Stocks Climb Warily Higher; Yields Steady
Stocks struggled higher Tuesday, erasing more of July’s pullback, as interest rates held firm in the bond market despite the start of a $39-billion Treasury auction.
The Dow Jones industrial average rose 21.83 points to 5,696.11, recovering from an early dip and briefly trading above 5,700 for the first time since early July.
But trading was slow and cautious for the second straight session as investors found few incentives to bid aggressively after the market’s surge last week.
In just three weeks, the blue-chip Dow has snapped back by more than 500 points from the depths of last month’s sell-off and is now less than 82 points from its record high of 5,778.00 set May 22. Similarly, the Standard & Poor’s 500-stock index, up 2.15 points to 662.38 on Tuesday, is also back within range of its record high of 678.51.
The more speculative sectors of the market still remain well below their highs. The Nasdaq composite index of smaller stocks, while up 8.34 points to 1,128.87 on Tuesday--the highest since July 11--is still down 9.6% from its peak.
“The basic problem is that the stock and bond markets have done well in the last few days and there’s not that much stimulus to keep them going,” said A. Marshall Acuff Jr., market strategist at Smith Barney. “All the volatility has been on shifting perceptions. The market’s underlying fundamentals haven’t changed.”
Stocks had plunged in July on concerns about rising interest rates and slowing corporate earnings. Bond yields tumbled last week on signs of slowing economic growth, and that bailed out stocks. But earnings worries persist, many analysts say.
Tuesday, investors focused on the start of this week’s three-day auction of new U.S. Treasury debt.
The quarterly government refunding, fairly large at $39 billion, prompted the usual concerns over how well the market will absorb the new notes and bonds. But the first phase, Tuesday’s auction of $19 billion in three-year notes, went rather smoothly. The average yield on the notes was 6.118%.
Overall, bond yields were steady, with the 30-year T-bond yield slipping to 6.75% from 6.76% on Monday. The Treasury auction continues today with the sale of 10-year notes. On Thursday, 30-year bonds will be auctioned.
Corporate issuers also are rushing to take advantage of the decline in interest rates. A total of $1.5 billion in new corporate bonds were issued Tuesday, the most since May 23.
In the stock market, meanwhile, traders were encouraged by the market’s advance but noted that breadth was barely positive, with winners just slightly outnumbering losers on both the NYSE and Nasdaq.
Among Tuesday’s highlights:
* Most health maintenance organization stocks continued to rebound in the wake of Monday’s merger deal between PacifiCare Health and FHP International. PacifiCare Class A shares added 1/2 to 72 1/4; FHP slipped 1/4 to 35.
Among other HMOs, United Healthcare gained 1 1/4 to 37 5/8, Foundation Health rose 1 1/8 to 26 1/2 and Oxford Health added 1 1/2 to 41 3/8. (Investor Spotlight, D8.)
* Tech stocks were mixed. Intel rose 1 3/4 to 79 7/8, a record high. Microsoft gained 2 1/4 to 124, just under its record of 125 7/8. But Sun Microsystems lost 2 3/8 to 53 1/4 after brokerage Donaldson, Lufkin & Jenrette downgraded the stock to “under-performer” from “market performer.”
Also, Wallace Computer fell 2 5/8 to 27 3/4 after Moore said it decided not to proceed with its $1.3-billion offer for Wallace.
* Some specialty retailers surged anew. Wet Seal rocketed 3 1/2 to 27 3/4, TJX rose 2 1/8 to 32 5/8 and Pacific Sunwear shot up 1 3/4 to 22 3/4.
Among other specialty consumer issues, clothing maker Mossimo jumped 1 3/8 to 41 7/8, eyewear maker Oakley gained 1 7/8 to 38 3/4 and Callaway Golf added 1 to 31 1/2.
* Fay’s added 3/8 to 12 1/4 after agreeing to be acquired by J.C. Penney for $12.75 a share in Penney stock in a deal valued at $285 million. Penney fell 1 3/8 to 51 5/8.
* ImmunoGen climbed 2 1/16 to 5 5/16 after the company said its experimental compound C242-DM1 eradicated human colon tumors grown in mice.
In foreign trading, Mexican stocks closed above the 3,200-point level for the first time since late June, lifted by gains on Wall Street and expectations of a big fall in interest rates. The Bolsa index rose 28.90 points, or 0.91%, to 3,206.78.
But Tokyo’s Nikkei-225 index sank again, losing 1.6%.
In commodity trading, oil prices eased as a United Nations plan to allow Iraqi crude sales in return for imports of food and other humanitarian supplies looked close to clearing its last major hurdle.
At the New York Mercantile Exchange, September crude oil futures closed 10 cents a barrel lower at $21.13.
Market Roundup, D7
