Dow Up, Yields Down on New Data
Bond yields sank Thursday after new economic data suggested that growth is slowing. Meanwhile, stocks ended the day mixed in heavy trading, with blue-chip issues up and smaller stocks down.
The seemingly unstoppable Dow Jones industrial average scored another record close, rising 38.39 points to 6,059.20.
But the Dow’s gain smacked of a continuing “flight to quality” by investors who are growing fearful about a general earnings slowdown among U.S. companies.
“As the economy slows you will see more money going into the consumer [stocks] and away from the cyclicals,” said Mark Donovan, a fund manager at Boston Partners Asset Management.
That’s because big consumer-product companies tend to grow at relatively stable rates, whereas cyclical industrial companies’ growth is tied to the economy’s swings.
On Thursday, indications of a moderating economy were seen in government reports that construction of new homes and apartments fell 6% last month to the lowest level of 1996 and that industrial production rose just 0.2%.
“The signs of a slowdown are starting to pop up in enough places that I think we’re going to get a [bond] rally,” said Patrick Retzer, a manager at Heartland U.S. Advisors in Milwaukee.
Short- and long-term yields fell Thursday, with the bellwether 30-year Treasury bond yield dropping to 6.80% from 6.85% on Wednesday.
Federal Reserve Board Gov. Lawrence Lindsey told reporters after a conference in Washington Thursday that he’s “happy with the state of the economy,” suggesting that the chance of an interest rate hike by the central bank continues to recede.
In the stock market, investors sorted through another batch of third-quarter earnings reports. Profit takers continued to hammer some technology issues despite healthy earnings news.
Smaller stocks in general were weak, as investors favored big, blue-chip consumer companies. The Russell 2,000 index of smaller stocks eased 0.16 point to 348.20 even as the Dow surged.
Winners topped losers by nearly 3 to 2 on the New York Stock Exchange, while losers had a slight edge in the Nasdaq market of mostly smaller stocks.
Among Thursday’s highlights:
* Major consumer stocks gaining ground included drug giant Merck, up 2 7/8 to 74 7/8 one day after reporting a 16% rise in quarterly earnings; Procter & Gamble, up 1 1/2 to 97 1/2; Philip Morris, up 1 1/2 to 97 3/8; and Hershey Foods, up 7/8 to 48 7/8.
Also, PepsiCo rose 7/8 to 30 1/8 in very heavy trading on rumors that it could be a takeover target of Philip Morris. Company executives had no comment.
* Many energy-related issues continued to climb. Halliburton soared 2 1/8 to 60, Western Atlas rose 1 5/8 to 66 1/2 and Nuevo Energy soared 3 to 47 1/4.
* Pacific Gas & Electric eased 3/8 to 23 1/4. After the market closed Wednesday, the utility slashed its dividend 39%, but the move had been largely expected.
* In the tech sector, Apple Computer rose 5/8 to 26 3/8. The company late Wednesday surprised investors by reporting an unexpected $25-million fourth-quarter profit after posting heavy losses earlier in the year.
Iomega slumped 2 63/64 to 22 7/8. But after the market closed, the maker of computer disk drives reported it earned $12.8 million in the third quarter, six times more than a year earlier.
The controversial company, whose shares were as high as 55 1/8 in spring, also announced Thursday that it will list its stock on the NYSE, abandoning the Nasdaq market. Iomega is the 65th Nasdaq company to move to the NYSE so far this year.
* General Instrument skidded 4 1/2 to 22 3/8 after reporting third-quarter earnings that fell short of expectations. The company also warned that its fourth-quarter and 1997 earnings will disappoint.
* Elsewhere in the tech sector, profit taking clipped Intel 1 7/8 to 110 3/4, Compaq 2 1/8 to 71 1/2, Microsoft 2 1/2 to 135 1/2 and Computer Associates 2 7/8 to 60.
In foreign trading, Mexican shares rallied as the peso strengthened to 7.71 to the dollar, rebounding after its recent slump.
