Nasdaq Sets Record; Volume Does Too
Smaller stocks hit record highs for the fifth straight session Wednesday while blue-chips slipped again, as soaring trading volume made it the busiest day in Wall Street history.
The Nasdaq composite index, Russell 2,000 index and Standard & Poor’s small-cap index--all measures of small-stock performance--rose to record levels, with the Nasdaq gaining 10.07 points to 1,176.83 as technology issues roared anew.
The blue-chip Dow industrials, meanwhile, fell 34.69 points to 5,553.90 as 25 of the index’s 30 stocks lost ground.
Investors’ continuing shift away from big-name stocks and into smaller issues--the reverse of the trend early in the year--reflects rising optimism about the U.S. economy’s growth outlook, many analysts say.
Smaller companies that are more dependent on the domestic economy for sales and earnings are expected to fare better if business activity and consumer spending continue to improve.
At the same time, the stronger dollar, which has been hitting 14-month highs against the German mark and is gaining against other key currencies as well, could erode foreign profits of major U.S. multinational firms, analysts fear.
Dollar-related worries helped pummel major drug stocks on Wednesday, driving many down sharply. Merck, a Dow component stock, slid 1 3/8 to 60 3/8 and now is off 15% from its 1996 peak of 71 3/8.
The hunger for smaller issues turned frenzied Wednesday afternoon, with some smaller stocks--especially tech issues--recording huge gains at midday.
Trading volume surged to record levels. Nasdaq volume hit 728.6 million shares, crushing the old record of 650.1 million set on Tuesday.
The combined trading volume of all U.S. stock markets totaled 1.3533 billion shares, surpassing the old high of 1.3529 billion set Dec. 15.
But by the close of trading prices of some smaller stocks faded significantly from their peaks, and blue chips showed some bounce. The Dow had been off more than 50 points.
One of the current bellwether small stocks, Internet software firm Netscape Communications, traded as high as 68 1/2 before falling back to close at 64, up 2 1/4.
Analysts say that while smaller stocks may be primed for profit-taking after their surge of recent weeks, the economic environment still favors them.
Although the government’s report Wednesday on March durable goods orders suggested a soft economy overall, some aspects of the report--including a growing backlog of unfilled orders--support the idea that the economy has significant upside potential.
What’s more, first-quarter corporate earnings reports from many companies continue to favorably surprise investors. On Wednesday, Compaq Computer reported better-than-expected results, one day after Digital Equipment also posted healthy earnings, dispelling concerns about a widespread erosion of profitability in the slowing computer industry.
As for blue chips, analysts say the dollar isn’t the only problem facing the stocks: Bond yields continue to gyrate, and that seems to be disturbing blue-chip investors more than small-stock owners.
Bond yields rose Wednesday as the Treasury’s sale of five-year notes met with lukewarm demand. The notes were sold at a yield of 6.279%. Bond yields rose across the board after the sale, with the 30-year T-bond yield ending at 6.82%, up from 6.77% on Tuesday.
Among Wednesday’s highlights:
* Compaq jumped 3 1/8 to 47 on its earnings report, and many other tech shares also soared, including Intel, up 2 9/64 to 70 1/4; Hewlett-Packard, up 3 to 106 1/8; Micron Technology, up 3 to 36 1/4; Dell Computer, up 2 7/16 to 46 1/8; and AST Research, up 1 7/8 to 7 1/4.
But IBM lost 1/4 to 106 3/4.
* Smaller stocks helping lead Nasdaq higher included Encad, up 3 3/4 to 35 3/4; retailer Pacific Sunwear, up 3/4 to 15 1/2; and telecommunications firm Digital Link, up 1 3/8 to 16 1/8.
* Stocks gaining on earnings news included Anheuser-Busch, up 1 3/4 to 69; and MCI Communications, up 1 1/2 to 29 7/8.
But Disney fell 1 1/8 to 60 5/8 in the wake of its disappointing report.
* Drug stocks falling included Warner Lambert, down 3 1/8 to 111 3/4, and Lilly, off 1 7/8 to 55 1/2.
* Among initial public offerings, Outdoor Systems, an outdoor advertising company, jumped 6 to 21.
In foreign trading, Tokyo, Seoul and Mexico City shares all advanced strongly.
