FINANCIAL MARKETS : Dow Closes In on 5,000 Mark; Weak Data Fuels Rate Cut Hopes
The Dow Jones industrial average led a powerful stock market advance on Thursday, striding closer to the 5,000 mark amid continued hopes for lower interest rates.
The Dow shot up 46.61 points to a record 4,969.36, adding to Wednesday’s 50.94-point gain. But Thursday’s stock rally was much broader, and it was supported by a fresh decline in bond yields.
Despite the continuing impasse between President Clinton and Congress over how to balance the federal budget, “There is general enthusiasm [on Wall Street] that the problem is political, not financial,” said Robert Stovall, president of Stovall/Twenty-First Securities, “and that we’ll all be financially better off when it’s over.”
Stocks’ gains on Thursday, however, seemed tied more closely to immediate expectations for a further decline in interest rates.
The bond market rallied in response to new indications of a softening economy. The Federal Reserve Bank of Philadelphia said its index of regional business activity plunged in November.
Combined with other recently weak economic data, investors viewed the Philadelphia Fed report as another sign pointing to the likelihood that the central bank will cut short-term interest rates at its Dec. 19 meeting.
Most analysts believe the Fed is certain to ease rates if Clinton and Congress can agree on a budget plan by mid-December. Optimism about a resolution to the crisis in Washington rose Thursday as Clinton canceled a trip to Japan, boosting hopes that serious negotiations will soon begin.
Bond yields tumbled across the board, with the 30-year Treasury bond yield falling from 6.29% Wednesday to 6.22% Thursday, the lowest level since Jan. 28, 1994.
That was all the prodding the stock market needed.
While Wednesday’s Dow gain had been credited largely to trading strategies tied to today’s monthly expiration of popular stock option contracts, Thursday’s buying was far more pronounced across the spectrum of stocks, analysts said.
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 NYSE composite index and the Standard & Poor’s 500 index both reached record highs with the Dow.
However, the Nasdaq composite index, which contains benchmark tech companies Microsoft and Intel among others, added just 2.63 points to 1,044.48 as those tech issues and others failed to advance with the broad market.
Nonetheless, the bulls are unbowed. “Inflation’s under control,” declared Barry Berman, head stock trader at Robert W. Baird & Co. in Milwaukee. “I think people want to be in the (stock) market, one, because the performance has been so phenomenal, and two, yields (on fixed-return investments) aren’t real attractive.”
“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.
Among the 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; Bank America 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.
Mexican stocks rose for the second day as expectations for falling U.S. interest rates boosted the peso and hopes for higher company earnings.
Mexico City’s Bolsa index rose 2.3 points to 2262.48. The peso strengthened to 12.91 cents after closing at a record low of 12.64 cents on Wednesday.
* MARKET BEAT: Is the U.S. stock market in a Japan-style bubble? D3
