares, up 64% this year, dropped 4 1/8 to 89 7/8.
* MARKET BEAT
Is the U.S. stock market in a Japan-style bubble? D3