Stocks Close Mostly Higher; Yields Edge Up
The U.S. stock market rebounded modestly Tuesday after Monday’s big sell-off, though blue chips were weak. European and Latin American markets also closed mostly higher.
Meanwhile, yields edged up in the bond market amid continuing unease over the potential for a credit-tightening move by the Federal Reserve Board.
On Wall Street, the Dow Jones industrials slipped 18.68 points to 8,898.96, after tumbling 146.98 points, or 1.6%, on Monday.
But most other key indexes rose, and winners outnumbered losers by 18 to 12 on the New York Stock Exchange and by 25 to 17 on Nasdaq. Trading was heavy.
Stocks had slumped on Monday as bond yields soared, after the Wall Street Journal reported that the Fed had voted at its March 31 meeting to lean toward raising short-term interest rates in coming months to slow the U.S. economy.
On Tuesday, however, investors returned to the stock market even as many remained leery of bonds, ahead of economic reports later this week that may help mold the Fed’s views on rates.
Smaller stocks led Tuesday’s market rebound. The Nasdaq composite index of mostly smaller stocks rose 11.46 points, or 0.6%, to 1,831.77 after diving 2.6% Monday.
The Russell 2,000 index, a purer small-stock index, gained 0.9% to 472.54 on Tuesday after falling 2.5% on Monday.
By contrast, the blue-chip Standard & Poor’s 500 index eased 1.43 points to 1,085.11, as an early rally faded in afternoon.
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Some analysts said the broad market’s ability to recover quickly, if modestly, after Monday’s slide was a good sign.
“What we [have is] a bull market that gives ground begrudgingly,” said Alfred Goldman, a technical market analyst at brokerage A.G. Edwards.
“The market is making a good showing,” added Roy Blumberg, chief investment strategist at Fahnestock & Co.
The bond market didn’t have as much luck. The yield on the 30-year Treasury bond, which had jumped from 5.94% to 6.05% on Monday, inched up to 6.07% by Tuesday’s close, after trading lower early in the day.
The yield now is the highest since March 3.
But an auction of new two-year T-notes was well-received, dealers said. The new notes sold for an average yield of 5.68%.
If investors believed the Fed was serious about raising its benchmark short-term interest rate, the federal funds rate, from the current 5.5%, two-year notes ought to be yielding significantly more, some traders said.
Economic reports later this week should help clarify whether the strong U.S. economy is generating inflationary pressures.
On Thursday the government will report the employment cost index for the first quarter. That is a broad look at wage trends, and it is a key indicator often cited by Fed Chairman Alan Greenspan in assessing wage pressures in the economy.
On Friday, the National Assn. of Purchasing Management’s manufacturing activity index for April will be released. That will give one of the first looks at the economy’s trend in April.
Meanwhile, in foreign trading Tuesday, most European and Latin American markets rebounded with Wall Street. The French stock market jumped 2.5%, while British stocks were up 1.5% and Mexican stocks gained 2.6%.
But Asian markets closed mostly lower Tuesday. Tokyo’s Nikkei-225 stock index fell 1.6% to 15,395.43 on news of a surge in Japan unemployment. (Story, D3)
Among Tuesday’s highlights:
* Internet-related stocks revived, helping to boost the small-stock market. Internet bookseller Amazon.com led the rally, surging $12.88 to $95.63 after reporting a first-quarter loss of $9.26 million, or 40 cents a diluted share, which was less than expected. Sales surged more than fivefold to $87.4 million.
The firm also announced a 2-for-1 stock split.
Among other Internet issues, Yahoo jumped $6.38 to $118.50, Market Guide gained $1.31 to $12.56, Infoseek rose $2.63 to $33 and America Online jumped $2.50 to $75.38.
* Financial stocks, which took big hits on Monday, were mixed Tuesday. Wells Fargo gained $1.69 to $360 and Mellon Bank jumped $3.94 to $74.88, but Norwest lost 50 cents to $37.69 and SunAmerica fell $1.38 to $46.69.
* Among stocks reacting to earnings reports, 3M gained $2.31 to $92.50 but PepsiCo sank $3.31 to $39.75.
* Merck rose $2.69 to $115.50. At the company’s annual meeting, its CEO said the firm will look to new products and more advertising and marketing, not mergers, to keep boosting profit after patents expire on four of its top-selling drugs in 2000 and 2001.
* Franklin Resources leaped $4.50 to $53.38 after Standard & Poor’s Corp. said it would move the mutual fund company’s stock to its S&P; 500-stock index from its S&P; MidCap 400-stock index.
Stocks added to the S&P; 500 often jump because funds that seek to mimic the index’s performance must then add the shares to their holdings.
* Entertainment issues were strong. Disney rose $2.56 to $123.50, Viacom Class B jumped $2 to $56.06 and Time Warner rose $1.88 to $75.88.
