Dow Again Hits Record; Yields Rise
Blue chips bolted into record territory Monday as Wall Street bet that the Federal Reserve Board will lower interest rates this week.
The Dow Jones industrial average closed up 33.23 points at 5,304.98, adding to its 54.92-point gain of Friday. The index has set four milestones so far this year.
The Standard & Poor’s composite index of 500 stocks, the New York Stock Exchange composite and the Wilshire Associates equity index also closed at new highs. Advancing issues led declines 1,321 to 954 on moderate volume of 362 million shares on the Big Board.
The yield on the Treasury’s main 30-year bond rose to 6.09% from 6.04% late Friday. Some market strategists noted that the price losses occurred in thin trading, which may have exaggerated movements. Furthermore, the Treasury on Wednesday will announce details about $44 billion worth of three-, 10- and 30-year securities scheduled to be auctioned next week. The prospect of a greater supply, then, may have helped raise yields.
In regard to the Fed, “people are anticipating an ease. . . . If we don’t get a 25-basis-point cut this week, we’ll probably get 50 in March,” said David Shulman, Salomon Inc.’s chief equity strategist.
The last cut, of a quarter percentage point, or 25 basis points, on Dec. 19 brought the federal funds rate down to 5 1/2%. It was the second such move by the Fed in 1995. The federal funds rate is what banks charge one another for overnight loans.
The Federal Open Market Committee, the central bank’s policy-setting forum, will meet today and Wednesday to consider interest-rate policy. The meeting comes amid signs that the economy is slowing and inflation fears are receding.
There was speculation Monday however, that the recent surge in gold prices may have trimmed the chances for an interest-rate cut.
The Fed is known to pay close attention to the price of gold, and a run-up in the precious metal last week to a 5 1/2-year high of nearly $410 an ounce is worrying some stock traders. On Monday, February gold closed unchanged at $405.80 an ounce in New York trading.
Shulman saw no worrisome signs of inflation. “I don’t see labor inflation, and that’s the most important.”
Analysts say the fact that the Dow 30 has gained 190 points so far this year while the broader market has lagged is an indication that nervous money managers have been buying blue-chip stocks.
“Managers won’t get blamed for buying something like Coke if it falls,” said Ricky Harrington, technical analyst at Interstate/Johnson Lane. “People are getting more defensive in an aging bull market.”
Harrington said the market has gone 15 months without a correction of more than 3 1/2%.
“I’ve been bothered by the market’s behavior--we’ve had volatile and tight trading ranges,” said Alan Ackerman, a market strategist at Fahnestock & Co. But Ackerman said he does not expect any significant market correction in the short term.
In addition, investors have been bracing for the slew of economic reports to be released this week, beginning with the December producer price index today and the consumer price index on Thursday. The National Assn. of Purchasing Management on Thursday will release its monthly report on manufacturing, and the report on January nonfarm payrolls will be released Friday.
Among market highlights:
* Micron shed 5/8 to 34 on Friday’s news that its chief executive had been rehired just eight days after his resignation.
* Merck, a Dow 30 component, rose 1 to 68 7/8 after the drug maker announced that early data from studies of a new medicine indicate that the substance can inhibit the human immunodeficiency virus when administered with two other, standard AIDS drugs.
* Boise Cascade jumped 2 3/8 to 36 3/4 after Michael Metz, chief investment strategist at Oppenheimer & Co., said stock of the paper products company could be worth as much as $55 to $60 a share, Barron’s reported.
* General Motors rose 1 1/4 to 52 1/4 in advance of its earnings report today.
* MCI Communications rose 1 3/4 to 29 1/4 after announcing an alliance with Microsoft to jointly market and develop a range of online and data networking services.
* Apple Computer lost 1 1/2 to 29 1/8. Traders cited disappointment that no merger with Sun Microsystems was announced over the weekend. Sun Micro rose 2 to 44 1/4.
* Biocraft Laboratories jumped 5 5/8 to 19 1/4 on news it agreed to be acquired by Teva Pharmaceutical in a stock deal.
* Sterling Chemical surged 3 1/4 to 12 1/2 after the company said it was exploring strategic alternatives to boost its stockholders’ value.
* Loewen Group skyrocketed 8 1/2 to 29 after reaching a settlement in a breach-of-contract case. Its shares tumbled last week on concern that the funeral service company might seek bankruptcy protection after a Mississippi court ordered it to post a $625-million bond by Jan. 31.
Overseas, Tokyo’s 225-share Nikkei stock average finished 0.4% lower, Frankfurt’s DAX index gained 0.5% and London’s FTSE-100 ended almost unchanged.
Wheat prices jumped to their highest levels in 14 years on Monday as winter winds battered Kansas, the biggest wheat-growing state, and on news that exports to China would pare already lean inventories.
March wheat jumped 13.75 cents to $5.20 1/2 a bushel at the Chicago Board of trade, the highest since the autumn of 1981, when President Reagan dropped a grain embargo against Russia and there was a deep freeze in Kansas.
March corn rose 6.25 cents to $3.63 3/4 a bushel, and March soybeans firmed 3.5 cents to $7.28 a bushel, also at the Board of Trade.
Market Roundup, D8
