Inflation News Makes for a Record Day
The Dow Jones industrial average closed above 6,300 for the first time Thursday--its seventh consecutive record--as a modest consumer price index figure confirmed that inflation is mild.
Broader market indexes also rose, with technology and consumer service stocks leading the way. Bond yields sank.
The persistent bull market is keeping analysts off guard. “There is a wider gap between the bulls and the bears and a greater urgency to participate as we cross the next century mark,” said Eugene Peroni, chief technical analyst with Janney, Montgomery Scott.
The Dow finished up 38.76 points at 6,313.00 on Thursday, one month to the day after the Dow first reached 6,000. The Dow has now gained 283.62 points, or 4.7%, since the start of November.
Market gains have been fueled by a new influx of investment dollars into mutual funds since the Nov. 5 elections confirmed that Democrats and Republicans will continue to split power in Washington--something traders believe will restrain government spending and help reduce the deficit. That and evidence that the economy is growing slowly but steadily and not at an inflationary pace are keeping optimism alive on Wall Street.
“There has been a stampede by buyers and a strike by sellers,” said Michael Metz of Oppenheimer & Co.
“The market has its happy feet on,” said Dirk van Dijk, chief equity strategist at C.H. Dean & Associates.
Stocks benefited from a drop in bond yields to eight-month lows on news that retail sales rose a smaller-than-expected 0.2% in October. That report, together with others indicating tame inflation--the Labor Department reported Thursday that the consumer price index rose 0.3% in October--signaled that the Federal Reserve Board won’t be under pressure to raise interest rates any time soon.
Bonds also benefited Thursday from a continued rise in the dollar against most other currencies. Foreign investors are more eager to own U.S. bonds when the dollar is rising.
The yield on the benchmark 30-year Treasury bond rose in early trading, then fell to an eight-month low of 6.41%, down from 6.46% late Wednesday.
In the stock market, computer-related shares led the rally amid optimism that earnings will be better than some are expecting.
The “technology” group--encompassing computers, software, semiconductors and telecom equipment--is expected to be the fastest-growing area of the U.S. stock market next year, with analysts forecasting 29.9% earnings growth in 1997, according to IBES International. That is almost five times the 6.2% estimated growth for technology in 1996, IBES said.
The technology-heavy Nasdaq composite index gained 9.64 points to 1,270.36, topping its previous record of 1,262.67, set on Monday. The advance came with help from Microsoft, up 4 5/8 to 149 5/8, and Oracle, up 1 7/8 to 47 3/8.
Technology stocks took the lead on the New York Stock Exchange as well. Advanced Micro Devices, up 3 1/8 to 24 3/4, showed the way, rising on news that the chip maker has begun sampling its sixth-generation Microsoft Windows-compatible personal computer microprocessor with key development partners. Tech giant IBM was the second-biggest gainer among the Dow industrials, rising 2 1/8 to 136 7/8. Digital Equipment rose 2 to 33 1/4 after the computer maker’s chairman said the company, which posted a fiscal first-quarter loss, could return to profitability.
Among Thursday’s highlights:
* Bank shares rallied on falling bond yields. Citicorp rose 2 1/8 to an all-time high of 104 1/8, BankAmerica rose 2 3/4 to 96, Chase Manhattan gained 2 to 88 3/4 and First Chicago NBD rose 1 1/4 to 55 1/8.
* Shares of GTE rose 1 to 43 3/4 amid speculation that the company could announce a merger or alliance in coming days. Traders said AT&T; could be a possible partner or buyer. GTE said it doesn’t comment on rumors or speculation.
* Santa Monica-based Veterinary Centers of America fell 15/16 to 9 7/16, continuing a downtrend begun Wednesday, and was the most actively traded stock on U.S. exchanges. The company reported a third-quarter loss.
* Land’s End shares rose 2 1/4 to 24 7/8 after the clothing retailer reported better-than-expected third-quarter earnings.
* Tiffany lost 2 1/2 to 35 5/8 despite reporting strong third-quarter earnings. Analysts said investors were spooked about the Christmas shopping season for all retailers.
Among other retailers, Federated Department Stores fell 1 3/4 to 32 7/8 and TJX Cos. lost 3/4 to 41 3/4. Sears was off 1 3/8 to 48 1/2, J.C. Penney was off 5/8 to 50 1/4 and Gap Stores slipped 1/2 to 31 3/8.
* Tobacco stocks rose on reports that Virginia has joined a legal challenge of President Clinton’s proposals for strict new controls on tobacco advertising and sales. Philip Morris gained 3 to 102 5/8, and RJR Nabisco rose 1/2 to 31.
