Dow Bounces Back as Yields Decline
Blue-chip stocks ended sharply higher Tuesday after a volatile session as buyers who fled the market earlier on nervousness about corporate earnings stormed back following a fall in long-term bond yields.
Indeed, Tuesday’s yield drop was the biggest for the 30-year Treasury bond since July 6, when the Federal Reserve Board cut interest rates for the first time in nearly three years. Yields were responding to a decline in commodity prices, a weak retail sales report and strength in the dollar, traders said, and the markets were less concerned about a budget deal than they had been lately.
The bond yield’s rise this year has resulted from dashed hopes for a deficit-reduction budget in Washington. On Tuesday, it plunged to 6.05% from 6.14% on Friday. The Treasury market was closed Monday for the federal Martin Luther King Day holiday. Shorter-term yields also fell.
The Dow Jones industrial average, meanwhile, which had fallen about 25 points earlier in the session, closed 44.44 points higher at 5,088.22.
“It seems as if some of these tech stocks are turning on a dime. Trading was very choppy and nervous. There’s a lot of speculation on Intel’s earnings,” said Marty Kearney, a trader at PTI Securities. After the market closed, Intel Corp. reported lower-than-expected fourth-quarter earnings.
Intel topped the over-the-counter actives list with 18.8 million shares traded. The stock rose 2 3/8 to finish at 55 3/4, after having dipped as low as 52 ahead of its earnings report.
Among the market highlights:
* A late recovery found technology stocks. Micron rose 1 7/8 to 32 5/8, International Business Machines rose 4 5/8 to 87 3/4 and Compaq added 3 3/8 to 47 1/2.
* Banking stocks were firm after some major banks reported earnings that exceeded Wall Street expectations.
Citicorp surged 4 3/4 to 68. The banking company reported lower fourth-quarter earnings but still beat Wall Street expectations. Chemical Bank and Wells Fargo both reported higher profits that also beat analysts’ expectations. Chemical Bank rose 3 7/8 to 58 7/8, and Wells Fargo added 4 1/4 to 214 5/8.
* DSC Communications shed 3 13/16 to 23 1/16. DSC warned fourth-quarter results would fall short of expectations. Market sources said Morgan Stanley, Alex. Brown and Oppenheimer downgraded the stock.
Lower commodity prices were a factor in falling yields in the bond market. Grain prices plummeted as speculators sold millions of bushels worth of contracts, despite projections that stockpiles of corn and wheat will be at 20-year lows.
Also, oil prices dropped to six-week lows on reports Iraq may finally agree to a limited oil sale.
The Knight-Ridder Commodity Research Bureau’s cash index of 17 commodity futures fell 0.97 point to 238.98.
The dollar’s jump also affected the bond market. The dollar jumped to its highest level in four months against the German mark as traders renewed expectations for interest rate cuts in Europe.
The dollar was trading at 1.4658 German marks late Tuesday, up from 1.4495 late Monday. It also rose to 105.98 yen from 105.30.
“Bundesbank officials talking up the possibility of a rate cut is a key factor,” David Gilmore, partner at Foreign Exchange Analytics, said of the dollar rally. “The Germans quite clearly want to see the dollar higher.”
