Dow Up Again, but Bonds Hint of Trouble

The stock market continued its record-setting ways Thursday, despite rumblings of trouble in the bond market and another worrisome surge in gold prices.

Stocks rose broadly but modestly, with the Dow Jones industrial average cracking the 5,400 mark for the first time, adding 9.76 points to a record 5,405.06.

It was just Monday that the Dow topped 5,300 in a rally that anticipated--and has followed--the Federal Reserve Board’s decision Wednesday to cut short-term interest rates for the third time since July.

Rate cuts are almost always bullish for stocks, as investors anticipate a healthier economy and as yields on short- and long-term fixed-income securities become less appealing.

“The bulls are in charge” for the time being, said Greg Nie, technical analyst at Everen Securities in Chicago. He noted that many Wall Street pros believe the Fed will have to cut rates further to keep the weak economy from falling into recession.

In the broad market Thursday, winners outnumbered losers by a convincing 1,400 to 1,028 on the New York Stock Exchange. The NYSE composite, Standard & Poor’s 500 index and Wilshire 5,000 all edged up to record highs.

What’s more, the Nasdaq composite index, which is heavily weighted with technology stocks, rose 9.67 points to 1,069.46, just a hair under its record high of 1,069.79 set Dec. 4. The index had been battered in January by a plunge in tech issues.

Yet as stocks advanced Thursday, bonds had a mixed day. Short-term yields were flat or lower on the heels of the Fed’s cut, but the bellwether long-term yield--that of the 30-year Treasury bond--rose to 6.07% from 6.02% on Wednesday.

The mild sell-off in bonds occurred despite the government’s report that inflation overall in 1995 was the lowest in nine years. While that news ordinarily would be bullish for bonds--because inflation is bond owners’ biggest worry--some analysts said investors are looking forward rather than backward and are concerned that inflation may perk up soon.

Indeed, the Fed’s efforts to stoke the economy with lower short-term rates could provoke inflation later on, analysts say.

Another surge in gold prices Thursday added to inflation paranoia. February gold futures shot up $5.20 to $410.80 an ounce on the Comex, the highest in 5 1/2 years. Gold ended 1995 at $388.10.

But some economists argue that gold, and bonds, are being buffeted by forces unrelated to inflation fears. For example, demand for gold in Asia is surging, while world production has lagged.

Bonds are facing the Treasury’s auction of $44.5 billion in three-, 10- and 30-year securities next week. Heavy new supply can cause yields to temporarily back up.

Analysts said today’s report on January employment could be key for the bond market. If it confirms the economy’s apparent weakness, investors may lose their fear of a rebound any time soon in inflation or long-term yields.

Among Thursday’s highlights:

* Beaten-down semiconductor stocks rallied after some analysts reported rising orders for computer chips in January. LSI Logic shot up 3 7/8 to 32 1/8, Micron Technology rose 1 1/8 to 35 3/8 and Motorola gained 2 to 56.

* Many telecommunications issues rose after the House passed a sweeping overhaul of telecom laws. Qualcomm jumped 1 3/8 to 46 1/8, Worldcom rose 1 3/8 to 38, Tellabs gained 3 to 47 and MCI Communications added 1/2 to 29 1/8.

* Many gold mining stocks surged with gold’s price. Barrick Gold jumped 1 1/2 to 30 7/8, Homestake added 5/8 to 19 5/8 and Placer Dome leaped 1 3/8 to 29 1/2.

* Industrial issues continued to gain on optimism about a revived economy. Whirlpool jumped 2 5/8 to 57, Stanley Works rose 3/4 to 52 1/4, Trinova soared 1 3/4 to 32 1/2 and DuPont surged 1 7/8 to 78 5/8.

* Among new issues, Red Roof Inns made its debut at 16 and closed at 17 on the NYSE; U.S. Satellite Broadcasting, a direct-broadcast TV company, went public at 27 and soared to close at 34 3/4 on Nasdaq.

In foreign trading, Toronto’s TSE-300 index zoomed 42.65 points to a record 5,011.08. Latin American markets also were strong, with Mexico’s key index up 1.4% and Brazil’s up 2.3%.