FINANCIAL MARKETS : Dow, Other Indexes Have a Record Day : Markets: Bond yields hit lowest level in more than 2 years, fueling hopes for robust corporate profits in ’96.
U.S. stocks rose to records Monday, posting their broadest rally in a month as the lowest bond yields in more than two years fanned optimism that companies will post robust profits in 1996.
For the first time in almost three months, the Dow Jones industrial average, the Standard & Poor’s 500 index and the Nasdaq composite index reached record highs in unison. Companies with businesses as varied as those of General Motors, up 1 7/8 to 51 1/4, and Microsoft, up 1 5/8 at 87 7/8, led the advance.
“Up, up and away,” said Peter Anderson, chief investment officer at IDS Advisory Group in Minneapolis. “People are starting to focus on the coming 12 months. And what they are seeing is lower interest rates and at least stable to moderately advancing earnings.”
Evidence that manufacturers are cutting production and that retailers are having trouble luring holiday shoppers bolstered expectations that economic growth is slow enough for the Federal Reserve Board to lower interest rates this month. If it does, that would lower borrowing costs just in time to fuel profit growth next year. The bellwether 30-year Treasury bond yield fell to 6.02%, after trading briefly at 6%. It closed at 6.08% on Friday.
The rate, which will mean lower credit costs for many consumers, because it affects other loans, including those for housing, cars and some credit cards, has plunged in the last two weeks as investors have bet that mounting evidence of a slowing economy will prompt the Fed to cut short-term interest rates.
The last time the long-term bond yield closed below 6% was on Nov. 29, 1993, when it closed at 5.97%.
The central bank’s policy-setting Federal Open Market Committee meets on Dec. 19. “The lower yields go, the less competitive it is for stocks and the better it is for stocks,” said Peter Canelo, chief investment strategist at NatWest Securities.
Companies sensitive to interest rates pulled ahead, with Citicorp up 1 1/8 at 72 1/2, Morgan Stanley gaining 2 1/8 at 89 and J.P. Morgan rising 2 1/8 at 82 1/8. Falling rates make it cheaper for consumers to take out loans for big-ticket items such as cars. GM shares surged 1 7/8 to 51 1/4 (the company’s naming CEO John F. Smith chairman played a large role in the rise), Ford Motor added 7/8 to reach 29 3/4 and Chrysler rose 1/8 to 52 1/2.
Among the indexes reaching a new high Monday was the Wilshire Associates equity index, or Wilshire 5000, which closed above 6,000 for the first time. The index--which follows the market value of almost all New York Stock Exchange, American and Nasdaq issues--closed at 6,043.574, up 62.980 or 1.05%. Other records by major indexes: The Dow Jones industrial average jumped 52.39 points to close at 5,139.52, the Nasdaq composite index rose 14.48 points to 1,069.79, and the Standard & Poor’s composite index of 500 stocks rose 6.70 to 613.68.
“It’s the ‘buy on the rumor, sell on the story’ scenario,” said Arthur Hogan, head of equity trading at Dean Witter Reynolds in New York. “Lots of people are buying in anticipation of the rate cut but then will sell as soon as it happens.”
But analysts warned that the Fed may be hesitant to make a move if Congress and President Clinton fail to reach a budget accord by mid-December.
Among market highlights:
* Sun Microsystems shares gained, leading Internet-related companies higher. The company unveiled an Internet programming language with Netscape Communications that will compete with a similar product from Microsoft. Sun Microsystems stock jumped 5 1/2 to 89 7/8 and Netscape surged 12 1/4 to a record 149 1/2.
LSI Logic surged 4 1/4 to 44 3/4 after the company introduced a single chip design aimed at enabling low-cost computers to browse the Net. Prudential Securities upgraded the stock.
* Morrison Restaurants tumbled 2 3/8 to 13 1/8 on news that its quarterly earnings would be down 40% to 50% from a year ago.
* One of the NYSE losers was Boeing. The aircraft maker said it expects to deliver fewer jets than had been expected this year as a eight-week strike slows production. The stock slumped 5/8 to 72 7/8.
Massive strikes in France helped push most European stock markets down Monday, particularly in Paris, where the CAC 40 Index fell for the sixth straight day, down more than 2.5% to 1774.86.
The London FTSE-100 index was down 0.3% and the DAX index in Frankfurt was off 0.4%.
“The situation in France doesn’t look terribly attractive, and the French franc is under pressure,” said Dennis Pettit, foreign exchange manager at Long-Term Credit Bank of Japan.
The government of Prime Minister Alain Juppe vowed to press ahead with an overhaul of the nation’s welfare system and dismissed calls for a national referendum and to dissolve the parliament over the austerity-measures conflict.
The turmoil also led currency traders into German marks for protection, indirectly causing the dollar to sag slightly. Traders often use dollars to buy marks, exerting downward pressure on the U.S. currency.
In late New York trading, the dollar strengthened against the French franc to 5.0078, compared with Friday’s close of 4.9971.
Dealers also saw the dollar’s dip as the inevitable waning of last week’s powerful rally that saw the market buy the greenback in anticipation of lower interest rates in Germany. The dollar dropped to 1.4397 marks, down from 1.4457 marks on Friday.
Forecasts for cold weather on both sides of the Atlantic lifted energy markets, with U.S. heating oil prices reaching a 16-month high at the New York Mercantile Exchange, or NYMEX.
Nymex heating oil for January delivery rose 1.36 cents to 54.03 cents a gallon. January unleaded gasoline rose 0.54 cent to 53.56, and January crude oil was up 20 cents at $18.63 per barrel.
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Marching Higher
The Dow Jones Industrial average continues its climb. Daily closes since Nov. 20:
Dec. 4: 5,139.52, up 52.39
Source: TradeLine
