Blue Chips Climb as Many Investors Await Rate Action
Blue-chip stocks ended the week with a robust rally, but the prospect of an increase in interest rates next week kept many investors out of the market.
The Dow Jones industrial average rose 136.77 points, or 1.3%, to close at 11,100.61. The broader Standard & Poor’s 500 index climbed 13.02 points, or 1%, to 1,336.61. The tech-heavy Nasdaq composite gained 26.90 points, or 1%, to 2,648.33.
Seventeen stocks rose for every 12 that fell on the New York Stock Exchange.
The benchmark yield on 30-year U.S. Treasury bills ended below the closely watched 6% level for the first time since late July as bonds rallied on optimism that next week’s expected interest rate hike may be the last of the year.
The long-bond yield fell to 5.99% from 6.02% the day before.
U.S. stock trading was slow, with many investors on vacation and others unwilling to buy or sell before Tuesday, when Federal Reserve policymakers are expected to raise short-term rates.
Drug shares, among the worst performers this year, rose for the sixth time in seven sessions and were the best performers in the S&P; 500. Pfizer climbed $1.69 to close at $36.94, Warner-Lambert rose $3.75 to $67.75 and Schering-Plough gained $1.88 to $51.69.
Pharmaceutical companies “are a big beneficiary of a weaker dollar,” said Mace Blicksilver, managing director of Marblehead Asset Management. The dollar’s decline this week against the yen and the euro boosts profits for drug makers because it allows them to buy more U.S. currency when they bring home their revenue from abroad.
American Express climbed $4.38 to $142.88, its seventh gain in eight sessions, to lead the Dow higher. The world’s biggest charge card issuer is benefiting from optimism that profit will continue to grow, buoyed by the recovery of international economies.
Investors sought out other big, established companies, with Procter & Gamble gaining $3 to $97.25 and Alcoa rising $2.50 to $67.69.
Operating profit for the companies in the S&P; 500 is expected to rise 21.5% in the third quarter, the highest since the first quarter of 1995, according to First Call/Thomson Financial’s latest survey of Wall Street analysts.
Stocks extended their gains late Friday on buying spurred by the “double witching” expiration of stock and index options. The expiration often requires trading desks to buy or sell big chunks of shares that had been used to hedge positions.
For the week, the Dow industrials rose 1.2%, the S&P; 500 0.7% and the Nasdaq composite 0.4%.
Among Friday’s equity highlights:
* Sprint skidded $4.06 to $45 after the long-distance company was downgraded to “outperform” from “buy” by an analyst at Lehman Bros., who cited increasing price competition.
* Ciena lost $1.69 to $32.25 as the seller of equipment used to boost capacity on phone networks reported a wider fiscal third-quarter loss after charges for recent acquisitions.
* Net2Phone, however, surged $7.94 to $35.50. Shares of the company, which provides phone services over the Internet, have more than doubled in the last two weeks after it announced alliances with CNet and GE’s NBC unit.
* Equifax dropped $4.88 to $28.06 as the provider of financial, legal and other services was downgraded to “outperform” from “strong buy” by an analyst at Morgan Stanley Dean Witter, who cut his 12-month price target to $40 from $47.
* Dun & Bradstreet fell $5.19 to $25.50 after the business-information service warned profit won’t meet analyst estimates of 40 cents to 41 cents a share in the third quarter. It now sees earnings for the year of $1.62 to $1.65 a share, about 10 cents below forecasts, because of falling U.S. sales.
* Dillard’s also took an earnings hit, tumbling $5.75 to $23.75 after the chain said slumping sales at its Mercantile stores are crimping profit.
Overseas, Japan’s Nikkei stock average rose 1.2%. European indexes also posted solid gains.
Market Roundup, C4
