3rd-Quarter Optimism Fuels Stock Rally
Stocks rallied Monday, with smaller-company shares resuming their record-setting march as investors expected corporations to report robust third-quarter profits, but bond yields rose ahead of today’s Federal Reserve Board meeting and key U.S. economic data due later this week.
The Dow Jones industrial average rose 69.25 points to 7,991.43. The barometer of 30 blue-chip companies, which hasn’t closed above 8,000 since Aug. 20, started the day with a 28-point deficit but quickly turned higher.
Broader stock indicators also shrugged off early weakness to post some sizable gains.
The Russell 2,000 index of smaller companies, which had closed at record highs for eight straight sessions before slumping Wednesday and Thursday, moved back into record territory, rising 2.43 points to 451.31. Other popular measures moved within striking distance of new highs.
“It’s an encouraging performance, even though the Dow has once again shied away from the 8,000 mark,” said Eugene Peroni, director of technical research at Janney Montgomery Scott in Philadelphia, adding that the Dow “is trending toward the upper part of its [recent] range rather than showing vulnerability.”
In the broader market, advancing issues outpaced losers by a 6-5 margin in moderate trading on the New York Stock Exchange.
“People are starting to anticipate that we could get some pretty nice earnings numbers in the third quarter,” said Bill Meehan, chief market strategist for Cantor Fitzgerald.
The Nasdaq composite index added 12.74 points to 1,694.98, closing just shy of its all-time record of 1,697.36, set last Tuesday.
The Standard & Poor’s 500-stock list rose 8.12 points to 953.34; the NYSE composite index rose 3.78 points to 498.98, just shy of last Monday’s record close at 499.16.
A small bounce-back in bonds also helped stocks as the day wore on. Bonds pared some of their early losses; the 30-year U.S. Treasury bond yield rose to 6.38% from 6.36% on Friday.
There was little reaction to Monday morning’s news that consumer spending rose a modest 0.3% in August--down from a 1% spurt in July--despite a healthy 0.6% gain in personal income.
The report, which met most forecasts, was the last piece of government data before today’s meeting of the Federal Open Market Committee, the policy-setting arm of the Fed. Few analysts expect a change in monetary policy by the central bank, which hasn’t raised any of its key lending rates since March, when it was feared that the economy was expanding at an inflationary pace.
Even if the Fed leaves rates unchanged, however, investors were expected to trade cautiously before some major reports, due later in the week, that will offer the first taste of how the economy behaved in September.
The most important reports should be Wednesday’s reading on manufacturing activity and Friday’s data on payroll and wage levels. The Fed’s chief concern is whether a strong job market has forced manufacturers to boost wages significantly as they try to keep up with heavy consumer demand.
Among Monday’s highlights:
* The day’s gains were spread across a broad spectrum. The only Dow component with a gain of at least $2 was IBM, which rose $2.38 to $105. Other major Dow gainers were 3M, up $1.88 to $92.31; Alcoa, up $1.56 to $81.88; Chevron, up $1.44 to $84.50; and Merck, up $1.44 to $101.56.
* The biggest gainer in the S&P; 500 was semiconductor maker Intel, which climbed $2.31 to $95.38. Computer-related shares advanced on optimism that demand for technology will continue to grow.
Only 27 computer-related companies have warned investors in the third quarter that earnings would fall short of expectations. For the entire second quarter, 67 companies issued such warnings, according to IBES International Inc.
Microsoft rose $1.13 to $134.50, Bay Networks rose $1.75 to $39.44, Compaq rallied $2.63 to $77, Texas Instruments surged $4.06 to $138.63 and America Online rose $3.94 to $75.50
* Financial companies rebounded as optimism about today’s Fed meeting spread. Citicorp gained $1.06 to $134.16, Chase Manhattan rose $1.06 to $118.44, J.P. Morgan added $1.19 to $115.13 and BankBoston rose $2.44 to $91.19.
Travelers Group was an exception, falling 75 cents to $68.44. Last week, the insurance and brokerage company said it would buy Salomon Inc. for $9 billion.
Overseas, Tokyo’s Nikkei stock average edged lower, Frankfurt’s DAX index rose 0.6% and London’s FTSE-100 slipped 0.1%.
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Market Roundup, D20
