Blue Chips Lead Stock Indexes to Record Highs
Stock indexes sprinted to a second week of new highs as traders, deciding that households will spend freely for the holidays and into 1997, pushed consumer shares higher Monday.
The Dow Jones industrial average gained 35.78 points to 6,255.60, topping Friday’s record close and setting a new high for the fourth session in a row. Other indexes also reached new highs but rose less dramatically.
“The strength was in blue chips rather than the broad list,” said Larry Wachtel, a market analyst at Prudential Securities. “But under the umbrella of the strength in blue chips, there is a correction taking place.”
Blue chips are rising as investors continue to pour money into the stock market. Portfolio managers, already dizzy from stocks’ high valuations, have to put that money to work, so they invest conservatively in high-profile blue-chip names, Wachtel said. “Nobody’s going to fault me for paying up for General Electric.”
Among blue-chip names, consumer-related stocks rose as investors decided that this week’s economic data will not show sufficient inflation to warrant an increase in interest rates. Treasury markets were closed for the Veterans Day holiday.
The government’s October wholesale price index is due out Wednesday, the consumer price index and retail sales figures are due Thursday, and industrial production and factory-use data are expected Friday.
“The general sentiment is that the consumer is feeling better, his income up and his debt is manageable,” said Larry Rice, chief investment officer at Josephthal, Lyon & Ross.
Consumer stocks took the lead among the Dow industrials, with some helped by company- or industry-specific news. Philip Morris rose 1 5/8 to 99 3/8 after the College Retirement Equities Fund rejected a resolution urging the huge investment fund to sell its tobacco investments.
Eastman Kodak rose 1 5/8 to 82 5/8 after First Boston named the photographic supply company its feature stock of the week.
The market also got a shot in the arm after Smith Barney raised the stock portion in its recommended asset allocation to 50% from 45%, cut cash to 10% from 15% and kept bonds at 40%.
Smith Barney’s portfolio strategist, Marshall Acuff, said the firm’s investment policy committee was motivated by a stronger bond market, as well as expectations that interest rates won’t rise near-term, and the belief that overseas growth is expanding slowly enough not to pressure U.S. rates.
“We recognize the equity market has done well since July,” he said. “But typically stocks don’t go down in a positive monetary environment.” Acuff said the brokerage house still believes the market’s valuations are high.
“We’re not suggesting everything is right with the world, but typically bull markets end when the Fed tightens, and we don’t see that any time soon,” he said.
The stock of computer chip companies surged in anticipation that the closely watched book-to-bill ratio would top the 1.00 level for the first time this year. It came in after markets closed at 1.10, from a revised 0.98 in September and the highest since December 1995’s 1.12 level.
Intel was up 1 5/8 to 123 7/8, Micron rose 1 7/8 to 31 7/8 and Atmel added 2 to 30 7/8.
A book-to-bill of 1.00 means that for every dollar of computer chips shipped, one dollar of new orders was recorded. However, analysts say the ratio is not particularly useful, especially because it does not include Asian markets.
The day’s most dramatic move was made by PHH, which soared 16 3/4 to 47 1/2. HFS agreed to acquire PHH, a vehicle management, relocation and mortgage banking company, in a stock swap that values PHH at about $1.7 billion, or $49.50 a share. Shares of HFS, which owns the Avis car rental company, fell 1 1/4 to 72 7/8 on the Big Board.
Market Roundup, D16
