Blue Chips Take Breather; Techs Rebound
Blue chip stocks pulled back slightly Wednesday after Tuesday’s surge, while the Nasdaq composite index got a good lift from rebounding technology issues.
And after the market closed, IBM gave an upbeat assessment of business for the rest of this year--a report that could help lure buyers back to tech issues.
The Dow Jones industrials, which had rocketed 173.38 points on Tuesday, traded in a narrow range on Wednesday and closed down 20.87 points at 6,812.72.
Although most broad market indicators also edged lower, some analysts found Wednesday’s activity more encouraging because of the strength in beaten-down tech issues.The Nasdaq composite index, dominated by techs, jumped 14.40 points, or 1.2%, to 1,227.14.
Still, falling stocks outnumbered winners by 21 to 17 on Nasdaq and by 13 to 11 on the New York Stock Exchange.
Tuesday’s mammoth Dow rally had been fueled by a number of factors, analysts said: strong earnings reports from key blue chip companies; “short covering” by bearish traders closing out bets on lower prices; and a drop in bond yields triggered at least in part by rumors about an imminent balanced-budget deal in Washington.
On Wednesday, however, the bond market was roughed up again, with long-term yields rising. The 30-year Treasury bond yield ended at 7.08%, up from Tuesday’s four-week low of 7.04%.
“I still think rates are rising,” said Jeff Eglow, who helps oversee about $100 million at Highlander Capital Management in Parsippany, N.J.
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Indeed, Atlanta Federal Reserve Bank President Jack Guynn, a voting member of the Fed’s policy-setting council, warned Wednesday that central bankers must act in advance to slow the strong economy and keep inflation at bay, rather than wait for higher prices to happen. The Fed raised short-term interest rates on March 25 and is expected to do so again in late May.
The bond market also faced new supply Wednesday, as the Treasury auctioned $12.5 billion of five-year notes. The notes’ average yield was 6.75%.
As for stocks, despite Tuesday’s powerful blue-chip rally, “It’s a battle between those who believe companies with strong earnings will do better over the balance of the year and those who are concerned about higher interest rates,” said Alan Ackerman, senior vice president at Fahnestock & Co.
Some analysts worry that once first-quarter earnings season is over, investors will once again begin to obsess about interest rates. “Next week, when the focus shifts from earnings, I think the market is going to go down,” said David Shulman, chief equity strategist at Salomon Bros.
Among Wednesday’s highlights:
* IBM shares gained 2 3/8 to 142 3/8 before the company reported higher-than-expected earnings after the market closed. (Story, D3.) IBM’s chief financial officer said the company “feels good” about business for the rest of the year.
Other tech shares rising Wednesday included Intel, up 5 3/8 to 146 1/4; Compaq, up 2 1/4 to 77 1/2; Microsoft, up 4 1/2 to 115 1/8; Computer Sciences, up 2 3/4 to 63 3/8; and Peoplesoft, up 7 5/8 to 42 5/8.
* Stocks moving on earnings reports included Disney, up 7/8 to 79 1/8; United Technologies, up 2 1/4 to 77 5/8; and Hilton Hotels, which rose 1 1/8 to 26 7/8.
But Dupont fell 2 1/4 to 106 despite reporting higher results; Pharmacia & Upjohn slumped 4 3/4 to 30 1/8 on a disappointing report.
* US Airways rocketed 5 1/4 to 34 1/8 after posting sharply higher earnings. That spurred another rally in airline shares generally, with Delta surging 2 3/4 to 98 1/8 and Southwest rising 1 1/8 to 25 1/4.
The Dow transportation average leaped 44.69 points, or 1.8%, to a record 2,580.55.
* Some of Tuesday’s hottest blue chips pulled back. Procter & Gamble lost 3 1/8 to 125 1/2 after soaring 5 5/8 Tuesday; 3M eased 1 1/2 to 86.
In foreign trading, many world markets surged in the wake of Tuesday’s Dow gain. Hong Kong’s Hang Seng index jumped 1% to 12,707.04, Tokyo’s Nikkei-225 index gained 1% to 18,735, Brazil’s Bovespa index leaped 1.7% to 9,634 and London’s FTSE-100 index added 1% to 4,387.70.
Market Roundup, D7
