FINANCIAL MARKETS : Dow Climb Continues but Broad Indexes Don’t Follow
The blue-chip Dow Jones industrial stocks pushed higher into record territory Wednesday on the hope of lower interest rates, but for a second day the move was not paralleled in the broader markets, as technology and consumer stocks fell.
The Dow rose 18.06 points to 5,041.61.
That was less than half its midday gain of 44 points but still well above the previous record-high close of 5,023.55 set Tuesday. Economically sensitive issues led the advance.
Chris Callies, technical analyst at Brown Bros. Harriman, said the rally was strictly in the Dow’s 30 stock components.
“It is probably the narrowest rally the market has had all year,” she said. “That indicates the broad market is stagnant or correcting, and the only reason the Dow is strong is money is coming out of other sectors.”
Advancers had a tiny lead on decliners on the New York Stock Exchange, and more major indexes fell than rose Wednesday. Nonetheless, the entire market remains at or near record levels.
The Wilshire 5,000, an index that covers most U.S. stocks, reached its all-time high last Friday.
Analysts say investors are betting that once Congress and the White House agree on a budget, the Federal Reserve Board will lower interest rates and that as a result, the economy will kick up into a moderately higher gear.
“The market is placing a bet on a couple things, and it’s a dicey bet,” said Alfred E. Goldman, vice president at A.G. Edwards & Sons in St. Louis.
The Dow industrials were led higher by cyclical issues Alcoa, up 2 5/8 at 57 3/4; United Technologies, up 1 1/4 at 92; DuPont, up 2 1/8 at 67 1/4, and IBM, up 3/4 at 95 1/4.
Autos, papers, metals, transportation--all heavily cyclical--made strong gains.
Cyclical issues--those most sensitive to swings in the economy--have lagged the market’s gains this year as technology and consumer product stocks surged. Investors now are betting the economy will pick up fast enough to boost cyclical companies’ profits.
“There is a natural tendency to go to the group that hasn’t participated in the rally,” said Larry Puglia, money manager at T. Rowe Price, which manages $70 billion.
The U.S. rally helped edge London stocks to a new high, and Mexican stocks soared for a fifth day, climbing to their highest level in two months as interest rates fell for the first time in nine weeks and the peso strengthened.
The Bolsa index jumped 3.52% to 2,534.69, its highest level since closing at 2,557.10 on Sept. 21, after the peso rose 1.1% to 13.06 U.S. cents. In the last three sessions, the Bolsa was up 12% in peso terms and almost 9% in dollar terms.
Shares rose because “rates came down, the peso’s stable and there’s overall better sentiment” about Mexico’s economic prospects among investors, said Tom Stires, a senior vice president at Kleinwort Benson Group in New York.
Before the Bolsa’s five-day rally, stock prices fell an average of 3.6% in the previous month on concern that rising interest rates and a tumbling peso would stunt Mexico’s economic growth and company earnings.
The U.S. bond market did not react strongly to the slew of economic reports Wednesday.
“The numbers suggest an upward revision in the GDP,” said Dan Set, an economist at Nikko Securities International.
Overall, the reports indicate that the economy is growing but that there have not been increases in consumer spending sentiment and employment figures.
Thus the growth does not appear likely to cause inflation. The yield of the Treasury’s main 30-year bond was nudged from 6.26% on Tuesday to 6.27%.
Among market highlights:
* Technology shares lost ground. Those on the Big Board, except for IBM, declined, including Micron Technology, down 2 7/8 to 47 3/4; Motorola, down 1 1/4 to 59 7/8, and Texas Instruments, off 2 1/2 to 52 1/2.
Internet-related stocks took big hits for the second straight day, including Netscape, down 2 1/4 to 105 1/2; UUNet, off 2 1/2 to 70 1/2; Spyglass, down 71/16 to 83 1/2, and Netcom, off 5 5/8 to 61.
* Amerin, a mortgage insurance firm, topped the Nasdaq market’s actives list and rose 4 to 20 in its first day of trading. Paraexel International, a contract research organization, also had a strong debut, up 4 1/4 to 19 1/4.
Gold prices hit their lowest level in 2 1/2 months as investors flocked to the booming stock market and neglected precious metals.
December gold dropped $3.30 to $382.10 an ounce at the Commodity Exchange--the lowest level for that contract since mid-1993.
“The rising stock market always works against” precious metals, said Anthony Raia, analyst for LFG.
Market Roundup, D7
