Smaller Stocks Hit New Highs; Oil Slide Slams Energy Stocks
Small-company stocks surged to record highs Thursday, continuing to out-race fading blue-chip issues.
Meanwhile, crude oil prices plunged on expectations that Iraqi oil will begin to flow again soon.
The decline in oil prices undercut energy shares, thereby helping to limit the Dow industrials to a 1.81-point gain, to 5,551.74. Three of the Dow’s 30 stocks are energy companies.
But in the broad market, the Russell 2,000 index of smaller stocks jumped 2.61 points, or 0.8%, to a record 337.46.
And the Nasdaq composite index, mostly made up of smaller issues, gained 1.4% to a record 1,136.30.
The market’s focus on smaller stocks in recent weeks in part reflects growing confidence in the U.S. economy’s rebound, analysts say. Because smaller companies tend to be more dependent on the domestic economy, they are expected to show better earnings growth if the economy gains speed.
At the same time, the dollar’s resurgence this year against many currencies has dampened enthusiasm for stocks of many blue-chip multinational companies, whose foreign earnings could be penalized by a rising dollar.
Economic news Thursday continued to favor smaller stocks: A regional economic report from the Federal Reserve Bank of Philadelphia showed a jump in manufacturing activity so far in April, exceeding expectations.
That was bad news for the bond market, however. Yields rose for a third straight session, with the 30-year Treasury bond ending at 6.83%, up from 6.81% Wednesday.
The bond market ignored falling oil prices, which would normally be viewed as anti-inflationary and thus good for bonds.
Near-term oil futures on the New York Merc sank 85 cents to $23.82 a barrel on rising speculation that Iraq and the United Nations are finally set to reach an accord allowing Iraq to sell $2 billion of oil during a six-month period to buy humanitarian products.
“People think there is going to be a deal, sooner rather than later,” said John Samsel, trader at Clark Oil Trading Co. in St. Louis.
Meanwhile, the dollar retreated from recent highs despite Germany’s surprise interest-rate cut Thursday. The dollar eased to 1.5015 German marks in New York, down from 1.5060 Wednesday. It tumbled to 106.65 Japanese yen from 108.20 as some traders tested the dollar’s latest rally.
Among Thursday’s Wall Street highlights:
* First-quarter earnings reports helped bolster the market. Issues gaining on earnings news included GE, up 1 to 79 1/4; Gillette, up 3 1/8 to 52; Northwest Airlines, up 1 7/8 to 47 7/8; McDonnell Douglas, up 2 3/4 to 90 5/8; and CSX, up 7/8 to 48.
* Drug stocks also rebounded after some healthy profit reports. Merck gained 1 1/8 to 61 3/8, American Home Products rose 2 3/8 to 110 1/4 and Schering-Plough added 7/8 to 58 1/2.
* Strong biotech shares helped lead the surge in smaller stocks. Amgen, the largest biotech firm, shot up 4 1/8 to 57 1/4 after reporting earnings above expectations. Other biotech gainers included Biogen, up 1 7/8 to 60 1/4; Agouron, up 2 5/8 to 38 1/8; and Vical, up 1 3/8 to 15.
* Telecommunications stocks also attracted buyers, with DSC Communications up 2 1/2 to 29 1/8, General Instrument up 2 3/4 to 30 1/8 and Nokia up 2 to 35 1/2.
* On the downside, falling oil prices sent Exxon down 1 5/8 to 81 7/8, Mobil down 2 3/8 to 112 5/8 and Atlantic Richfield down 3 1/8 to 115 3/8.
* IBM shares stabilized, adding 1/4 to 105 1/2 after diving 10 1/4 Wednesday after warning of weaker profit margins ahead.
* Among new stock issues, CompuServe’s 16-million-share offering was priced at 30 apiece and restaurant chain Planet Hollywood’s 10.8-million-share offering was priced at 18 apiece. Both will begin trading today on Nasdaq, and their reception is expected to be frenzied.
