Fed Inaction Rouses Buyers; Dow Gains 39
Blue-chip stocks posted large gains Tuesday as the Federal Reserve Board’s decision to keep interest rates unchanged brought buyers back from the sidelines for the first time in a week.
The Dow Jones industrial average ended up 39.98 points at 6,308.33, propelled by the top technology and financial names--the same stocks that fueled November’s fierce rally.
Overall, blue chips did better than the general market. Advancing issues barely led decliners, 1,246 to 1,240 on active volume of 519 million shares on the New York Stock Exchange.
“The old leaders are reasserting themselves,” said Joseph Battipaglia, chief investment officer at Gruntal & Co. “We’ve essentially had a 5% correction without a fundamental change in the economy.”
With the Dow’s losses exceeding 200 points over the last four sessions, as investors cashed in profits from last month’s gains amid worries about corporate profits, analysts said stocks were starting to look like bargains.
“What we saw over the prior three or four days was a pretty significant underperformance,” said Douglas Cliggott, U.S. equity strategist at J.P. Morgan. “We had actually gotten to a point where stocks looked undervalued versus bonds.”
Indeed, stocks were able to rally despite a slight increase in bond rates. The benchmark 30-year Treasury bond yield rose to 6.65% from 6.62% on Monday.
Although the Fed’s decision to hold short-term interest rates unchanged was widely expected, it was viewed as a sign that the central bank is satisfied with the economy’s performance.
But the mood on Wall Street was far from exuberant. For the second straight session, a major investment firm--this time the nation’s largest--voiced caution on the stock market’s outlook.
At a news briefing, top strategists at Merrill Lynch predicted that next year investors might be better served by holding bonds instead of stocks.
Merrill chief economist Donald Straszheim said the firm expects operating earnings among companies in the Standard & Poor’s 500-stock index will rise only 2.5% in 1997, compared with an expected gain this year of 6.1%.
Among Tuesday’s highlights:
* Frontier fell 5 5/8 to 20 3/4 after warning that its fourth-quarter earnings will be below year-ago levels. Frontier was the NYSE’s most heavily traded stock.
* General Electric climbed 2 1/2 to 97 5/8, a day after Chairman John Welch briefed analysts on the company’s outlook. A company spokesman declined to comment on Welch’s remarks, but analysts who attended the meeting described the talk as upbeat. During his remarks, Welch expressed confidence that GE will meet Wall Street earnings estimates for the 1996 calendar year, analysts said.
* Stanford Telecommunications rose 4 1/8 to 29 3/4 after Oppenheimer & Co. raised its rating on the shares.
* Computer-related stocks on the Nasdaq rose, led by Intel, up 2 3/4 to 130 on news that the semiconductor maker, along with the Energy Department’s Sandia National Laboratory, had built a supercomputer that can process information 250% faster than the previous record.
But Micron Technology fell 2 1/2 to 32 1/4 as the second-most active issue on the Big Board. Merrill Lynch cut its earnings expectations after the company said late Monday that its first-quarter earnings dropped to 10 cents a share from $1.51 a year ago.
