Dow Rises Again, Up 79; Small Stocks Lag
U.S. blue-chip stocks gained Tuesday for a third straight session, buoyed by a sharp rebound in Latin American markets and hopes for lower interest rates.
The Dow Jones industrials rose 79.04 points, or 1%, to 8,024.39, the highest close since Aug. 28.
The Dow has risen 408 points, or 5.4%, over the last three sessions. That’s the first three-day gain since Aug. 5-7--before the bulk of the market’s summer losses occurred.
In the broad market Tuesday, winners topped losers by 17 to 13 on the New York Stock Exchange, and most indexes closed higher.
But smaller stocks lagged. The Russell 2,000 index of smaller shares edged up just 0.01 point to 357.73, and losers outnumbered winners by 21 to 19 on Nasdaq.
Blue chips worked higher in a sawtooth pattern, as good news in foreign markets helped dissipate some of the gloom that has settled over the global financial system since midsummer.
Latin American markets soared on expectations that the major economic powers will pull together a rescue package to help Mexico, Brazil, Argentina and other countries cope with weak currencies and high interest rates.
The Brazilian stock market, which lost nearly 60% of its value over the last two months, zoomed 18.7% on Tuesday. The Mexican market rocketed 12.9%.
“We have had, in the last 48 hours, some relatively strong words from the International Monetary Fund and Group of 7 which have given investors some hope that, although there may not be an easy solution to the world’s problems, the folks that have access to levers are not exactly asleep at the switch,” said Charlie Crane, chief market strategist at Key Asset Management.
Other analysts said many investors are expecting an interest rate cut this fall by the Federal Reserve Board and perhaps by Europe’s central banks--even though Germany’s central bank chief Tuesday seemed to downplay the idea.
“It’s a 70% certainty” that the Fed will cut rates sooner than later, said R. Lynn Yturri, manager of the One Group Income Equity Fund. That “would be a short-term boost for the market.”
Today, Fed Chairman Alan Greenspan may shed more light on the Fed’s intentions when he testifies on Capitol Hill about the global economy.
The bond market tensed up ahead of his testimony. The yield on the 30-year Treasury bond rose to 5.26% from 5.23% on Monday.
On Wall Street, some investors were reluctant to make large moves ahead of the expiration Friday of stock and index options and index futures. So-called triple-witching days, when all three types of contracts expire together, can lead to large market swings.
Meanwhile, one big investor said world markets remain at serious risk of more turmoil.
International financier George Soros, testifying before the House Banking Committee, said Russia’s economic crisis will worsen, Brazil is on the brink, and the world’s lender of last resort--the International Monetary Fund--is ill-equipped to fend off a global meltdown.
He called for more international supervision over “national supervisory authorities.” And he said it may be necessary to reconstitute the world banking system and the swap and derivatives markets, saying “a global credit crunch is in the making.”
Among Tuesday’s highlights:
* Financial stocks continued to rebound, with Merrill Lynch up $1.44 to $59.06, Wells Fargo up $10 to $332 and American Express up $3.19 to $84.88.
* Drug stocks were also strong, led by Merck, up $3.50 to $135.50, nearing its record high of $139.13.
* RJR Nabisco, which replaced MCI in the Standard & Poor’s 500 index after the market’s close, gained $2.56 to $26.56. Stocks of companies that are added to the index often rise, as managers of mutual funds whose portfolios strictly match the makeup of the S&P; 500 must buy the shares.
* On the downside, the list of companies warning about weaker near-term earnings lengthened further. Suiza Foods, one of the largest U.S. dairy firms, tumbled $9.69 to $30.06 after saying that “unprecedented increases” in butterfat prices will cut into earnings for the next two quarters.
Also, Cummins Engine plunged $7.50 to $35.25 after warning of weak sales.
Other companies that warned of profit shortfalls included Rainforest Cafe, down $1.81 to $6.31; Cylink, down $2.75 to $5.13; and clothing chain Wet Seal, down $5.19 to $14.56.
* Coca-Cola fell $2.13 to $61.19 after Lehman Bros. analyst Michael Branca cut his 1999 earnings estimate to $1.73 a share from $1.86 because of slowing sales abroad.
Branca also reduced his 1999 forecast for PepsiCo, to $1.39 from $1.52. Pepsi fell $1.31 to $30.
*
Market Roundup, D8
