Stocks Rise, but Investors Await Today’s Reports
Stocks rose Wednesday for the first time in five days as computer and electrical equipment companies gained on expectations that a strong economy will boost profits.
The Dow Jones industrial average rose 52.56 points to close at 8951.52, led by General Electric, Sears, Roebuck and Hewlett-Packard.
The Standard & Poor’s 500-stock index gained 9.52 points to 1094.63, and the Nasdaq composite index jumped 19.87 points, or 1%, to 1851.64.
“The core underpinnings of the economy remain strong,” said Timothy O’Grady, a money manager at First Capital Group, a unit of First Union National Bank. “The economy is still expanding; we’ve got low inflation and good corporate profit growth.”
Bonds were little changed and yields hovered near their highest this year. Economic reports to be released today are expected to show brisk growth and rising employment costs.
The price of the benchmark 30-year Treasury bond fell 63 cents per $1,000 bond, leaving its yield unchanged at 6.07%.
Stocks fell in the last week on fears that the Federal Reserve Board might raise interest rates this year to keep the economy from overheating and causing inflation to accelerate. But some analysts believe that a rate increase might not immediately end a rally that has sent the Dow up 13% this year and caused it to more than double in the last three years.
“This bull market is so powerful that you don’t kill it with one cannonball,” said Don Hays, chief investment strategist at Wheat First Union in Richmond, Va. Although the prospect of rising interest rates is a negative development for the stock market, “it’s just the first shot across the bow--it’s not going to sink the ship yet,” he said.
Nevertheless some investors expect Wednesday’s rebound in share prices to be short-lived. The government will release its initial estimate of first-quarter gross domestic product today, as well as the employment cost index--the broadest measure of changes in wages, salaries and benefits.
“There isn’t a big upside ahead of these numbers,” said James Pizzo, a portfolio strategist at CIBC Oppenheimer in New York. “If we don’t start to see a slowdown in the economy, it may force the Fed’s hand.”
Rising interest rates are bad for stocks because they make the cost of doing business more expensive and they also make returns on bonds relatively more attractive.
Bond yields jumped 12 basis points this week after news reports that the Fed adopted a bias toward raising bank lending rates at its last policy meeting March 31. Investors are skittish about buying bonds because economic reports coming out this week may give the Fed more reason to raise interest rates.
“Investors have been shellshocked” by this week’s decline and are “wondering where we go from here,” said Jeffrey Eglow, who manages more than $250 million at Highlander Capital Management in Parsippany, N.J. Eglow believes today’s reports aren’t likely to provide much evidence of a slowdown, which wouldn’t bring cheer to investors.
The government will probably report the economy grew at a brisk 3.4% annual pace in the first quarter, according to analysts surveyed by Bloomberg News. The employment cost index, or ECI, probably rose 0.9% in the quarter, compared with a 1.0% gain in the fourth quarter, economists said.
Among market highlights:
* General Electric gained $1.19 to $82.31, Sears rose $1.56 to $57.81, HP gained $2.69 to $75, Ford Motor advanced 81 cents to $45.63 and Masco rose $2.06 to $57.13.
* America Online jumped $5.13 to $80.50 on expectations sales and earnings will surge as the online service extends its dominance as an Internet service provider.
* 7th Level climbed $1.53 to $7.81 as the developer of interactive education and entertainment software announced a new management team to lead the company’s entry into the market for Internet tools and technology.
* Ziff-Davis rose $2.19 to $17.69 as the publisher and trade show organizer raised $399.9 million in an initial stock offering. The New York-based unit of Japanese software distributor Softbank sold 25.8 million shares, or a 26% stake, at $15.50 a share. That was the midpoint of the $14 to $17 range set by lead underwriter Morgan Stanley, Dean Witter & Co.
* Microsoft rose 63 cents to $90.50. The software company said it expects its Microsoft Plus! 98 companion to the Windows 98 operating system to be available worldwide at the same time as Windows 98, on June 25.
* Borg-Warner Automotive dropped $4.25 to $51 on expectations that the auto-parts maker’s second-quarter earnings will be hurt by lower output of Ford F-series pickups and weaker demand for four-wheel-drive systems.
* Eastman Kodak rose $1.31 to $71.31 following a somewhat favorable mention in the Wall Street Journal.
Market Roundup, D8