Lower Bond Yields Push Stocks Higher
Stocks staged a late rebound Wednesday, sending the Nasdaq index to a record close as bond yields fell and commodity prices slumped.
“Any kind of news suggesting inflation is indeed not a problem would cause short-covering in bonds. The bond market picked up and stocks tagged along,” said Thom Brown, a managing director of Rutherford Brown & Catherwood.
But overall, trading remained listless, with few investors taking chances before Friday’s May unemployment report, which could provide crucial clues on inflation.
The Dow Jones industrial average rose 31.77 points to close at 5,697.48 after meandering higher and lower throughout the day, never budging more than 10 points in either direction until late afternoon.
Since hitting a record 5,778.00 two weeks ago, the Dow has been pressured by profit taking, with investors growing anxious about inflation and interest rates.
The Nasdaq composite index rose 5.47 points to a new high of 1,249.15, surpassing the previous record of 1,248.65 set May 23. Other broad-market indexes also rose as long-term interest rates fell below 7% in the bond market.
Advancing issues led decliners by a 13-9 margin on the New York Stock Exchange, where volume totaled 375.38 million shares, down from Tuesday and failing to top 400 million for the eighth straight session.
The financial markets plunged after recent monthly employment reports, which reignited worries that rising payroll levels and wages would translate into rapid inflation by creating too much spending power and too much demand.
“Traders are not willing to get caught by this unemployment number. Many were caught with the wrong outlook before the last three reports,” said Dan Ascani, president of Global Market Strategists Inc. in Gainesville, Ga.
An inflationary tone in Friday’s report would reinforce fears that the Federal Reserve Board will fight inflation by raising short-term interest rates, slowing borrowing and spending. Higher interest rates can cut into company profits by raising debt costs and slowing revenues. Higher interest rates also draw investors away from stocks and into bonds.
Bonds were mostly unchanged until early afternoon, when the 30-year Treasury bond started rising and its yield--a benchmark for many kinds of loans--dipped toward 6.95%.
Some analysts attributed the sudden strength in bonds to a sharp decline in commodity prices, which eased concerns that inflation would hurt the value of their fixed-rate securities.
Extending a recent slide, the Commodity Research Bureau’s index of 17 commodities slid to its lowest point in almost three months. Rising commodities prices for food and energy products had been pivotal in the bond market’s recent pessimism, compounding fears generated by the recent employment reports.
Analysts also said the market’s late advance suggested some optimism that Friday’s report won’t contain a major surprise.
Among Wednesday’s highlights:
* Wackenhut Corrections surged 6 3/4 to a new 52-week high at 45 after the company announced its second new contract in as many days.
* Registry, which provides information technology consultants to companies with complex information systems, soared 12 to 29 in its market debut. Another IPO, Titanium Metals, rose 2 3/4 to 25 3/4.
* U.S. Surgical lost 2 3/8 to 32 1/4. The company said it received a warning letter from federal regulators on its newly launched ABBI biopsy system.
* America Online lost 5 3/8 to 47 5/8. Montgomery Securities cut its rating to “hold” from “buy.” Montgomery said prospects for the company are diminished as Internet access becomes easier, according to one source.
* Bank stocks rose on the prospect of more lending in an improving interest rate environment. Citicorp rose 1 3/8 to 86 5/8 and Chase Manhattan rose 2 1/2 to 73 1/4.
* Drug makers also continued to show renewed vigor after recent weakness. Merck rose 1 to 66 1/8, lifting the Dow, and Pfizer rose 2 1/8 to 74 1/4.
Overseas, Tokyo’s Nikkei-225 stock average rose 0.1%, Frankfurt’s DAX index rose 0.2% and London’s FTSE-100 ended slightly lower.
