FINANCIAL MARKETS : Dow Zooms 41 to New High; Bonds Weaken
Blue-chip stocks returned to breaking records Wednesday, driven partly by technical trading ahead of expiring options and futures contracts.
The Dow Jones industrial average surged 41.55 points to a record 5,216.47, ignoring a second straight day of weakness in the bond market tied to doubts about lower interest rates.
In the broad market, most major indexes lagged the Dow’s 0.8% gain, but some still set new highs. The Standard & Poor’s 500 added 2.91 points to a record 621.69; the New York Stock Exchange composite gained 1.37 points to 331.17.
Trading was heavy, but the market’s breadth wasn’t extraordinary. Winners topped losers by 14 to 10 on the NYSE and by 20 to 16 on Nasdaq.
Stocks surged in late morning thanks in part to trading strategies tied to Friday’s quarterly expiration of key individual stock options, stock index options and index futures, analysts said.
Blue-chip stocks are often volatile ahead of the quarterly “triple witching” expiration as investors roll over or close out bets made using stocks and options or futures. Because the transactions often involve so many stocks, investors execute computerized program trades to buy or sell in large quantities.
Wednesday’s gains were “concentrated in the big-name stocks,” noted Don Hays, investment strategist at Wheat First Butcher Singer in Richmond, Va., “and that typically is somewhat symbolic of program trading.”
But some analysts said investors also may have been reacting to signs that Congress and the White House are moving toward a long-term balanced-budget accord. Negotiations between the two sides are set to begin Friday.
Budget hopes didn’t help the bond market. Yields inched up for a second day after the government reported surprising strength in retail sales in November.
That further clouded prospects for an interest rate cut by the Federal Reserve Board when the central bank’s policy-setting committee meets on Tuesday.
The 30-year Treasury bond yield closed at 6.07%, up from 6.05% on Tuesday.
“If the Fed wanted a reason not to ease [interest rates], I think they may have one,” said Terry Rose, who helps manage $2 billion at Advisers Capital Management in New York.
Today the bond market will be bracing for the November consumer inflation report. In addition, the German central bank meets today amid widespread hope that it will cut interest rates, perhaps paving the way for a Fed cut.
The Bank of England eased its key short-term rate a quarter-point on Wednesday, to 6.5%, the first reduction in nearly two years.
Among Wednesday’s highlights:
* Telephone utilities led the market higher, as Congress continued to debate a telecommunications deregulation bill that would, among other things, let regional phone companies enter the long-distance market.
Pacific Telesis surged 1 1/4 to 34 1/4, SBC Communications (Southwestern Bell) rose 1 1/8 to 57 1/8, Bell Atlantic spurted 1 3/4 to 67 3/8 and US West gained 1 1/8 to 34.
AT&T; also rose, up 1 7/8 to 68 1/8.
* Drug stocks were strong after Merck told analysts that the outlook for its pipeline of new products remains strong, and that it will boost research and development spending 15% in 1996.
Merck shot up 1 7/8 to a record 65 1/8, American Home Products leaped 2 1/2 to 97 7/8, Eli Lilly added 7/8 to 102 1/8 and Pharmacia & Upjohn gained 1 1/8 to 39 1/4.
* Among other consumer growth stocks, Philip Morris surged 2 1/4 to 91 7/8, Avon Products gained 1 1/2 to 78 1/8, Tambrands added 1 7/8 to 52 7/8 and Nike Class B shot up 2 3/4 to 63.
* Another rise in energy prices helped push oil stocks up. Exxon rose 1 1/4 to 85 3/4, Mobil added 1 1/2 to 116 1/4, Pennzoil gained 1 to 41 3/4 and Unocal inched up 1/4 to 29 1/4.
* Some defense stocks may have gained after Boeing settled a major strike. Boeing surged 2 1/8 to 76 1/2, Lockheed Martin jumped 3 to 77 1/4 and McDonnell Douglas rose 1 1/8 to 90.
* On the downside, some technology stocks weakened again. The group had been the market leader for much of this year but has fallen out of favor in recent months.
Motorola fell 1 1/2 to 59 7/8 after it was removed from Dean Witter Reynolds’ “recommended” list. And competitor Nokia plunged 4 1/8 to 46 1/4 after saying it will greatly boost employment next year.
Other tech losers included Xerox, off 2 1/2 to 136, and Hewlett-Packard, down 2 3/8 to 80 3/4.
In overseas markets, London shares got only a small lift from the Bank of England’s interest rate cut, with the FTSE-100 index adding 0.2%. Some investors doubt additional rate cuts will occur.
In Seoul, South Korean shares fell for a third consecutive day as investors bid down shares of large manufacturing companies on concern that the country’s economic growth may decline next year. The bellwether index dropped 1.5%.
In U.S. commodities trading, corn, soybean and soy product prices surged to new highs as weather reports show little relief in the near term for the drought that is affecting Brazilian crops.
Soybean futures for January delivery settled 6 3/4 cents higher at $7.22 3/4 per bushel, after climbing to an 18-month high of $7.24 1/2.
On the New York Cotton Exchange, frozen concentrated orange juice futures settled sharply lower for a second day after the government raised the estimate for the Florida orange crop by 2 million boxes.
