Stocks Advance; Experts Point to Widening Rally
A sudden rally in the bond market Thursday helped underpin the stock market, though tech shares benefited more than many blue chips.
Meanwhile, analysts are pointing to the action in the market as a whole in recent weeks as highly encouraging, as buying interest has broadened to include more stock sectors.
Thursday, the technology-dominated Nasdaq composite index led the market, rising 75.27 points, or 1.8%, to 4,174.86, highest since April 10.
The Dow industrials inched up just 5.30 points to 10,788.71, after gaining a net 300 points in the previous four sessions.
In the last seven weeks--and particularly in the last three--the number of stocks rising in price on the New York Stock Exchange each day has consistently outpaced the number falling.
Such improving breadth, as it’s known on Wall Street, is considered very bullish.
In 1999, while the Nasdaq index posted a fantastic 86% gain, it was driven by relatively few big-name tech stocks. The majority of NYSE stocks actually fell in price last year.
In the tech sector, breadth improved in the fourth quarter when shares of a wide range of small and mid-size firms began rocketing. In the broad market, however, breadth remained weak into spring.
But since mid-May, a big part of the recovery in key market indexes from their spring lows has been a sharp improvement in breadth, as buyers have sought a wider variety of stocks, including drug shares, health maintenance organization shares, brokerage issues and airlines.
The improved breadth also reflects that more investors have become enamored of stocks of small and mid-size companies this year, including but not limited to smaller tech issues.
Whereas large companies were long prized for their ability to generate steady profit growth, Wall Street is betting that smaller companies in rapidly growing markets can grow much faster in the next few years, said John Bollinger, a well-known technical market analyst and president of EquityTrader.com in Los Angeles.
“Investors really ought to be taking the message that smaller is better,” Bollinger said. “This is going to be a multiyear phenomenon. This is a real sea change.”
Since the market bottomed in late May, the Standard & Poor’s index of 600 smaller stocks has risen 14.7%, and the S&P; mid-cap 400 index is up 13.1%. The blue-chip S&P; 500, by contrast, has tacked on 8.9%.
Year-to-date, mid-cap stocks lead the pack with a 15.8% gain, versus a mere 1.8% for the S&P.;
“You’ve got some strength under the surface,” said Michael Kahn, chief technical analyst for BridgeNews.
Among Thursday’s highlights:
* Long-term Treasury bond yields fell sharply after a report showed a rise in jobless claims and the Federal Reserve bought Treasuries in two rounds of purchases.
The 30-year T-bond fell to 5.81%, a three-month low, from 5.88%. But shorter-term yields didn’t decline as much.
* Many brokerage stocks continued to climb in the wake of PaineWebber’s agreement Wednesday to merge with Switzerland’s UBS. Merrill Lynch jumped $2.94 to $134.50, Goldman Sachs rose $2.31 to $104.25 and Morgan Stanley Dean Witter added 88 cents to $96.38, all on the NYSE.
PaineWebber rose $1.66 to $68.53 as UBS rose $7.06 to $142.25.
* Drug stocks slid in profit taking after recent strong gains. Merck fell $4.27 to $69.13 and Schering-Plough lost $3.94 to $44.50, both on NYSE.
* Tyco surged $3.94 to $51.94. The firm said the Securities and Exchange Commission ended a probe of its accounting practices.
In foreign trading, Brazil’s main index slumped 3.6% on continuing worries about a political scandal.
Market Roundup, C7-8
