Stocks surge as bond yields hit record low

WALL STREET

June 29, 1993|By Bloomberg Business News

NEW YORK -- Stocks closed sharply higher yesterday as Treasury bonds rose for the ninth straight session, dropping yields to another record low.

The Dow Jones industrial average soared 39.31 points, or 1.13 percent, to 3,530.20. The Dow is now 0.7 percent below its record closing high of 3,554.83, set May 27.

Advancing common stocks on the New York Stock Exchange swamped declining issues by a margin of 13-to-5. Trading was moderately active, with about 242 million shares changing hands.

Banking and other financial stocks paced the market's rise, amid expectations that such companies will benefit from lower interest rates.

"There's an overwhelming sentiment that the market's going to a new high, and people feel the interest-sensitive stocks are going to lead the way," said Thomas Gallagher, managing director in equity trading at Oppenheimer & Co.

The Standard & Poor's 500 Index surged 4.25, to 451.85. The Nasdaq Combined Composite Index soared 8.03, to 702.84. Meanwhile, a rally in depressed trucking and airline shares lifted the Dow Jones transportation average 23.53 points, to 1,533.11.

Lower interest rates make equities attractive relative to fixed-income investments. Low rates also benefit banks and other institutions that borrow short-term money and lend long-term money, and they increase underwriting fees for securities firms by encouraging sales of stocks and bonds.

NationsBank jumped $1.375, to $50; Norwest Corp. gained $2.125, to $54.125; First Interstate Bancorp soared $3.25, to $64; and Wells Fargo & Co. surged $4, to $111.125.

Treasury bonds rallied for the ninth straight session amid perceptions that economic growth remains sluggish, thus easing pressure on the Federal Reserve Board to raise interest rates to combat inflation.

The 30-year Treasury bond gained 3/8, dropping the yield to a record closing low of 6.67 percent, down 3 basis points and breaking the old closing low of 6.7 percent, set Friday. The yield ++ was just shy of the record session low of 6.65 percent, set March 8.

Stocks and bonds alike got a boost from optimism that President Clinton's plan to cut the federal budget deficit by about $500 billion over five years was making its way through Congress. The Senate passed the bill Friday, clearing the way for a House-Senate conference to reconcile the different versions of the bill after the July 4 recess.

The stock market opened on a bullish note after strength in Japanese and European markets, said Alan Ackerman, executive vice president at Reich & Co. Overnight, Japan's Nikkei 225 Index jumped 227.19, to 19,886.76, amid expectations that Japan would lower interest rates to halt the yen's rise.

The stock market was also buoyed by the surge of demand that often accompanies the end of a quarter. "With [yields on] bonds down at all-time lows, institutions don't want to get caught with too much cash," said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co. "They're paid to invest it."

Stocks in communications equipment, drugs and diversified health care fell the most yesterday. Drug stocks have been losing market value since early 1992 amid fears that increased government regulation will squeeze profits.

Meanwhile, defense stocks rallied, and Mr. Clinton's popularity rose, after last weekend's U.S. missile attack against Iraq.

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