Stocks Close Mostly Higher; Bonds Calm
Wall Street on Wednesday experienced its first relatively peaceful session in a week, as bond yields closed generally unchanged and stocks ended mostly higher.
But analysts warned of more volatility ahead, with key inflation reports due today and Friday, and the “triple witching” quarterly expiration of stock derivatives also occurring Friday.
On Wednesday, the Dow industrial index eased 15.17 points to 5,568.72, but it was skewed by a sharp drop in Philip Morris shares.
In the broad market, most stock indexes rose, and winners topped losers by 15 to 9 on the New York Stock Exchange as investors snapped up many technology, industrial, energy, retail and transportation issues--all categories that could benefit from a faster-growing U.S. economy.
Fears of stronger economic growth riled markets last Friday, when a report of robust February employment growth sent bond yields rocketing to six-month highs and stock prices tumbling.
The markets continued to swing wildly on Monday and Tuesday, but by Wednesday bonds finally stabilized. And in the stock market, investors were looking for potential winners in a healthier economy.
Gains in technology stocks helped push the Nasdaq composite index up 15.59 points, or 1.5%, to 1,088.64. And airline shares boosted the Dow Jones transportation index 24.31 points, or 1.2%, to a record-high 2,117.87.
The lack of volatility in blue-chip stocks toward the end of the day surprised some market participants, who had expected that the upcoming triple expiration of stock index options, index futures and individual stock options would mean a bumpy ride all week.
The expirations occur near the end of each quarter and can trigger wide market swings as traders close out or roll over market bets made with those contracts.
Leon Brand, market strategist at NatWest Securities in New York, said the slowdown in trading activity Wednesday may have reflected investors’ reluctance to make new bets ahead of the February wholesale and consumer inflation reports due today and Friday, respectively.
Likewise, the bond market was quiet, generally ignoring the Federal Reserve Board’s latest report on the economy, which painted a picture of modest growth overall.
The yield on the Treasury’s main 30-year bond inched up to 6.69% from 6.66% on Tuesday. Shorter-term yields were unchanged.
The inflation reports may be key in determining whether yields will settle at current levels or go higher, experts said.
“Because the economy [appears to be] growing more rapidly and we’re at full employment, people would look at bad inflation reports as potentially a harbinger of a worse inflation trend,” said William Dudley, economist at Goldman, Sachs & Co. in New York.
The Fed, already expected to forgo any additional interest rate cuts in the wake of last week’s employment report, could be forced to begin considering raising rates again if inflation accelerates.
Among Wednesday’s highlights:
* Many tech stocks posted gains as investors hunted for economy-sensitive issues. Intel rose 1 1/4 to 56 1/8, Adobe Systems added 2 5/8 to 34 7/8, Microsoft soared 5 1/8 to 100 7/8, IBM gained 1 5/8 to 115 7/8 and BMC Software jumped 3 1/4 to 57.
But some semiconductor issues were hurt by an industry report showing that computer chip orders softened again in February. Micron Technology dipped 1/2 to 29 1/4.
* Industrial and energy-sector winners included Halliburton, up 3 to 56 1/4; Occidental Petroleum, up 1 3/8 to 25 3/8; Monsanto, up 1 5/8 to 145; Fluor, up 2 1/8 to 71 1/8; and Giddings & Lewis, up 1 to 18 3/8.
* Retail stocks also were strong. J.C. Penney jumped 1 1/4 to 50 1/4, May Department Stores added 1 1/8 to 51, Woolworth jumped 3/4 to 15 1/4 and Toys R Us surged 1 5/8 to 27 5/8. Toys R Us reported quarterly operating earnings that were better than expected and announced plans to open 55 stores outside the United States this year.
Sears rose 7/8 to 50 1/8. After the market closed, it said it will buy back as much as 2.6% of its stock.
* Airlines continued to advance, with United Airlines parent UAL up 7 1/8 to 195, American Airlines parent AMR up 1 3/8 to 92 and Midwest Express gaining 1 1/8 to 35 1/8.
* On the downside, Philip Morris plunged 3 3/8 to 98, leading most other tobacco shares lower, after Brooke Group’s Liggett subsidiary agreed to settle its part in the biggest liability case pending against the cigarette industry. Investors fear that other tobacco companies will be pressured to settle as well, at high cost.
* Drug stocks suffered more profit taking as investors shifted out of them and other “defensive” stocks that usually fare better in a weaker economy. Merck sank 1 1/2 to 61 5/8, Pfizer dropped 1 3/4 to 62 and Lilly lost 1 1/4 to 62 1/4.
* Among Southland issues, Falcon Cable tumbled 2 1/4 to 9 3/4. The cable TV firm said its assets were appraised at less than what investors were expecting to get from the possible sale of the business.
ALso, SEDA Specialty Packaging added 3/8 to 16 3/8 after retaining an investment banking firm “to advise the company on financing and acquisition matters.”
Overseas, most Asian markets slumped as tensions mounted over China’s military and political badgering of Taiwan.
