Dow Returns to Record Territory
U.S. stocks soared to record highs Wednesday as some of the biggest U.S. companies reported better-than-expected earnings, even as new government data suggested the economy is slowing.
The dollar, meanwhile, rose to a 23-month high against the yen, bolstered by the first drop in Japan’s annual trade surplus in five years.
The Dow Jones industrial average rose 50.57 points to 5,242.84, topping the record high of 5,219.36 set Monday. The gains were strong enough at 11 a.m. to prompt the New York Stock Exchange to impose limits on computer-driven trading in an effort to keep markets orderly. The trading collar was still in place at the close.
“As more and more companies report, more and more people are getting confirmation that earnings are in good shape,” said Jeffrey Shames, chief equity officer at MFS Asset Management, which oversees $41 billion in assets.
For the first time in many sessions, advancing issues had a strong lead on decliners on the Big Board, outpacing them by about 8 to 5. Volume was heavy at 479.13 million shares, up from Tuesday’s pace.
Broader stock indexes also moved higher, as technology shares put in a strong showing. The New York Stock Exchange composite index rose 3.19 points to 331.72. The Standard & Poor’s 500-stock index added 7.17 points to 619.96, just shy of the Dec. 13 record of 621.69. The Nasdaq composite index advanced 15.42 points to 1,043.46, and the American Stock Exchange market value index added 3.95 points to 537.51. The Wilshire 5000 Index climbed 65.86 points to 6,068.19, and the Russell 2000 Index gained 2.12 points to 310.43.
Bond yields fell, in part on expectations that the Federal Reserve Board will cut interest rates at its policy meeting next week. Yields on the 30-year Treasury stood at 6.03%, down from 6.09% on Tuesday.
“The market is anticipating lower rates on the one hand, and on the other is pleasantly surprised by some of these earnings being better than expected,” said Thom Brown, money manager at Rutherford, Brown & Catherwood Inc., which manages $270 million.
Those expectations were encouraged by a Fed report showing that industrial production edged up 0.1% in December.Many analysts had expected a rise of about 0.3%.
The central bank also reported that the nation’s industries were operating at 82.8% of capacity, down from 83% in November, signaling a lack of production bottle-necks that could boost inflation.
In a separate report, the Commerce Department said new home sales fell 2.1% in November to the lowest level in seven months.
Both sets of numbers were weak, said Larry Wachtel, a market analyst at Prudential Securities. Coming just days before the Fed meets to discuss monetary policy, “the numbers become larger than life,” Wachtel said, and should encourage the Fed to ease rates as a way to stimulate production.
Stock investors would welcome another easing.
The Fed last trimmed rates in December, when it lowered the federal funds rate, which banks charge one another for overnight loans, to 5.5% from 5.75%.
Stocks were also helped by positive response to President Clinton’s State of the Union address Tuesday night. In particular, investors were encouraged that the president may soon reach a breakthrough with Congress’ Republican leadership in stalemated budget talks.
After the markets’ close Wednesday, Moody’s Investors Service threatened to lower the rating on some U.S. bonds because the budget stalemate on Capitol Hill has raised the risk of a government default.
A downgrade would be a stunning blow to the U.S. government’s credit-worthiness. U.S. Treasury bonds are regarded as the safest in the world because the United States has never defaulted on its obligations.
Among market highlights:
* First Interstate leaped 2 1/4 to 149 1/4 on news that it has agreed to be acquired by Wells Fargo, for $11.6 billion. Wells Fargo climbed 1 to 229 1/2. Shares of First Bank System, the spurned suitor, gained 1 1/2 to 51 3/4.
* Reports of higher-than-expected fourth-quarter earnings boosted United Technologies, up 3 1/8 to 97 3/8; DuPont, up 2 1/8 to 74 1/8; and Digital Equipment, up 3 1/8 to 73 1/8 on the Big Board.
* Procter & Gamble shares rose 2 1/8 to 88 1/4 on news that the Food and Drug Administration had approved its Olestra fat substitute for use in food products.
* On the down side, Compaq declined 1 7/8 to 47 3/4. Its fourth-quarter profit rose 33% before special items and sales jumped 45%. But the Houston-based company spotted pressure on its profit margin and said that would likely continue in the current period.
* Hasbro’s shares rocketed 16 to 46 3/4 in after-hours trading when Mattel offered to buy the rival toy maker for $5.2 billion in stock. Mattel rose 1/8 to 32. Hasbro rejected the offer late Wednesday.
* Helene Curtis surged 12 3/4 to 65 7/8, bringing its two-day gain to 21. The Chicago-based maker of personal-care products said it is in talks for a “possible business combination.”
* Xerox slumped 15 to 126 5/8. The photocopier maker’s fourth-quarter earnings were below analysts’ estimates.
The 17% decline in Japan’s annual trade surplus with the United States pushed the dollar up as high as 107.18 yen, the strongest it’s been since Feb. 11, 1994, when it touched 108.48 yen. It was trading at 106.93 yen in New York late Wednesday, up from 105.84 yen late Tuesday. The gain is the largest the U.S. currency has made in a day since Nov. 1.
The dollar also rose against European currencies after Germany’s Bundesbank cut a key money-market rate, prompting central banks in Belgium, Denmark and the Netherlands to follow suit. The dollar was trading at 1.4825 marks late Wednesday, up from 1.4789 marks late Tuesday.
