Falling Yields Help Push Dow to Record High
Declining bond yields helped the Dow Jones industrial average post its eighth straight gain and its first record high since Federal Reserve Board Chairman Alan Greenspan warned of “irrational exuberance” in the markets.
Meanwhile, the dollar rallied to its highest level against the Japanese yen in nearly four years.
Aided by fresh evidence of noninflationary economic growth that sent bond interest rates lower, the Dow industrials added 14.23 points to close at 6,560.91, topping the average’s previous high of 6,547.79 reached Nov. 25. The Dow, which gained 76.51 points for the week, is now more than 100 points higher than where it was when Greenspan’s comments on Dec. 5 sent stocks on a two-week sell-off. The quick recovery, many analysts say, is a testament to the strength of bullish sentiment in the market.
Stocks are enjoying a year-end rally prompted by investors who want to buy shares that have performed well this year. That explains the over-performance this week of large-company stocks over smaller ones, said Jim Weiss, senior portfolio manager at State Street investments in Boston.
Trading volume was light Friday, however, with many investors absent after the Christmas holiday. Thus, the rise may have less conviction than market bulls would wish.
“It’s just hard to draw any conclusions from this session,” Weiss said.
But others noted the gains in the bond market, where the yield on the 30-year Treasury fell to 6.53% from 6.58% late Thursday.
“Right now the path of least resistance is higher, and that trend should hold through next week,” said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee.
That trend seemed to affect the currency markets as well. The dollar surged to 115.50 yen in New York trading--its highest since March 31, 1993--up from 114.66 yen late Thursday.
Concerns about a weak Japanese economy and stock market battered that country’s currency.
Despite a modest rise in Toyko’s Nikkei index, the continued frailty of Japan’s stock market remained a primary focus in the foreign exchange market. The 225-stock Nikkei average closed at 19,369.04 on Friday, well below the crucial 20,000 threshold.
“It’s just a continuation of what we’ve seen,” said John McCarthy, foreign exchange manager at ING Barings Capital Markets Inc., referring to the dollar’s rise against the yen. “It’s a fear of the Nikkei, concerns about the Japanese financial system, low interest rates in Japan and higher interest rates everywhere else in the world.”
A primary beneficiary of yen weakness, besides the dollar, was the British pound. The pound rose to a four-year high against the dollar. The dollar, meanwhile, also climbed to its highest level against the Swiss franc in more than two years.
Some analysts noted, however, that thin holiday trading volume tends to exaggerate currency fluctuations.
On the New York Stock Exchange--where advancing issues led decliners by nearly 2 to 1 in light trading--stocks were boosted by a report that mutual funds had a net new inflow of $3.56 billion in the six days ended Dec. 24.
Broad market indexes ended narrowly mixed amid softness in computer-related shares. The Nasdaq composite fell 3.19 points to 1,291.38. But the Standard & Poor’s 500 list rose 0.97 point to 756.79, and the NYSE composite index added 1.03 points to 398.10.
Bond prices rose after the Commerce Department said orders to U.S. factories for durable goods unexpectedly fell 1.6% in November. It was the first decline in three months, and it was due largely to shrinking demand for electronic equipment. News of lower factory orders is welcomed by the financial markets because it suggests that the economy is not growing at an inflationary pace and that the Fed will thus be less likely to raise interest rates to cool inflation.
But in a reinforcement for the notion that the economy is still growing rapidly, the Labor Department reported that new claims for jobless benefits fell by 15,000 last week to 335,000. Many analysts had expected a decline of 5,000.
Among Friday’s highlights:
* One big loser on the technology front was Computer Associates International, which plunged 13 to 48 3/4. The software maker said late Thursday that third-quarter sales would fall below estimates as the company’s switch to new products bogs down in Europe.
Among other computer stocks, IBM fell 5/8 to 155 1/8, Intel fell 1 1/4 to 135 3/8, Microsoft dropped 1 1/4 to 84 1/4 and Micron Electronics fell 1 1/8 to 19 3/8.
But bucking the tech downtrend were several companies working to develop software that lets computers recognize the difference between the years 1900 and 2000. Zitel leaped 9 1/8 to 61 1/4, setting another record; TSR vaulted 10 1/2 to 37 1/2; Accelr8 Technology rose 1 1/8 to 21 1/2; Computer Horizons gained 1 to 35 3/4; and Data Dimensions jumped 4 3/4 to 37 3/4.
* Telecommunications shares were broadly higher, with BellSouth rising 3 1/8 to 44, Bell Atlantic advancing 2 7/8 to 67 7/8, AT&T; adding 1 1/4 to 43 3/4; SBC Communications rising 1 1/2 to 55 1/8, Ameritech gaining 2 7/8 to 62 7/8 and Nynex adding 2 to 50 3/4.
Federal regulators moved this week to allow local carriers to keep levying access charges to long-distance providers. Phone stocks, among the most widely held in the country, also benefit as lower bond yields ease their financing costs.
* Westinghouse was up 7/8 to 19 3/8 after receiving federal approval for its proposed $3.7-billion acquisition of Infinity Broadcasting, which rose 1 1/2 to 33.
Elsewhere, Mexico City’s Bolsa index rose 0.49% as the yields on the U.S. long bond and Mexican bonds dropped. And Brazilian stocks rose to a record high, with Sao Paulo’s Bovespa rising 0.6% to break the 70,000-point barrier.
Market Roundup, D4
