IBM Leads Dow up 60 as Optimism Returns
Wall Street basked in the glow of a big rally in IBM shares for a second consecutive session on Friday, although the broad market finished only modestly higher.
Powered by IBM, the Dow Jones industrial average ended up 60.33 points at 5,184.68, placing the index within 32 points of its record high set Dec. 13.
Long-term bond yields, meanwhile, finished mostly unchanged after initially rising in the wake of a decidedly mixed U.S. employment report for December.
In the stock market Friday belonged to IBM. The shares rocketed 5 3/4 to 102, after surging 8 5/8 on Thursday, when the company reported a 42% rise in fourth-quarter earnings, exceeding analysts’ expectations.
“People want to own companies where the earnings are relatively bulletproof,” said Matt Finn, money manager at Advantus Capital Management in Minneapolis. “What better excuse to come back in [to stocks] than better earnings reports?”
Indeed, after a spate of disappointing fourth-quarter reports the previous week--which helped knock the Dow as low as 5,000 in intraday trading earlier this week--investors got much better news as the week progressed.
Microsoft, which reported better-than-expected earnings after the market closed on Thursday, zoomed 4 1/4 to 91 7/8 Friday.
Other big stocks advancing after strong earnings reports included General Electric, up 1 3/4 to 74 1/4; Chrysler, up 1 7/8 to 54 1/8; and chemical firm Thiokol, up 1 1/8 to 34 1/2.
Still, some analysts warned that most U.S. companies have yet to report fourth-quarter earnings, and that the market will continue to be roiled in weeks ahead by worries that corporate earnings growth overall in 1996 will slow from 1995’s heady pace.
In the broad market Friday winners topped losers by 13 to 10 on the New York Stock Exchange, a fairly narrow margin considering the extent of the Dow’s gain.
The NYSE composite index rose 0.5%, less than half the Dow’s percentage gain. The Russell 2,000 index, a key barometer of smaller stocks, was up 0.4%.
The bond market provided a foundation for stocks’ rally: Despite an early rise in yields after the employment report was released, yields fell back as trading progressed and the bellwether 30-year Treasury bond closed unchanged at 5.97%--and down sharply from 6.14% a week ago.
Yields had tumbled early in the week on fresh signs of economic weakness. Although the December employment data was stronger than some economists had expected, many bond investors believe that U.S. business activity isn’t on the brink of a new surge.
With interest rates falling further in Europe this week, bond market bulls say there is still an excellent chance that the Federal Reserve Board will shave U.S. short-term rates again when it meets Jan. 30.
Falling European rates fueled further gains in European stocks, with Dutch and German shares hitting record highs. The dollar’s persistent strength also is helping European shares. The dollar jumped to a four-month high of 1.4802 German marks in New York Friday from 1.474 Thursday. A strong dollar could help European exporters rebound--though perhaps at the expense of U.S. multinational firms.
The Mexican stock market also got a lift Friday as interest rates there declined sharply. Mexico’s Bolsa stock index shot up 75.11 points to a record 3,058.42.
Among Friday’s highlights:
* Technology stocks following IBM higher included Computer Sciences, up 3 5/8 to 74 5/8; Compaq, up 2 1/8 to 47; Seagate, up 2 5/8 to 52 3/4; Cisco Systems, up 4 7/8 to 75 3/4; and Netscape, up 7 3/8 to 144 5/8.
* Despite the dollar’s strength many multinational growth stocks continued to gain. Philip Morris rose 2 1/4 to 93 7/8, Procter & Gamble rose 3/4 to 86 7/8 and Gillette added 3/8 to 54 1/4.
* Biotech was a problem area. Cephalon plunged 12 1/2 to 23 3/8 after the Food and Drug Administration raised concerns about data the firm submitted for its drug to treat Lou Gehrig’s disease. Chiron, Cephalon’s partner for the drug Myotrophin, shed 5 1/2 to 104.
