FINANCIAL MARKETS : Tech Rally Leads Stocks to New Highs
Wall Street stocks shook off profit-taking pressures and charged into record territory Monday, led by a rally in technology stocks.
For the first time in two months, the Dow Jones industrial average, the Standard & Poor’s 500 index and the Nasdaq composite index reached highs in unison.
“It’s hard to keep a good market down,” said Alan Ackerman, senior vice president at Fahnestock & Co. “The money flow into the markets is remarkable. Stocks continue to show tremendous resilience.”
However, in Monday’s currency markets, the dollar tumbled against major currencies in a massive correction. The dollar had been rallying for several weeks.
Although traders said the dollar was due for a bout of profit-taking, the sell-off was prompted by prospects that interest rates would continue to head lower in the United States while holding steady in Europe. Traders tend to flock to currencies with higher relative interest rates.
Many traders expected German interest rates to be cut, but a stronger-than-expected report on German growth Monday dashed those hopes.
The dollar fell to 1.4675 German marks late Monday from 1.4815 at Friday’s close and to 105.20 Japanese yen from 106.45.
Dealers said the dollar should rebound in coming weeks if Japan continues to show signs of economic improvement. Japan’s recovery should help boost U.S. exports, relieving Japanese firms of the need to unload dollars in the open market.
On Monday, the Dow ended up 33.60 points at 5,407.59, beating the old record of 5,405.06 set last Thursday.
In the broader market, advancing issues led decliners 1,244 to 1,089 on moderate volume of 377 million shares on the New York Stock Exchange.
Nasdaq, which is laden with technology stocks, rose 11.23 points to 1,083.34, surpassing its record closing high on Friday of 1,072.11.
Standard & Poor’s composite index and the NYSE composite index also set new highs.
Michael Metz, chief market strategist at Oppenheimer & Co., said the market’s rebound followed the liquidation of technology stocks by institutional buyers last month because of Wall Street’s concern about falling earnings prospects.
“My guess is it was a forced liquidation by mutual funds and that created a bottom,” he said. “That’s behind us.”
Analysts said it is too early to tell if the high-tech stocks are starting their recovery.
“My research work shows that semiconductors were very oversold two weeks ago and we’ve had decent bounces but the question is: Are they breaking downtrends?,” said Gail Dudack of UBS Securities.
Other analysts said the buying was selective and concentrated on the larger capitalization technology stocks.
Among the most active were Intel, which climbed 1 3/4 to 58 1/2, Microsoft, up 4 1/8 to 97 1/8 and Applied Materials, up 2 5/8 to 43.
U.S. stocks began a broad advance in late January in advance of the Federal Reserve Board’s move last week to cut short-term interest rates to help prod the economy. But rising gold prices--a possible sign of rekindled inflation--and the drag on the economy from a deep freeze in parts of the country made investors more cautious Friday.
Traders said a slight retreat in long-term interest rates Monday also helped stocks. In the bond market, the benchmark 30-year Treasury bond yield fell to 6.15% from 6.16% late Friday.
Bonds are expected to remain under pressure because of the looming U.S. Treasury sale of $44.5 billion in securities starting today through Thursday.
Proceeds from the Treasury’s three-day auction go to help meet payments on already-sold U.S. debt and to help the federal government pay its bills. Although the auction is held every quarter, the record $44.5 billion is being offered to a market nervous over the continued stalemate in Washington over the federal budget and the debt ceiling.
“The nervousness is, ‘Can we find a home for this refunding?,’ ” said Tom O’Connell, a bond trader with First Chicago Capital Markets.
In preparation for the auction, Wall Street traders were seen selling short-term securities, thus depressing their value, to raise cash for buying three-year notes at Tuesday’s auction.
Douglas Cliggott, a senior investment strategist at Merrill Lynch, said stocks were continuing to shadow bonds but that trend may not last.
“I’m still nervous on equities and there’s still a lot of earnings disappointments ahead of us,” Cliggott said. “After seeing recent economic data, the risk to the economy is still on the downside and at this stage I expect bonds to outperform stocks over the next six months.”
Among market highlights:
* Hilton Hotels jumped 10 1/8 to 84 after it hired Disney’s ex-chief financial officer Stephen Bollenbach as its president and chief executive. Disney fell 1/2 to 61 1/2. Investors also speculated the stock might briefly suffer from Disney’s purchase of Capital Cities/ABC Inc.
“Maybe there’s more to [the resignation] than we know,” said Kenneth Ducey, head of trading at BT Brokerage, a unit of Bankers Trust New York Corp. “Usually it’s negative news.”
* Hayes Wheel lost 4 5/8 to 19 3/8 after Varity Corp. withdrew its proposal to buy the equity interest it does not already own for $25 cash a share.
* Adolph Coors lost 3 1/4 to 18 3/4. The brewer on Friday reported a sharp drop in fourth-quarter earnings.
* Telefonos de Mexico fell 1 to 32 7/8 in U.S. trading. Lehman Bros. cut its 1995 earnings estimate on the Mexican phone company and a market source said Morgan Stanley downgraded the stock.
* W.R. Grace rose 3/8 to 69 7/8 on speculation that Baxter, which bid $3.8 billion for Grace’s National Medical Care unit, may make a new bid after Grace agreed to combine the division with Germany’s Fresenius. Under the Fresenius deal, Grace would receive $2.3 billion. Baxter lost 1 3/4 to 40 7/8.
Orange juice prices fell Monday despite an overnight freeze that damaged an undetermined amount of fruit across the Florida citrus belt.
Temperatures across the citrus belt plunged below 30 degrees Monday, reducing potential yields and stunning the buds that will spawn next year’s crop.
But prices at the New York Cotton Exchange fell, with the contract for delivery in March off 4.75 cents to 121.10 cents a pound. Reflecting the damaged buds, however, thinly traded contracts calling for delivery next winter were steady.
Traders said prices had rallied last week as forecasters predicted the freeze would occur.
However, analysts who study fundamental factors such as crop size and demand for juice were perplexed by the sell-off. Traders had predicted the market would jump by the daily limit of 10 cents when trading opened.
Market Roundup, D8
