Stocks hit new highs amid hope of continued low interest rates

August 10, 1993|By Bloomberg Business News

U.S. stocks surged to records yesterday amid optimism that the passage of President Clinton's deficit-reduction program will keep long-term interest rates low.

The low rates, in turn, will lead to a longer economic recovery, cut the cost of financing for companies, and lead investors to seek out higher returns in stocks instead of cash holdings, analysts and money managers say.

Investors voted yesterday "on what they thought of the Clinton tax plan," said Robert Stovall, president of Stovall/Twenty-First Advisors.

"The market's headed upward;we could have an explosive summer rally starting," Mr. Stovall said.

Stocks also got a boost as the British stock market, the world's third largest, closed at a record high.

The Dow Jones Industrial Average and the Nasdaq Composite index both hit records yesterday.

The Dow, led by Chevron Corp., Eastman Kodak Co. and General Motors Corp., closed 15.65 higher at 3,576.08, breaking the record set July 26. At one stage, the index jumped 24.59 points to 3,585.02. Advancing common stocks led decliners by 10-to-7.

The Nasdaq Composite ended at a fourth consecutive high of 718.49, up 0.41, after once rallying 2.87 points to 720.95.

The Standard & Poor's 500 index was ahead 2.03 points at bTC still below its March 10 high of 456.34.

Rates declined as investors bet that the budget's combination of higher taxes and cuts in federal spending will stall economic growth, traders and analysts said.

The president's five-year, $496 billion budget package means "savers and investors as a class are under attack," yet many investors believe "we do have a [budget] bill, and we do have plan and maybe we can get down to business," Mr. Stovall said.

A slide in rates typically leads investors to move funds from low-yielding fixed-income instruments into the stock market, in hopes of higher returns.

And with interest rates low, and apparently in little danger of rising, "people are now thinking this recovery can go on through 1996, and they're putting a little more longevity on it," said Dudley Eppel, manager of equity trading at Donaldson, Lufkin & Jenrette.

The decline in interest rates came amid a rise in gold prices, traditionally a barometer of inflation concerns. Gold rose $6.90 an ounce to $386.80.

"I think you'll see the low interest rates send the Dow Jones Industrial Average to the 3,700 level over the next few weeks," said Peter Cardillo, research director at Westfalia Investments.

Trading was active as about 232 million shares changed hands on the Big Board.

Chrysler Corp. rose $1.25 to $43.25, Ford Motor Co. added 62.5 cents to $52.25, and GM advanced $1 to $48.75.

Among transports, Federal Express Corp. climbed $2 to $56, and UAL Corp. rose $1.50 to $146.75.

Kodak's stock rose $1.25 to $59.875 after the company's board ousted Chairman and Chief Executive Kay Whitmore on Friday.

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