FINANCIAL MARKETS : Nasdaq Index Follows Dow to Record High : Markets: Bond yields hit lowest level in more than two years. Major Wall Street bear changes view on stocks.
Another sharp decline in long-term bond yields drove U.S. stocks to record highs Monday, as the 1995 bull market surge broadened markedly.
The Dow Jones industrial average leaped 52.39 points to a record 5,139.52 as the yield on the bellwether 30-year Treasury bond fell to just above 6%--its lowest level in more than two years.
Significantly, the Nasdaq composite index of mostly smaller stocks also hit a record, rising 14.48 points to 1,069.79 and thus finally surpassing the previous high of 1,067.40 reached Sept. 13.
Although the blue-chip Dow has been charging ahead in recent weeks as bond yields have fallen, the Nasdaq index’s failure to join the Dow in record territory had been viewed by some analysts as a sign of underlying market weakness.
But on Monday more Nasdaq investors were swept up in the latest mania for stocks, one fueled largely by expectations of a continuing decline in interest rates as the U.S. economy grows only modestly.
“The lower yields go . . . the better it is for stocks,” said Peter Canelo, strategist at NatWest Securities in New York.
The market was also stoked by an apparent about-face by longtime bear David Shulman, chief stock strategist for brokerage Salomon Bros.
Shulman, in a report to clients, conceded that “we have been wrong about the stock market” for the last year, as he repeatedly predicted a plunge in prices.
Because the Federal Reserve Board has succeeded in squelching inflation while keeping the economy advancing, Shulman said, it appears that stocks deserve their current valuations relative to earnings per share.
“The two fundamental causes of inflation, the welfare state and the warfare state, appear to be in retreat,” Shulman said, referring to the downsizing of government and the growing trade among nations.
That should allow interest rates to move even lower, he said. So he changed the proportion of stocks in his “model” U.S. portfolio to 50% from 45%, bonds to 35% from 30% and cash to 15% from 25%.
For its part, the bond market continues to exhibit complete faith that the Fed will cut short-term interest rates at its Dec. 19 policy meeting, traders said. The yield on the 30-year T-bond dropped to a 25-month low of 6.02% on Monday from 6.08% on Friday. It was 6.28% as recently as Nov. 22.
Although analysts said bond trading was fairly thin Monday, few money managers are willing to bet against the market now.
With the economy appearing to grow weaker, Wall Street believes that the Fed is only waiting for Congress and President Clinton to strike a long-term balanced-budget accord before easing short-term interest rates for the second time this year.
Long-term T-bond yields “could drop to 5.75% by the end of the year, and perhaps to 5.5% by the end of the first half of next year, given what I know about the economy today,” said Eric Cheung, who manages $2.8 billion worth of bonds at Wilmington Trust Corp.
The last time the 30-year T-bond closed below 6% was on Nov. 29, 1993, when it finished at 5.97%.
For the stock market, however, any further slide in bond yields tied to a withering economy could begin to raise the specter of surprisingly weak corporate earnings ahead, some analysts warn.
But for now, most investors aren’t focusing on that threat to share prices. It’s “up, up and away” for stocks, said Peter Anderson, chief investment officer at IDS Advisory Group in Minneapolis.
In another sign of the growing fervor for stocks, trading was unusually heavy for a Monday, with 407 million shares changing hands on the New York Stock Exchange. Winners swamped losers by 17 to 8.
Among broad indexes,, the Standard & Poor’s 500 jumped 6.70 points to a record 613.68, and the Wilshire 5,000 gained 62.98 points to a record 6,043.57, its first close over 6,000.
Among Monday’s highlights:
* The Dow index was powered higher by GM, up 1 7/8 to 51 1/4; DuPont, up 1 5/8 to 69 1/4; and Philip Morris, up 1 5/8 to 90. Of the 30 Dow stocks, only seven closed lower.
* Financial stocks surged again as interest rates fell. J.P. Morgan jumped 2 1/8 to 82 1/8, Wells Fargo gained 3 7/8 to 216 7/8, NationsBank leaped 1 5/8 to 73 3/8 and Merrill Lynch added 1 1/4 to 56 3/8.
* Many biotech shares jumped after a Food and Drug Administration advisory panel said Biogen’s Avonex is a safe and effective treatment to slow the progress and suppress the flare-ups of multiple sclerosis.
If ultimately approved, Avonex would be the second treatment--after Chiron’s Betaseron--for multiple sclerosis and the first for slowing progress of the disease.
Biogen soared 6 1/2 to 59 1/4, Amgen rose 2 3/8 to 51 7/8, Agouron Pharmaceuticals advanced 2 1/4 to 32 and Biochem Pharma gained 2 1/8 to 39 1/2. Even Chiron gained, adding 1 1/4 to 100 3/4.
* Major drug stocks also gained. Johnson & Johnson rose 1 7/8 to 87 3/4, Warner-Lambert surged 2 7/8 to 92 7/8 and Pfizer was up 2 5/8 to 61 1/8.
* A rally in some beaten-down technology issues helped broaden the market’s advance. LSI Logic surged 4 1/4 to 44 3/4 after the company introduced a single computer chip design aimed at enabling low-cost computers to browse the Internet.
Also, Netscape Communications surged 12 1/4 to 149 1/2 and Sun Microsystems shot up 5 1/2 to 89 7/8 after unveiling programming language for Internet software.
Among other Nasdaq-listed tech shares, Apple Computer rose 1 7/8 to 39 1/2, Adobe Systems added 2 3/4 to 69 3/4 and Cisco Systems jumped 3 1/4 to 85 1/4.
In foreign trading, massive strikes in France helped push most European stock markets down, particularly in Paris, where the CAC 40-stock index fell for the sixth straight day, losing more than 2.5% to 1,774.86.
“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 holding a national referendum or dissolving parliament over the austerity conflict.
In Mexico City, the Bolsa index eased 13.84 points to 2,689.58, taking a breather after its recent powerful advance.
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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
