Easing of inflation fears lifts market

WALL STREET

August 14, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks ended slightly higher yesterday, led by gains in Du Pont and other chemical shares, as the July consumer price report provided more evidence that inflation was in check.

"We have the best of all circumstances -- a benign inflation picture and no incentive for the Federal Reserve Board to tighten" credit by raising interest rates, said Richard Eakle, president of Eakle Associates, a Fair Haven, N.J., money manager with $35 million in assets.

The Dow Jones industrial average rose 0.56 to 3,569.65 with help from Du Pont, whose shares gained $1.50, to $48.125, after the company settled a lawsuit over its Benlate fungicide.

Standard & Poor's 500 index increased 1.18, to 450.14. Chemical, drug and telephone stocks paced the advance; the S&P chemical index rose 4.55, to 201.52.

The New York Stock Exchange Composite index advanced 0.53 to 249.70. The Nasdaq Composite index gained 1.14 to 718.26 though Cisco Systems Inc. -- which said profit margins fell in its fiscal fourth-quarter as net income rose to 41 cents from 21 cents last year -- fell $3.875, to $53.125.

Treasury bonds climbed after the Labor Department said consumer prices last month rose 0.1 percent, better than economists' forecast of a 0.2 percent rise. That sent the yield on the benchmark 30-year Treasury bond to 6.31 percent in early trading, down from 6.37 percent Thursday. The yield stood at 6.35 percent late yesterday.

Lower long-term rates fuel investor optimism about the length of the economic recovery and companies' ability to get low-cost financing and to boost profits.

Lower interest rates also make bank deposits look less attractive compared with equities.

Yesterday's equity gains were limited by "the other side of the argument, which is that [interest rates] can't get down much further," said Bill Langevin, manager of institutional trading at Morgan Keegan & Co. in Memphis, Tenn.

Barry Berman, head trader at Robert W. Baird & Co. in Milwaukee, said many investors were more concerned about the weakness of the economy than rising inflation.

Some investors think the Clinton administration's deficit-reduction package and planned health care reforms would slow growth.

"There's still overhanging concern about the budget deficit and the [budget] package that was passed, and how it will affect the economy," Mr. Berman said.

Mr. Eakle, the New Jersey money manager, said he believes "the market is getting ready for a much more explosive rally" during the next few months. "What's on the horizon to make the market go lower?"

Mr. Eakle is also optimistic because the number of stocks advancing and hitting 52-week highs each week is accelerating, and the Dow Jones Utilities Average, S&P Financials index, and Russell 2000 and Wilshire 5000 indexes have all hit new highs in the past 10 days.

In yesterday's trading, advancing common stocks outnumbered decliners 8 to 7 on the New York Stock Exchange. Volume was moderate at 214.3 million shares.

The Morgan Stanley Cyclical index of 30 stocks rose 1.19 to a record high of 280.19, eclipsing a record set Wednesday. The Morgan Stanley Consumer stock index gained 0.54 to 182.48.

Du Pont shares advanced amid optimism about the outcome of about 500 similar lawsuits the company faces in connection with Benlate. In a case settled for $4.25 million Thursday, little evidence supported the claim that Benlate caused damage to crops, said S. G. Warburg analyst Paul Raman.

Other chemical stocks also rallied. Monsanto Corp. climbed $2.50, to $62.375, Dow Chemical Co. rose $1.25, to $59.375, and Hercules Inc. advanced 87.5 cents, to $84.

Auto stocks weakened as General Motors Corp. reported a 1 percent rise in early August car sales and Ford Motor Co. said sales rose 0.8 percent.

GM's stock fell $1.75, to $45.75, while Ford dropped 50 cents, to $51.875.

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