Stocks Gain as Bonds Stage Biggest Rally in a Month
Tumbling bond yields gave stocks a late lift Tuesday, propelling the Dow Jones industrials to within 1% of a record high.
The Dow jumped 70.29 points, or 0.6%, to 11,117.08. The record close is 11,209.84, set July 16.
The broad market also was higher, with winners topping losers 18 to 11 on the New York Stock Exchange and 21 to 18 on Nasdaq.
The Nasdaq composite gained 1%, leaving it 7.2% from its July peak. It has risen 7.3% from its recent low reached Aug. 10.
Stocks took heart as bonds staged their biggest rally in more than a month, after the government’s report on consumer price inflation in July met expectations.
That reduced fears that the Federal Reserve, meeting next Tuesday, will raise short-term rates more than the quarter-point hike already expected.
“We’re getting a relief rally” in Treasuries, said Dick Vandenberg, one of the managers for the $11 billion in bonds at Scudder Kemper Investments in Chicago.
The yield on the benchmark 30-year T-bond slid from 6.08% Monday to 6.01%, the lowest since July 28.
Just last week, the yield hit a 22-month high of 6.27%.
Shorter-term yields also retreated. The yield on the two-year T-note fell to 5.67% from 5.72% Monday and nearly 5.8% last week.
But while the inflation report suggested prices aren’t accelerating, the good news was tempered by reports showing a surge in home construction in July and a strong advance in output at the nation’s factories.
Still, “the biggest concern before today was that the Fed would keep pushing that interest rate lever, raising rates higher and higher,” said Joseph V. Battipaglia, strategist at Gruntal & Co. “That no longer seems to be the case.”
Some analysts, however, are concerned that stocks’ recent gains have been accompanied by weak trading volume.
“There are some questions about whether this is the start of something major or just a sucker’s rally,” said Ned Collins, a trader at Daiwa Securities America.
The bond market also got a boost Tuesday as DaimlerChrysler saw strong demand for its sale of $4.5 billion in bonds.
Among Tuesday’s highlights:
* Internet stocks helped lead the market higher. EBay jumped $8.75 to $117.75, Yahoo gained $4.38 to $138.88, Amazon.com surged $10.94 to $109.25 and America Online rose $2.56 to $97.50.
But major tech stocks took a breather. Apple Computer slipped 19 cents to $60.31. Dell eased 31 cents to $41.13 ahead of its earnings, reported after trading ended.
Micron Technology tumbled $2.81 to $57.75. And Hewlett-Packard slumped $5.75 to $104.50; it had surged ahead of its earnings report Monday.
* Casino stocks rallied on the heels of strong Las Vegas tourism numbers. Mandalay Bay leaped $2.06 to $23.25, Mirage Resorts gained $1.13 to $15.50, Harrah’s gained $1.13 to $23.75 and MGM Grand rose 81 cents to $49.31.
* Financial stocks advanced as bond yields fell. Citigroup rose $1.31 to $47.63, Charles Schwab leaped $2.44 to $45.50 and Bank of America added $2.13 to $64.63.
* Biotech shares pulled back. Genentech fell $4.94 to $157.19 and Gilead Sciences lost $4.75 to $76.50.
* Among Southland issues, alarm system company Protection One dove 44 cents to $3.56 as investors continued to express concern over the Securities and Exchange Commission’s questioning of the company’s financial statements, as reported last week.
Market Roundup, C9
