FINANCIAL MARKETS : Stocks Rise on Inflation News; Bonds Wary
A favorable wholesale inflation report helped stocks rally Thursday, even though the bond market wouldn’t follow suit.
The Dow Jones industrial average gained 17.34 points to 5,586.06, after being up as much as 60 points.
The broad market also advanced, with winners outnumbering losers by 14 to 9 on the New York Stock Exchange. Most key stock indexes rose modestly.
Trading was heavy on the Big Board at 493 million shares, influence in part by today’s quarterly expiration of key stock index futures, index options and individual stock options.
Stocks were bolstered by the government’s report that wholesale prices fell 0.2% in February, the first decline in eight months.
The news indicated that inflation is subdued, if not squashed, and thus again raised hopes that the Federal Reserve Board might cut short-term interest rates further.
Those hopes had been trounced last Friday, after the government reported a huge gain in U.S. employment in February.
“Three days ago, it was a given the Fed would not even consider lowering interest rates. Now the question is starting to come back up,” said Don Hays, investment strategist at Wheat First Butcher Singer in Richmond, Va.
Still, bonds failed to rally on the inflation news. The 30-year Treasury bond yield ended unchanged at 6.69%, near a six-month high. Shorter-term yields also were flat.
Some investors may have been waiting to see if today’s February consumer prices report confirms the wholesale inflation report. Also due today are reports on industrial production and use of plant capacity in February.
But analysts suggested that bonds’ reluctance to rally, and the continuing rise this week of stocks that could gain from a stronger economy, show that many investors expect the business environment to continue to improve.
Among Thursday’s highlights:
* The Dow’s gain would have been 16 points greater except for the dive in Philip Morris, which lost 5 1/2 to 92 1/2 on new worries about tobacco-liability lawsuits.
* Industrial stocks rising on optimism about the economy included Union Carbide, up 1 1/4 to 46 1/8; USX-U.S. Steel, up 5/8 to 36 5/8; and Cummins Engine, up 7/8 to 41 1/2.
* Oil stocks were boosted by a jump in crude prices as inventories remain tight. Exxon rose 1 to 81, Unocal jumped 1 3/8 to 32 1/8 and Texaco shot up 1 3/8 to 84 1/2.
* Retail stocks also continued to advance, led by Dayton Hudson, which jumped 1 7/8 to 81 5/8 after reporting quarterly earnings above expectations. Other winners included Kmart, up 5/8 to 9 1/2; Woolworth, up 1/2 to 15 3/4; and Wet Seal, which surged 1 1/4 to 12.
* Soaring airline stocks led the Dow transports index to a new high, as it gained 1.7% to 2,154.22.
* Bank stocks rebounded despite bonds’ flatness. Banc One rose 1 to 35 1/8, Mellon added 1 to 53 7/8 and Chase Manhattan leaped 1 3/4 to 71.
Also in the financial sector, American Express soared 2 1/4 to 47 1/4. Warren Buffett, AmEx’s largest shareholder with a 10.2% stake, might buy up to 17%.
* Among new issues, Santa Monica-based software firm Isocor sold two million shares at 9 apiece. The stock rose to 9 11/16.
Foreign stock markets generally continued to recover, following the U.S. lead. Hong Kong’s key index jumped 2% and Taipei’s rose 2.1%.
Meanwhile, oil futures for April delivery closed at a three-year high of $21.16 a barrel, but traders noted that longer-term futures prices are much lower.
Oil is in relatively short supply in the United States currently, but that is partly because refiners are unwilling to build inventories because they expect more supply, including from Iraq, to hit the market later this year.
