Stocks Rally on Expectation of Drop in Yields
Financial, utility and transportation stocks zoomed on Wednesday, leading a broad rally on the New York Stock Exchange that overshadowed a sell-off in technology.
The gains suggested that many investors were optimistic that today’s key economic reports will show a slowdown in activity that could push bond yields lower.
The Dow Jones industrials ended up 92.76 points, or 0.9%, at 10,394.89, as winners topped losers by 17 to 13 on the NYSE in active trading.
The Nasdaq composite, however, eased 8.95 points to 2,802.52, though it recovered from 2,768.
Stocks scored most of their gains in the final hour, helped by a late slide in bond yields. The 30-year Treasury bond yield fell from a two-year high of 6.37% on Tuesday to end Wednesday at 6.33%.
Traders said bond buyers were motivated on two fronts. First, there are expectations that today’s third-quarter data on gross domestic product and employment costs will be weaker than expected, relieving some inflation concerns.
“That’s the buzz that was going around--that someone leaked the [data] and it was not inflationary,” said Arthur Hogan, analyst at Jefferies & Co. in Boston.
Second, some bond traders still expect the Federal Reserve to raise short-term interest rates again on Nov. 16 to ensure an economic slowdown. Likewise, there is growing belief that the European Central Bank could raise rates as early as next week to dampen European inflation jitters.
Because long-term bond yields have already risen in anticipation of central bank moves to raise short-term rates, analysts said there is room for yields to come down if investors believe that inflation won’t resurge, and that the central banks won’t have to continue tightening credit into 2000.
The bond market also was cheered Wednesday as an auction of new two-year T-notes saw the strongest demand since June 1998. The notes’ yield was 5.94%.
But analysts warned that if today’s economic data are stronger than expected, markets could be hammered again.
Also, continuing weakness in the dollar may again spook markets. The yen approached a 44-month high against the dollar on speculation the Japanese government will spend more to enliven that economy.
The yen rose as high as 103.71 per dollar in Europe, then closed in New York at 104.17, versus 104.69 on Tuesday.
Among Wednesday’s highlights:
* Financial stocks, which often foreshadow moves in interest rates, staged a powerful rally. That suggested many investors expect rates to stabilize or fall, which could be good news for financial companies.
J.P. Morgan soared $7.13 to $128.50, Citigroup leaped $2.81 to $51.31, Wells Fargo added $1.81 to $46.50, Merrill Lynch gained $5.50 to $75.13 and Countrywide Credit rose $1.69 to $31.
The financial shares began to rally last week after Congress and the White House agreed on reforms to Depression-era banking laws.
* Utility stocks, which also often are harbingers of interest rate moves, were up sharply. The Dow utility index surged 2.4%, its biggest one-day rise in more than a year. Duke Energy gained $2.31 to $54.63, and Unicom rose 75 cents to $38.38.
* Airline stocks advanced as some analysts said the industry’s capacity growth in 2000 might be below expectations, which could mean better profitability. AMR, parent of American Airlines, jumped $3.38 to $59.69, and Alaska Air gained $1.88 to $38.31.
* In the tech sector, Hewlett-Packard plummeted on expectations of weaker near-term earnings. And Microsoft lost $1.50 to $90.88 on fears it may delay shipments of its Windows 2000 operating system, now slated to debut in February.
Also, EBay tumbled $13.31 to $138.69 after its earnings report, dragging most Net stocks lower.
But Cisco Systems gained $1.94 to $69.19, and Sun Microsystems added $1.38 to $92.63.
Market Roundup, C8
