Stocks Post Broad Gains; Yields Dive
In stark contrast with other, seemingly halfhearted efforts to rebound from its recent slide, the broad stock market kept pace with the blue-chip sector in Tuesday’s powerful market rally. Stocks also surged in Europe.
And in the bond market, yields tumbled on short- and long-term securities, as some players rushed to lock in returns.
On Wall Street, the Dow Jones industrials rocketed 179.01 points, or 2.6%, to 6,962.03, while the Standard & Poor’s 500 index gained 21.09 points, or 2.7%, to 794.05 and the Nasdaq composite index soared 25.60 points, or 2.1%, to 1,242.63.
The 173-point gain in the Dow a week earlier had been accompanied by only slight gains in the S&P; 500 and Nasdaq composite.
“It’s a very high-quality rally today. I’m impressed,” said A. Marshall Acuff Jr., market strategist at Smith Barney, noting that four issues rose for every one that fell on the New York Stock Exchange in heavy trading. “We have great breadth. No one can complain about that today.”
At one point Tuesday, the Dow was up nearly 188 points, which would have been enough to beat its one-day point record of 186.84, which was set two days after the Black Monday crash of 1987. Instead, it was the third Tuesday in a row that the Dow broke the record for its second-biggest point gain.
Analysts said investors were responding to evidence suggesting a slowing U.S. economy and continued mild inflation.
In addition, some “short sellers”--traders who bet on declining stock or bond prices--rushed in to close out their bets amid Tuesday’s rally, adding to the buying wave.
In the bond market, the bellwether 30-year Treasury bond yield sank to 6.98% from Monday’s 7.11%. The yield now is the lowest since March 26.
Among shorter-term yields, the one-year T-bill yield plunged to 5.90% from Monday’s 6.04%.
Bonds also were helped by good news from the Treasury: It said it will retire a larger-than-expected $65 billion in debt this quarter as spending declines and a strong economy produce more revenue. That will remove some supply from the market.
Many bond traders said shorter-term yields now are at levels that assume the Federal Reserve won’t raise its key interest rates any further.
But that assumption will be tested today through Friday, as markets face a barrage of additional economic reports.
Among Tuesday’s highlights:
* The Dow’s biggest gainer was IBM, which surged 8 to 158 3/8 after the computer maker boosted its dividend and approved a new stock buyback plan.
Financial services issues, which enjoy a bigger profit margin when interest rates fall, also figured prominently in the Dow’s advance: Travelers Group rose 4 3/4 to 55, J.P. Morgan rose 2 1/2 to 100 5/8 and American Express rose 2 3/4 to 66 7/8.
The Dow’s other big gainers were DuPont, up 4 3/8 to 107, and Procter & Gamble, up 3 1/8 to 127 3/4.
* Other interest-rate-sensitive issues rose as well. BankAmerica advanced 4 3/4 to 115 1/4, Chase Manhattan gained 2 3/4 to 90 1/2 and Citicorp added 4 3/4 to 112.
* The technology-laden Nasdaq was propelled by Intel, up 3 5/8 to 150, and Microsoft, up 4 1/8 to 119.
One of the few tech losers was CoreStaff, down 4 1/2 at 18 3/4, whose rating was cut by Alex. Brown despite better-than-expected quarterly results.
Overseas, London stocks jumped to their highest level in six weeks, encouraged by sharp gains in New York. The FTSE 100 index added 43.5 points, or 1%, to close at 4,433.2. Frankfurt shares also rose, with the DAX index adding 20.13 points to 3,383.19, and in after-hours trading surged to 3,425.86.
Tokyo financial markets were closed for a holiday.
On the downside, the dollar fell sharply against the German mark after surprisingly weak U.S. manufacturing and wage data diminished prospects for another rise in interest rates soon, dealers said.
The dollar settled at 1.724 marks, down from 1.733 Monday, and 126.87 yen, down from 126.98.
The retreat marked the first time since April 23 that the dollar has fallen broadly, and eroded gains made after leaders of the Group of Seven nations signaled during a weekend summit that they weren’t yet ready to take aggressive steps to halt the currency’s rise.
Meanwhile, coffee futures jumped after roaster Folgers Coffee raised its retail prices, signaling more worries about this year’s supplies. The rise in coffee prices was Folgers’ third in the last two months, bringing the total rise since then to 35% increase.
