Stocks Bounce Back on News of Yields, Earnings and Takeovers
Stocks posted strong gains Monday with help from lower interest rates and strong earnings reports and merger activity.
The Dow Jones industrial average finished up 60.33 points at 5,592.92, the biggest rise in four weeks, to make up 40% of last week’s total loss. The gain was enough to prompt the New York Stock Exchange to impose restrictions on computer-driven buy programs in the final half hour of trading.
Advancing issues had a strong 2-to-1 lead on decliners on the New York Stock Exchange, where volume was moderate at 346.24 million shares.
Broad-market indexes also rose. The Standard & Poor’s 500-stock index rose 5.78 points to 642.49 and the Nasdaq composite index rose 9.50 points to 1,110.44.
Stocks opened firmer, then got a further boost from bonds in the afternoon. The 30-year Treasury bond yield, which had stayed close to unchanged all morning, fell to 6.78% from 6.80% at the end of the day.
Stocks sustained deep losses in the first three days of last week, sending the Dow Jones industrials down 150.29 points for the week, as interest rates shot higher and the long-term Treasury bond flirted with 7%.
“I think people just discovered the sky’s not falling,” said Arthur Hogan, the lead stock trader at Dean Witter Reynolds. He said “there is still a healthy amount of cash on the sidelines,” prompting stock investors to “buy on the dips.”
Among market highlights:
* Major financial companies reported good earnings. Merrill Lynch rose 1 1/4 to 59, after the brokerage giant reported an 80% improvement in first-quarter profit. PaineWebber shares rose 1/4 to 20 3/8, after that brokerage firm said its first-quarter profit almost tripled.
Travelers Group, the parent of the Smith Barney brokerage house, posted record operating earnings, which exclude investment gains, of $1.42 a share, up 42% from $1.01 last year and above analysts’ average expectations of $1.32. Travelers shares gained 1 1/2 to 62 3/8.
* The market was unforgiving of earnings disappointments. Shares of Eli Lilly dropped 1 1/4 to 60 3/8, after the drug maker reported first-quarter profit down 1% because of the divestiture of its medical device and diagnostics businesses. The earnings were a penny behind Wall Street estimates.
* In takeover news, Enserch soared 4 3/8 to 20 3/4 on the NYSE after Texas Utilities agreed to buy natural gas company for $1.7 billion. Texas Utilities’ shares eased 1/8 to 39 1/2.
Kansas City Power & Light, which earlier agreed to merge with UtiliCorp United, rose 2 1/8 to 26 after receiving an unsolicited takeover bid of $28 a share from Western Resources. UtiliCorp fell 1/8 to 28 1/8 and Western Resources dropped 1/4 to 28 7/8.
* Transportation issues, which often can move higher despite higher rates, were higher today as well. That pushed the Dow Jones transportation average, which is viewed by many as a market bellwether, up 37.52 points, or 1.78%, to 2,148.69.
* Technology stocks, which have been market leaders in the last year, were stronger as the market awaited key earnings reports from IBM, which rose 2 5/8 to 114 1/8. In Nasdaq trading, Microsoft rose 2 25/64 to 103 33/64, and Intel gained 15/16 to 60 9/16. After the close of trading Monday, Intel said its first-quarter net earnings were $1.02 a share, restated for a 2-for-1 stock split last June. That was flat with last year’s comparable quarter but above analysts’ expectations. Intel said it expects second-quarter revenue to be flat with the first quarter, but expenses up 6%.
In overseas trading, Frankfurt and London stocks rose to record high levels, partially in reaction to the strength on Wall Street, with the FTSE 100 index closing up 23.7 points to 3,790.5 and the German DAX index up 1.4% to 2,545.94.
Market Roundup, D8
