FINANCIAL MARKETS : Markets Start ’96 With Bang as Dow Soars 60
AT&T; Corp.’s announcement of massive new job cuts Tuesday boosted investors’ confidence that corporate profits of blue-chip firms will continue to rise strongly in 1996, driving the Dow industrial average to its biggest one-day point gain in seven months.
The Dow climbed 60.33 points, or 1.2%, to 5,177.45 as investors returned to the market after the holidays. It was the Dow’s biggest point gain since its 86-point rise May 31.
“Earnings may well be better at the end of the year than people expected,” predicted Mark Cremonie of Merchants Capital Management. Although job cuts like AT&T;’s mean pain for the workers involved, to Wall Street such announcements signal that companies will continue to reorganize and downsize as needed to help their bottom lines.
AT&T; stock, the most widely held among U.S. shareholders, rose 2 5/8 to 67 3/8.
Stocks also were supported by news from the nation’s purchasing managers that manufacturing slowed for a fifth consecutive month in December, raising prospects that the Federal Reserve Board will lower interest rates again soon to stimulate the economy.
“AT&T;’s news cast a positive light on the stock market today. It’s an important Dow component, and I think that coupled with sort of mediocre purchasing managers’ data gave the feeling there’s plenty of room for restructuring out there,” said Charlie Crane of Spears Benzak Salomon & Farrell.
The stock rally even included retailers, which have suffered lately, in part because nervous consumers have been reluctant to spend money because of a decrease in job security caused by moves such as AT&T;’s. Merrill Lynch & Co. analyst Daniel Barry helped the retail sector by raising his opinion of Sears, Roebuck to “buy” from “above average” because of its strong Christmas sales. Sears was up 1 3/8 to 40 3/8.
Markets in Latin America and much of Europe also started the year strongly, as did prices of oil, gold, silver and other precious metals.
But the bond market showed nervousness over the budget battle in Washington. The yield of the Treasury’s main 30-year bond inched up to 5.96% from 5.94% on Friday.
In the broader stock market advancing issues led decliners 1,570 to 901 on the New York Stock Exchange. The Standard & Poor’s 500 index rose 4.80 points, or 0.8%, and the Nasdaq composite index rose 6.52 points to 1,058.65, or 0.6%.
“It’s a nice way to start the year, but I’d emphasize the Dow is doing a lot better than the rest of the market. It’s a blue-chip rally,” said Crane, a director of research.
Nonetheless, “the public is coming into this market with both feet by way of mutual funds, IRAs and 401(k)s,” said Ricky Harrington, senior vice president at Interstate-Johnson Lane in Charlotte, N.C.
Portfolio and fund managers are playing it conservative, investing in blue chips because they are concerned about a correction, Harrington said. “It’s easier to explain why you bought Coke instead of some small electronic company in the Southwest.”
Also influencing the market Tuesday were pension and profit-sharing funds that are making their traditional start-of-the-year investments of member contributions and “tax loss sellers.” These are investors who sold money-losing stocks late last year to offset the tax bite from their winning investments. Now that January is here, they are looking to reinvest the cash generated from those sales.
Among market highlights:
* Other than AT&T;, other blue-chip winners Tuesday were Walt Disney, which gained 2 to 60 7/8 after an analyst at Robertson Stephens raised the brokerage’s rating on the stock, and GE, up 1 1/2 to 73 1/2.
* Among the gainers in retail stocks, Wal-Mart Stores rose 1 to 23 1/4. Toys R Us jumped 2 1/4 to 24 after it said same-store sales rose 2% in December.
* Airline stocks rallied as most major carriers chose not to collect a 10% federal excise tax that lapsed at the end of December, in effect cutting fares.
“The elimination of the tax will have a short-term positive impact on bookings,” Salomon Bros. analyst Julius Maldutis told investors today. AMR, parent of American Airlines, spurted 7/8 to 75 1/8, and UAL, operator of United Airlines, jumped 3 3/8 to 181 7/8.
* Some high-technology stocks were pressured somewhat by Silicon Graphics’ warning that fiscal second-quarter profits would fall short of expectations. The stock topped the NYSE actives list and shed 4 5/8 to 22 7/8.
Also, Digital Link shed 5 1/2 to 8 5/8 after also warning that fourth-quarter results would fall short of Street expectations. Texas Instruments lost 3 1/8 to 48 5/8 after Merrill Lynch cut its 1996 earnings estimate, citing the company’s failure to negotiate new patent licenses.
Among other technology stocks, Microsoft rose 2 to 89 3/4 after CS First Boston named Microsoft its featured stock of the week.
The dollar ended mostly higher against leading currencies as the yen weakened in quiet trading.
“There’s a general preference for higher-yielding currencies, and the feeling is that Japanese interest rates will not go up soon,” said Margaret Kudarauskas, senior foreign exchange analyst at Technical Data in Boston. The Japanese did not participate Tuesday, as their markets are closed until Thursday for the new year holiday.
