Stocks Rise on Bond Rally, Bargain Hunting in Techs
A slump in long-term bond yields to below 7% combined with some bargain hunting among depressed technology shares helped stocks close mixed Thursday.
But the tone remained cautious as money managers continued to adjust portfolios for quarter-end statements to clients, and as investors braced for next week’s Federal Reserve Board meeting.
The Dow Jones industrial average eased 5.17 points to 5,677.53, though it recovered from a midafternoon slide of 36 points.
In the Nasdaq market of mostly smaller stocks--the scene of heavy profit-taking in recent weeks--the composite index rebounded 12.72 points to 1,166.01.
Traders said a late-afternoon bond rally boosted stocks.
The 30-year Treasury bond yield fell from 7.03% Wednesday to 6.99% Thursday, the lowest since June 6 and also the first close below 7% since that date.
Speculation that the Fed won’t raise short-term interest rates next week--despite recent signs of economic strength--was “what really got this [rally] going,” said Bruce Hillyer, a trader for Aubrey G. Lanston & Co. in Chicago.
“There’s certainly been a sea-change,” Hillyer said. “A Fed tightening has almost been priced into the market, and I don’t think it’s going to happen for the rest of the year.”
Many economists argue that the economy isn’t strong enough to justify higher interest rates.
What’s more, falling gold prices--historically a sign that investors don’t see higher inflation on the horizon--are aiding the bond market, analysts say.
July gold futures fell to a seven-month low on Thursday, off $1.30 to $382 an ounce in New York. (Investor Spotlight, D8.)
With bond yields declining Thursday, more investors felt confident about the stock market’s ability to bounce back from its recent slide.
The battered Nasdaq market was stronger from the start of the session as bargain hunters took advantage of Wednesday’s tumble, especially in the tech sector.
Tech stocks were boosted in part by a surge in data-storage-device maker Iomega, a controversial stock that has recently rocketed, then crashed.
The stock jumped 6 1/2 to 27 1/2 Thursday after analyst Daniel Kunstler at J.P. Morgan initiated coverage of the company, and said he expects the stock to hit $42 within 12 months.
Also in the tech group, Intel rose 1 3/8 to 73 7/8, Compaq jumped 2 1/8 to 49, Cabletron Systems surged 3 5/8 to 68 7/8 and Digital Equipment soared 4 1/8 to 46.
Analysts cautioned, however, that some of the rebound in depressed shares was a function of “short covering,” as some traders who had recently bet correctly on a slump in tech shares entered the market to close out their bets.
With the first half of the year ending today for Wall Street, the market’s performance remains quite strong, even in the wake of recent profit-taking.
The Nasdaq composite index is up 10.8% so far in 1996, the Standard & Poor’s 500 index is up 8.5% and the Dow industrial average is up nearly 11%.
Among Thursday’s highlights:
* Rising issues in the tech and telecommunications sectors included PairGain Technologies, up 3 3/4 to 58 1/2; Newbridge Networks, up 3 5/8 to 64 5/8; Netscape Communications, up 3 to 61; Tellabs, up 4 7/8 to 65; and Vitesse Semiconductor, which soared 7 3/4 to 25 3/4.
* Interest-rate-sensitive issues gaining included Federal National Mortgage, up 1 1/2 to 34; BankAmerica, up 1 1/8 to 74 7/8; and Merrill Lynch, up 7/8 to 64 5/8.
Also, the Dow Jones utility index shot up 1.3% to 215.90.
* Some retailers rallied. Nordstrom jumped 2 2/16 to 45 3/16, J.C. Penney rose 1 5/8 to 52 1/2 and Home Depot gained 2 1/8 to 54 7/8.
* On the downside, chemical giant Union Carbide lost 2 1/4 to 40 3/8 after it warned that second-quarter earnings will be hurt by falling chemical prices.
* Ivax plummeted 8 5/8 to 15 1/4. The nation’s biggest generic drug maker said it expects its second-quarter earnings to fall “significantly short” of those of recent periods because of price cuts and a sluggish reorder pace.
The news had a ripple effect for others who sell generic drugs. Teva Pharmaceutical Industries fell 3 1/4 to 34 1/2, Watson Pharmaceuticals lost 1 3/4 to 38 and Alpharma was down 1 1/2 to 19 5/8.
* Procter & Gamble dropped 2 1/4 to 91 1/4. The conglomerate said it is selling its 50% stake in a U.S. venture with the Swiss drug firm Roche Holding to Roche. P&G; said it will report an after-tax gain of $120 million on the sale.
In foreign trading, major markets pulled back, with Tokyo’s Nikkei-225 index losing 0.7% and Frankfurt’s DAX index falling 0.9%. In Mexico City, however, the Bolsa index added 5.68 points to 3,183.59.
In commodities trading, wheat prices fell sharply after China rejected the second cargo of U.S. wheat this month for allegedly containing the TCK fungus.
For years China has warned wheat suppliers it would not accept wheat containing the fungus, tilletia controversa kuhn, or TCK, fearing it will infest locally grown wheat.
At the Chicago Board of Trade July wheat futures closed down 14 cents at $4.78 1/2 per bushel.
Market Roundup, D7
