AT&T; Deal Fuels Dow; Techs Gain
The S&P; 500 index set its first new high in two months Wednesday as technology stocks rallied for a third day and AT&T;’s proposed $46.5-billion takeover of cable giant Tele-Communications ignited a new wave of merger speculation.
The Dow Jones industrial average rose 95.41 points to 8,923.87, extending Tuesday’s 117-point rally. While it was the best finish in two weeks, the barometer of 30 blue chips still sits about 300 points shy of May 13’s record of 9,211.84.
The Standard & Poor’s 500 rose 13.39 points to 1,132.88, topping April 22’s record close of 1,130.54 and pushing 1998’s gain back up to 16.5%.
The red-hot Nasdaq composite index rose 33.19 points to 1,877.76. In just seven sessions, the technology-heavy measure has surged 162 points, or 9.4%, moving within arm’s length of April 22’s record of 1,917.61. For the year, Nasdaq is up nearly 20%.
The broad market lagged the blue-chip move, with advancing issues outnumbering decliners by a modest 5-4 margin.
“The hot money is running after the tech stocks and some of the blue chips because the feeling is among portfolio managers that we have seen the low end of trading ranges,” said Michael Metz, managing director of CIBC Oppenheimer & Co. “They want to be where the action is.”
Meanwhile, the dollar jumped to its highest level since Japan and the United States intervened in currency markets last week.
In late trading in New York, the dollar rose to 141.25 yen from 139.15 on Tuesday. It also rose to 1.8035 against the German mark, from 1.8020.
The price of the benchmark 30-year Treasury bond fell, and its yield, which moves in the opposite direction, rose to 5.66% from 5.64% on Tuesday.
In the stock market, advancing issues outnumbered decliners by a 4-3 margin on the New York Stock Exchange, where composite volume totaled a hefty 847.22 million shares, up from Tuesday’s 781.31 million.
The NYSE composite index rose 5.55 points to 577.18, the American Stock Exchange composite index rose 10.88 points to 709.48, and the Russell 2,000 index of smaller companies rose 3.89 points to 451.31.
The Dow overcame an early 50-point drop despite a sharp decline in AT&T; stock, which fell $4.38 to $60, or the equivalent of about 20 Dow points. It was the most active issue on the NYSE following news of its deal to buy TCI. Shares of TCI, the most active Nasdaq issue, rose $1.06 to $39.75.
Much like the Citicorp-Travelers Group merger announcement in early April bolstered investor sentiment by triggering a series of major deals in that sector, the AT&T-TCI; combination was seen as a source of new fuel for the market.
“The fact that you have mergers and acquisitions says something about valuations: They must not be too high if you can still do deals like this,” said Robert Froehlich, chief investment strategist for Kemper Funds in Chicago.
“When deals get done at the top of an industry, you get a ripple effect,” he said. “It forces the hand of everyone else in the industry and you see a lot of speculation, because people want to be part of the next deal.”
Among Wednesday’s highlights:
* Bank stocks rallied, led by Citicorp, up $5.44 to $154.56. Banks benefited from investors’ search for large stocks with healthy earnings prospects that are relatively cheap, traders said. Bank earnings, at record levels already, are expected to rise 12% in the second quarter. NationsBank added $2.75 to $77.50 and Chase Manhattan rose $2.94 to $73.13.
Bank stocks have lagged the market recently. The Philadelphia Stock Exchange bank index at the start of the day was down 8.6% from its April 14 high. On Wednesday, the bank index rose 2.9%, its biggest gain in more than two months.
Prospects for a lower capital gains tax rate also helped banks and brokers. House Speaker Newt Gingrich proposed cutting the capital gains rate for most individuals to 15% from 20%, a move that could encourage stock investment, benefiting brokerages and banks’ asset-management businesses.
* AT&T;’s slide was easily offset by big gains from Dow favorites such as Merck, up $3.94 to $131.25; Disney, up $2.94 to $112.69; and Procter & Gamble, up $2.63 to $90.88.
* Leading the Nasdaq advance once again were Microsoft, up $4.19 to $104.94, and Intel, up $2.13 to $77.38.
Cotton prices rose to their highest level in two years as concerns grew that crop damage in Texas and California will sharply reduce supplies.
At the New York Cotton Exchange, cotton for July delivery ended 0.88 cent a pound higher at 80.60 cents, the highest closing price since June 1996.
Prices have risen 30% since April 7 as concerns began building about the effects of hot, dry weather in Texas, the No. 1 cotton-producing state, and rainstorms in California, the No. 2 cotton state.
Overseas, British stocks rose for a second straight session, with London’s FTSE-100 adding 0.6%. In Tokyo, the 225-share Nikkei average closed up 0.5%.
Market Roundup, D9
