FINANCIAL MARKETS : Dow Hits New High; Nasdaq Eases
The seemingly unstoppable Dow Jones industrial average tacked on another 37.93 points Tuesday, closing at a record 5,177.45 as investors flocked to brand-name consumer stocks.
But technology issues were hit by renewed selling, pulling the Nasdaq composite index of mostly smaller stocks down slightly from Monday’s record finish.
In the bond market, a midday rally didn’t hold, and long-term yields closed up modestly from Monday’s 25-month lows. The 30-year Treasury bond yield ended at 6.04%, versus 6.02% on Monday.
On Wall Street, buying among blue-chip issues remained robust, with winners outnumbering losers 14 to 10 on the New York Stock Exchange in heavy trading.
Analysts said investors remain convinced that the Federal Reserve Board is poised to cut short-term interest rates to rejuvenate the economy and to reward Congress and President Clinton for the long-term balanced budget accord the two sides are expected to strike--though so far they remain far apart on terms.
The Fed’s policy-making committee is scheduled to meet Dec. 19. “It’s now a foregone conclusion that the economy has slowed to the point where the Fed will ease,” said Bruce Simon, president of Glenmede Trust Co. of New Jersey, which oversees about $450 million in assets.
Two reports Tuesday provided more evidence of soft consumer spending. Both the Johnson Redbook retail sales report and the Mitsubishi Bank/Schroder Wertheim chain-stores sales index portrayed weak retail sales for the start of the Christmas season.
But optimism about lower interest rates alone isn’t driving stocks, analysts say. Many investors also must believe that while the economy is weak it will avoid falling into recession and will pick up fast enough in 1996 to provide decent corporate earnings growth.
Although some analysts worry that recent data points to a much steeper deceleration in the economy than even the Fed would like, Wall Street’s ongoing rally “is hinged on the fact that we see a good economy in 1996 and good corporate earnings,” said Alfred Goldman, analyst at A.G. Edwards & Sons in St. Louis.
Even so, Tuesday’s rally was led by “defensive” issues--food, drug and household products stocks whose earnings growth tends to be stable even in times of subpar economic growth.
That suggests more investors are suspicious about the economy’s trend and are seeking safety in big, brand-name stocks.
Among Tuesday’s highlights:
* Defensive issues leading the market higher included Procter & Gamble, up 2 1/4 to 86 3/4; Unilever N.V., up 6 1/8 to 141 7/8; Kellogg, up 1 3/4 to 78 5/8; Gillette, up 1 1/8 to 52 3/4; and Clorox, up 1 7/8 to 78 1/4.
* Among drug stocks, Pfizer gained 2 7/8 to 64, Merck added 1 3/8 to 63 3/8 and American Home Products was up 1 1/8 to 95 3/8.
* Utility stocks, also viewed as safe havens in difficult economic times, were strong. Consolidated Edison rose 1/2 to 29 5/8, Consolidated Natural Gas added 3/4 to 46 1/8 and SCEcorp jumped 1/2 to 15 5/8.
* On the downside, technology stocks were led lower by Compaq, off 1 1/8 to 47 1/2; Dell Computer, down 2 5/8 to 38 1/8; Texas Instruments, off 2 to 53 3/8; and recent new issue Pixar, down 5 3/4 to 28 1/2.
Also, Acclaim Entertainment plummeted 6 7/8 to 12 5/8. The video game software developer said it expects sales in the Christmas quarter to be about 10% shy of its original projections, as buyers have shifted their loyalty sooner than expected to a new generation of game machines with better graphics and faster play.
