Russell, Nasdaq Indexes Again Hit New Highs
Small-company shares’ broad advance continued Tuesday, while a late rally in blue chips again fizzled.
The Russell 2,000 index of smaller stocks added 1.76 points, or 0.4%, to a record 437.75, its ninth consecutive record high.
The Dow Jones industrials, by contrast, edged up just 16.73 points to 7,851.91, after trading as high as 7,899.
Smaller stocks’ strength also was reflected in a new high for the Nasdaq composite index, which rose 10.87 points, or 0.7%, to 1,656.22. The Standard & Poor’s small-cap stock index rose 0.5% to a record 181.63.
Winners topped losers by 23 to 19 on Nasdaq and by 16 to 12 on the New York Stock Exchange.
“The main reason we continue to see better strength in secondary stocks is that you have so much money coming into aggressive mutual funds” that target small and mid-sized companies, said Ricky Harrington, technical analyst at Interstate/Johnson Lane in Charlotte, N.C.
Harrington noted that recently, about a third of the money flowing into mutual funds has been earmarked for more aggressive funds. “That money has to be spent. As long as the market remains stable, the pressure’s on the upside in those stocks,” he said.
But other analysts noted that investors have fundamental reasons to favor smaller stocks now, including growing faith in many of the companies’ earnings growth, given the strong U.S. economy.
By contrast, blue-chip multinational companies’ stocks have in recent weeks increasingly been dogged by concerns about earnings, because of the dollar’s strength against other currencies and because of Southeast Asia’s economic woes, which are expected to slow growth in that part of the world.
On Tuesday, IBM became the latest blue chip to slide on earnings jitters. It fell $2.88 to $100 amid speculation that the company’s third-quarter profit won’t meet expectations.
The market overall drew a small boost in the morning from a report that the productivity of American workers--key to offsetting inflationary pressures--rose at a seasonally adjusted annual rate of 2.7% in the second quarter. The data represented the best improvement in 3 years.
The report also said labor costs per unit of output--a key force behind prices--slowed to a crawl of 0.5% in the second quarter, down from an initial estimate of 2.4% and a rate of 3.1% in the first three months of the year.
Analysts said the economic data gave Wall Street fresh confidence that inflation would stay low, which should encourage the Federal Reserve Board to hold interest rates steady.
Still, the bond market failed to rally on the productivity news. Yields edged up slightly.
Among Tuesday’s highlights:
* Smaller stocks were paced by such issues as Oncogene, up $3.22 to $11.75 on news of a patent award; CKE Restaurants, up $3.38 to $37 on a strong earnings report; and Samsonite, up $4.13 to $43.44, also on a strong earnings report.
* Computer-networking-related stocks also were broadly higher, including 3Com, up $3.44 to $51.50; Yahoo, up $3.19 to $50.38; and Ascend Communications, up $2.38 to $42.56. But Tellabs dove $5.94 to $56.81 after warnings of weaker-than-expected earnings this quarter.
* Among blue chips, Coca-Cola slipped 38 cents to $58.75 after the company reported that its chief executive was hospitalized with a malignant lung tumor.
In currency activity, traders grew worried about the dollar, which tumbled to 118.93 Japanese yen from 121.17 yen Monday after U.S. Deputy Treasury Secretary Larry Summers voiced concern that Japan may neglect its commitment to spur domestic demand, focusing on exports instead.
