Stocks Flirt With Highs but Lose Conviction

Stocks flirted with record highs Thursday as the latest economic data reinforced an outlook of stable inflation and interest rates.

But most of the day’s gains evaporated near the close as a rallying bond market failed to inspire heavy new buying by stock investors.

The Dow Jones industrial average fell 8.51 points to 5,868.85 after rebounding from an early 26-point slide and briefly moving past Monday’s all-time high of 5,894.74.

The New York Stock Exchange composite index held on to enough of its advance to close at a new high, but most broad measures finished with fairly modest gains after retreating into the close.

“Stocks have been up, up and away this month, so they’re short-term extended, and it’s time to give back a little bit,” said Alfred E. Goldman, vice president at A.G. Edwards & Sons Inc. of St. Louis.

Goldman and other analysts noted that stocks had already been rallying for weeks on optimism that there would be little increase or no change in interest rates at Tuesday’s Federal Reserve Board policy meeting.

Bonds continued to rally Thursday in the aftermath of the Fed’s decision to leave rates unchanged, boosted by fresh signs of a slowing economic growth in reports on durable-goods factory orders and weekly jobless claims.

The bellwether 30-year Treasury bond yield fell to 6.88% from Wednesday’s 6.92%, reaching the lowest level in more than a month.

Among shorter-term yields, the six-month T-bill yield dropped to 5.25% from 5.28% Wednesday. It was 5.51% at the start of the week, before the Fed meeting.

The economic news helped the Treasury sell $12.5 billion of five-year Treasury notes at the lowest yield since April. The average yield was 6.409%.

On Wall Street, despite the Dow’s slip, advancing issues outnumbered decliners by an 11-8 margin on the NYSE.

The renewed interest in computer-related shares continued to percolate, lifting the technology-rich Nasdaq composite index 3.32 points to 1,227.98, about 21 points shy of June’s record levels.

Among Thursday’s highlights:

* Many buyers turned to stocks of companies whose earnings should fare well in an economic slowdown.

Drug stocks led the charge, thanks to their “defensive” nature and some stock buyback announcements. Pfizer rose 1 1/2 to a record 78 7/8 after it said it will repurchase $2 billion of stock.

Among other drug firms, Merck gained 1 7/8 to 70 3/4; Bristol-Myers Squibb, which said in March that it plans to repurchase $2.2 billion of its own shares, jumped 1 1/4 to 97 1/4; and Schering-Plough, which this week said it planned an additional $500-million buyback after completing a similar buyback in July, rose 1 1/4 to 61 1/4.

* Food stocks were also higher. ConAgra gained 1 3/8 to 48 3/8, CPC International jumped 1 1/8 to 74 5/8 and Sara Lee added 1/2 to 35 1/4.

* There was good earnings news from at least one industrial giant: Chemical firm DuPont, up 2 1/8 at 89, was the Dow’s biggest gainer after announcing that it expects third-quarter earnings to exceed projections.

Other chemical makers advanced too. BF Goodrich rose 7/8 to 44 7/8, Cabot gained 3/4 to 28 3/4 and Minerals Technologies rose 7/8 to 36 7/8.

But many other stocks sensitive to the economy’s swings closed lower. Transportation issues were hurt as AMR, parent of American Airlines, forecast weaker earnings in the second half. The stock fell 2 1/4 to 79 1/2.

Also losing ground were Delta Air Lines, down 1 to 70 1/2, and rail giant CSX, down 1 1/8 to 49 3/4.

* Tech stocks continuing to climb included Xylan, up 3 1/2 to 56 3/4; Sun Microsystems, up 2 3/8 to 65; and Computer Sciences, up 1 3/4 to 77.

Also, software writer Adobe Systems surged 3 5/8 to 38 5/8 on news of third-quarter earnings. But Silicon Graphics slumped 1 3/8 to 22 1/8 after reports that its earnings would fall “materially below” expectations in its current quarter.

* A number of semiconductor chip makers slumped after Advanced Micro Devices, down 3/4 to 15 1/4, said it will lay off as many as 200 workers because of a slowdown in the chip industry. Varian Associates, which also announced a work force cut of 115, fell 5/8 to 47 1/2; Burr-Brown dipped 1 1/8 to 19 7/8.

* At least one initial public stock offering got a rousing welcome. Retailer Abercrombie & Fitch soared 7 1/8 to 23 1/8 after the 100-store chain sold 7 million shares at $16 each.

Market Roundup, D6