FINANCIAL MARKETS : Dow Ends 4-Day Losing Streak as Yields Plunge
Blue-chip stocks rebounded Friday as a widely watched economic report suggested more interest-rate cuts may be ahead.
The Dow Jones industrials gained 50.94 points to end the week at 5,536.56, and the broad market also was mostly higher as long-term bond yields pulled back sharply.
Although technology stocks suffered steep declines on a bearish earnings outlook from personal-computer industry leader Compaq Computer, buyers flocked to many nontech stocks, analysts noted.
Hopes for another interest-rate cut by the Federal Reserve Board were stoked by the National Assn. of Purchasing Management’s report on February activity in the nation’s manufacturing sector. The report showed that business slowed for a seventh consecutive month.
The news finally routed the bears in the bond market, where yields have been climbing for three weeks on fears that the economy was ready to resurge.
The bellwether 30-year Treasury bond yield tumbled from 6.46% on Thursday to 6.36% at Friday’s close. The decline in yields was even more pronounced among shorter-term issues. The one-year T-bill yield slid from 5.22% to 5.06%.
The NAPM report “tells us the economy is still quite weak,” said David Resler, economist at Nomura Securities. “Basically, manufacturing is still contracting.”
In the stock market, blue-chip issues were again buffeted by computer-driven program trading for much of the day, even though bond yields were in a steady decline.
The Dow rose at the open, dropped to a 49-point loss, then rallied late in the day.
In the broad market, winners topped losers by 14 to 9 on the Big Board in heavy trading.
The Nasdaq composite index of mostly smaller stocks, however, was hammered by a plunge in tech issues after Compaq’s bearish report. The Nasdaq index, heavy with tech names, slumped 13.97 points, or 1.3%, to 1,086.08.
Still, losers had a fairly thin 19-17 lead over winners on Nasdaq.
Although cheered by investors’ still-strong appetite for stocks despite new problems in the technology sector, some analysts said that Compaq’s warning about lower profit could reverberate in the market in the months ahead.
“Can lower [interest] rates offset what may be a nice dose of first-quarter earnings disappointments? That’s the question,” said Thomas Larsen, a money manager at Desai Capital Management.
Among Friday’s highlights:
* Compaq plunged 8 7/8 to 41 3/4 on its report, and rival personal computer makers also tumbled because Compaq essentially said it would sacrifice profit margins to gain market share at competitors’ expense. IBM slumped 4 1/2 to 118 1/8, Dell slid 4 3/8 to 30, AST Research dropped 9/64 to 6 1/2 and Digital Equipment sank 8 1/8 to 64 1/2.
* In another tech-sector disappointment, Intuit plummeted 16 1/4 to 50 1/2 after it forecast only modest 1996 sales growth for its Quicken personal finance software.
* Selling also hit semiconductor stocks, which were already in a renewed decline this week after LSI Logic and Micron Technology conceded that chip inventories are too high relative to computer demand. LSI fell 1 5/8 to 26, Micron lost 3/8 to 31 5/8, Intel sank 2 3/4 to 56 1/16 and Xilinx lost 7 3/8 to 31 1/4.
* On the plus side, investors moved back into classic consumer growth stocks. Procter & Gamble jumped 2 5/8 to 84 5/8, Colgate Palmolive soared 4 3/4 to 83 and Warner Lambert shot up 2 1/8 to 101.
* Many industrial names also rose. Goodyear jumped 2 to 49 3/8, Dupont rose 2 1/4 to 78 3/4, chemical firm Hercules gained 2 3/8 to 62 3/8 and Rockwell added 1 to 58.
* Financial issues gained as interest rates fell. BankAmerica jumped 3 to 74 1/4 and Morgan Stanley rose 1 5/8 to 48 1/2.
* United Air Lines’ parent UAL climbed 5 1/2 to 184 1/8 after announcing a four-for-one stock split.
Latin American markets rebounded, and stocks also rose in Tokyo and major European markets.
