Stocks, Bonds Reverse Slide; Oil Prices Drop
The stock market pulled up Thursday after two days of losses, as bond yields eased and crude oil tumbled.
The Dow Jones industrial average added 19.58 points to 5,693.41, recouping a small part of its 89-point drop over the previous two sessions.
In the broad market, winners topped losers 14 to 10 on the Big Board, and most major indexes closed higher.
Stocks again took their cue from bonds, as yields initially jumped on fresh evidence of a rebounding economy, then fell back in late trading.
Bond yields had hit three-week highs Wednesday, after two Federal Reserve officials hinted that the central bank’s next decision will be whether to raise short-term interest rates to restrain inflationary pressures.
On Thursday, the government revised downward its estimate of first-quarter economic growth, but the report also shows unexpected shrinkage in business inventories in the first quarter--suggesting that the economy may be stronger than expected in the current quarter and beyond, if businesses restock shelves.
That news, and a report showing a surge in new-home sales in April, sent the yield on the 30-year Treasury bond to 6.98% at midday, up from 6.94% on Wednesday and the highest since May 9. But buyers returned to the market late in the day, and the T-bond yield finished at 6.93%.
Some bond investors may have been encouraged by the results of the Treasury’s auction of $12.5 billion of five-year notes. The yield was 6.565%, slightly below expectations.
Also, slumping oil prices may have helped lessen worries about inflation. July crude oil futures plunged 82 cents to $19.94 a barrel in New York, an 11-week low, as speculators sold heavily on news that U.S. oil inventories are rising even as Iraq prepares to sell oil on the world market for the first time in six years.
For the stock market, bonds’ reversal and the drop in oil prices gave buyers an excuse to jump back in, analysts said.
Stocks’ slide in recent days “just encouraged the sideline cash” to re-enter, said Alfred Goldman, analyst at A.G. Edwards in St. Louis. “People tend to forget we’ve added 375 Dow points in three weeks. We’ve been on a very normal pause to refresh.”
Among Thursday’s highlights:
* Drug stocks led the market higher. Lilly gained 1 1/2 to 64, Merck gained 1 1/4 to 65, Johnson & Johnson added 1 1/2 to 97 3/4 and Cephalon surged 2 3/8 to 27 7/8.
* Retail stocks also rebounded, with Dayton Hudson up 1 1/4 to 102 5/8, Mercantile Stores up 1 1/2 to 65 and Vons up 1 to 37.
* In the technology and telecom sectors, Qualcomm surged 2 1/2 to 51 5/8, PairGain Technologies rose 2 5/8 to 100 5/8, Optical Cable leaped 8 to 79, Iomega rose 2 1/4 to 45 5/8 and Dell Computer jumped 1 7/8 to 54 7/8.
But Storage Tech dropped 3 1/8 to 32 1/8 on pricing concerns for its data storage products. Also, software firm Borland slumped 3 3/4 to 13 3/8 after saying that a first-quarter operating loss is likely unless sales exceed expectations.
* Gambling stocks were strong. Hilton surged 4 to 107 3/8, Mirage Resorts gained 1 to 55 1/2 and Circus Circus jumped 2 1/4 to 40 5/8.
* Among Southland issues, manufactured home and recreational vehicle maker Fleetwood Enterprises soared 2 3/8 to 30 after saying it will buy back up to 25% of its stock. Plastics maker Furon surged 2 3/4 to 24 7/8 in the wake of its strong earnings report.
Also, Anthony Industries was unchanged at 29 7/8. The maker of sporting goods said it will change its name to K2 Inc. and its stock symbol to KTO, effective Monday. K2 is one of Anthony’s ski brands.
