Stock Rally Hits a Snag as Bond Yields Steady
The U.S. stock market’s latest rally ran out of steam Wednesday as bond yields stopped falling.
In Tokyo, however, stocks posted their biggest one-day advance yet this year, bolstered by a rising dollar.
On Wall Street, strong buying in the morning lifted the Dow Jones industrials nearly 50 points, but the Dow surrendered almost all of that by the close, ending up 0.73 point at 5,625.44.
In the broad market, winners still edged losers on the New York Stock Exchange and on Nasdaq, but the streaking Nasdaq composite index of mostly smaller stocks eased 0.93 point to 1,233.56 after reaching another record early in the day.
Traders said it wasn’t surprising that some investors chose to take profits after stocks’ recent run. The bond market provided a convenient excuse for profit-takers.
Yields stalled after tumbling in recent sessions. The Federal Reserve Board’s report on April industrial production didn’t paint a picture of a booming economy, but it may have disappointed some bond investors who expected to see the economy slowing again after its first-quarter advance.
Bond yields had reached 12-months highs two weeks ago on fears of robust growth and higher inflation. But recent inflation reports indicated few signs of accelerating prices, and that has calmed some bond investors.
On Wednesday, the yield on the 30-year Treasury bond inched up to 6.85% from 6.84% Tuesday, but it remains well below its recent peak of 7.11% reached on May 3.
“Inflation numbers have obviously been good, even though the manufacturing sector continues to show a rebound,” said John Burgess, who helps manage about $75 billion of bonds at BT Global Asset Management in New York.
The Federal Reserve Board, which meets next Tuesday, is expected to leave short-term interest rates unchanged, signaling that it sees the economy on an even keel.
For stocks, the focus is likely to turn back to earnings soon, as June arrives and investors begin to question what second-quarter corporate profits will look like. Record stock prices are an indication that investors expect strong earnings growth to continue.
Better earnings expectations also are boosting Japanese stocks again. On Wednesday the Nikkei-225 share index in Tokyo leaped 754.92 points, or 3.5%, to 22,055.97, as fresh strength in the dollar encouraged investors.
The dollar rose to 106.95 yen in New York from 105.85 Tuesday, after Japanese officials quashed speculation that the Bank of Japan will raise interest rates soon.
A stronger dollar is a plus for Japanese exporters.
Among Wednesday’s highlights:
* Some heavy-industry issues rallied on the Fed’s industrial-production report. PPG Industries rose 1/2 to 51 3/4, B.F. Goodrich jumped 3/4 to 38 7/8, Caterpillar gained 1 1/2 to 66 3/4 and Emerson Electric added 5/8 to 84 5/8.
* Airline stocks also were strong. AMR, parent of American Airlines, gained 2 5/8 to 93 3/4, Delta rose 1 3/8 to 84 3/8 and USAir added 5/8 to 17 1/2.
* Many technology shares continued to gain, helped in part by Dell Computer’s report that earnings in the quarter ended April 30 rose 33%. “People were negative on the personal computer market and pricing and profit outlook, and they were dead wrong,” said Richard Schutte, analyst at Goldman, Sachs & Co.
Dell jumped 2 3/8 to 49 3/8, Apple Computer rose 1 to 28 1/2, Cabletron Systems jumped 2 1/4 to 81 3/8 and Read-Rite soared 2 3/8 to 24 1/8.
* ConAgra jumped 2 1/8 to 41 1/8 after announcing it will cut 6,500 jobs and close or reconfigure 29 plants in a restructuring.
* Among recent high-flying Nasdaq stocks hit by profit-taking, Boston Chicken fell 2 to 33 3/4, U.S. Robotics dropped 4 to 93 3/4 and PairGain Technologies fell 2 3/4 to 113 3/4.
* Los Angeles-based DMX lost 7-16 at 1 9-16 after the digital music programmer announced that because of its continuing losses, it will be delisted unless it can meet Nasdaq’s capital requirements. DMX said it has asked for an extension to comply with the requirements.
Separately, DMX said Tele-Communications will boost its stake in the company to about 45% from 14% through a series of transactions. TCI gained 1-16 at 18 3/4 as its losses nearly doubled in the first quarter, but were in line with expectations.
