FINANCIAL MARKETS : Optimism on Fed Cut Adds to Stocks’ Stamina; Bond Yields Fall
Stocks sprinted higher Wednesday, lifting the Dow Jones industrial average to its sixth consecutive record high. Broad market indexes broke records as well.
The Dow industrials rose 27.46 points to 5,105.56, their first close above 5,100. Traders said the index was helped late in the day by computer-driven buying programs. The Standard & Poor’s composite index of 500 stocks and the Wilshire 5,000 index also set records.
Stocks were also boosted by lower bond yields and strength in the dollar.
Marty Kearney, a trader at PTI Securities, said: “It seems as if there’s a lack of worry in the market and we keep hearing how much higher stocks will go amid low inflation and low interest rates. That’s beginning to bother me. There’s not a lot of fuel to go higher here.”
“This market is like an old soldier that just doesn’t give up,” said Peter Cardillo, director of research at Westfalia Investments.
Financial markets got a lift from increased speculation that the Federal Reserve Board will lower interest rates as soon as the budget crisis in Washington is resolved--possibly early next month--and on expectations that Germany will cut its rates today. Yields on 30-year Treasury bonds fell to their lowest level since early January, 1994--to 6.19% from 6.23% on Tuesday.
Falling interest rates would reduce borrowing costs for businesses and consumers, helping increase economic activity at a time when inflation appears contained at a low rate. In addition, falling interest rates make returns more attractive on stocks compared to bonds.
On the New York Stock Exchange, advancing issues had a 7-5 lead over declining shares. Volume on the Big Board was moderately heavy at 398.22 million, down from Tuesday’s pace.
Helping the markets was news that the White House and Republican congressional leaders agreed to strike a budget deal by Dec. 12 and conclude action on the legislation by Dec. 23.
Once the budget crisis is out of the way, analysts say, the central bank can reduce interest rates.
U.S. stocks were joined by rallies in several other world markets, including Mexico, where the Bolsa index continued a two-week rally to close at 2,724.50 and London, where the the FTSE-100 index closed at an all-time high of 3,655.5. In Japan, midday trading Thursday put the Nikkei-225 index over 18,800, which would be a high for the year.
The dollar surged to a 16-month high against the British pound and rose against the German mark amid expectations that interest rates in those two countries will soon be cut. The Bundesbank’s policy-making council is scheduled to meet this morning, and many think the central bank will cut rates to stimulate the nation’s flagging economy. Other European nations, notably Switzerland and Britain, are expected to follow suit.
The dollar rose above 1.44 marks early in the New York session, but caution ahead of the meeting stalled the rally, and the greenback ended at 1.4370 marks, up from 1.4330 at Tuesday’s close. The dollar also gained against the Japanese yen, ending at 101.57 yen, up from 101.20 on Tuesday.
Among the market highlights:
* Some cyclical stocks gained on the premise that lower interest rates would boost earnings at these companies, particularly those with an international presence. Big gainers among the Dow industrials included 3M, up 1 1/2 to 65 7/8, and Boeing, up 1 3/8 to 73 3/8.
* Some technology shares fell as investors locked in hefty profits for the year. Microsoft fell 1 3/4 to 89 3/4 and Intel lost 3/4 to 63. But Internet-related stocks continued to barrel higher. Netscape added 9 to 140, Spyglass soared 14 3/4 to 111 3/4, UUnet climbed 4 1/8 to 80 3/8 and Netcom gained 5 1/2 to 76.
Motorola shed 3 7/8 to 61 1/8 after Cowen & Co. downgraded the stock and cut its 1995 and ’96 earnings estimates, citing expectations of flat cellular phone sales next year.
* The technology sector also got a splashy new issue in Pixar Animation Studios. The company made an initial public offering of 6 million shares at $22 each, up from original expectations of $12 to $14. The stock soared to $39 before the close.
* Utility stocks rose as investors anticipated lower rates and sought safety. The Dow Jones utility average rose 1.32 points, or 0.61%, to 216.78.
* Aetna fell 3 7/8 to 72 and Travelers rose 3 3/4 to 58 7/8. Travelers agreed to buy Aetna’s domestic property and casualty insurance operations for $4 billion in cash.
* Drug shares rose. Merck rose 1 3/8 to 60 7/8 after the company’s board authorized the repurchase of another $3 billion in common stock, leading some investors to conclude that the company thinks its own stock is underpriced.