Dow, Nasdaq Rally; Latin America Reels
U.S. stocks rose sharply Tuesday to new highs, while Latin American and Asian markets tumbled amid growing concerns about currency devaluations.
The decline in Latin markets was particularly jarring--Brazil’s key index plunged 8.5%, for example--but analysts noted that those markets have led the world this year and that profit-taking has been long overdue.
On Wall Street, the Dow Jones industrials rose 52.73 points, or 0.7%, to a record 7,975.71, surpassing the previous record of 7,962.31 set July 8 and leaving the blue-chip index just 25 points from the 8,000 mark.
The Nasdaq market was even stronger as technology shares continued their blistering rally. The Nasdaq composite index jumped 18.23 points, or 1.2%, to a record 1,542.11, as rising stocks outnumbered losers by 24 to 18.
A firm bond market supported stocks all day. Yields ended mostly unchanged.
“All the underpinnings are still in place,” said Philip Schettewi, managing partner at Loomis Sayles & Co. “You have relatively low inflation, a Federal Reserve that’s not pushing to raise rates, and you’ve got companies that are delivering very good earnings. The market psychologically wants to hit that 8,000 level.”
Nor does the dollar’s strength, as many foreign currencies plunge, seem to be upsetting investors.
A strong dollar might eventually erode profits of multinational corporations by making their exports more expensive abroad and devaluing the earnings that they repatriate from abroad.
But analysts note that precisely because many U.S. multinational firms operate in so many countries, currency shifts can cancel each other out. What’s more, a strong dollar brings near-term benefits that may offset longer-term profit concerns for stocks.
“Valuations of our markets are helped because foreign buyers come in” when the dollar gains, said Pierre Ellis, economist at Primark Decision Economics.
In the last two weeks, Southeast Asian currencies have been slammed by speculators betting on devaluation amid the region’s economic woes.
On Tuesday, concerns about devaluation spread to Latin America, triggering widespread selling in stock markets there.
In Brazil, the Sao Paulo stock exchange’s Bovespa index plummeted 1,081 points, or 8.5%, to 11,617, the market’s steepest one-day decline in nearly 2 1/2 years.
“People are selling first and asking questions later,” said Francois Gour, an economist at Caspian Securities, who argued that there is little risk of currency devaluation in Brazil.
In Mexico City, the Bolsa index slumped 82.72 points, or 1.7%, to 4,694.35. In Buenos Aires, the Merval index dove 3.4%.
Grey Newman, brokerage James Capel’s chief economist for Mexico, said a prolonged sell-off of Mexican stocks seems unlikely because the country is running a trade surplus--in contrast to the deepening trade deficits that have undermined many Asian economies.
Asian markets mostly continued to fall Tuesday, with Seoul’s main market index down 1.2% and Singapore’s down 1%.
Among U.S. market highlights:
* Technology stocks zoomed ahead of Intel’s earnings report, which was released after the market closed. (Story, D1.) Another tech bellwether, Texas Instruments, rocketed $12 to $109.50 on its strong earnings report.
Other tech winners included Microsoft, up $2.53 to $138.47; Cisco Systems, up $1.41 to $77.97; Remedy, up $5.13 to $47.13; and Computer Associates, up $5.63 to $65.63.
* Other stocks reacting to earnings reports included Dover, up $4.38 to $67.56; Corning, up $1.13 to $57.13; and Citicorp, down $3.13 to $125.38.
* CCA Prison Realty Trust rose $7.88 to $28.88 in its Wall Street debut. The real estate investment trust focuses on private prison properties.
