Slide in rates nudges stocks upward

WALL STREET

August 31, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks gained yesterday as the market generated strength from a slide in long-term interest rates and a rally in telephone issues.

The Dow Jones industrial average withstood a late bout of computer-driven sell orders and ended a two-session losing streak when it closed 3.36 higher at 3,643.99. The average sits just below its record close of 3,652.09, which was set last Wednesday.

Meantime, the broader market averages set records. The Standard & Poor's 500 Index increased 1.36 to an all-time high of 461.90, and the Nasdaq Combined Composite Index surged 3.31 to an all-time high of 737.38. The American Stock Exchange Market Value Index rose 1.28 to a record 456.27.

Trading was the lightest this year as 194 million shares changed hands on the NYSE.

"It's the last week in August, so that means there are a lot of people at the beach," said Cummins Catherwood, a managing director at Rutherford, Brown & Catherwood Inc. in Philadelphia.

Telephone stocks continued to rally on expectations of higher sales resulting from a federal judge's decision to reject a legal restriction that prohibited local telephone companies from offering cable service in areas where they provide phone service.

Bell Atlantic Corp. rose $2.125, to $63.25, BellSouth Corp. advanced $1.25, to $58.25, Nynex Corp. gained $1.875, to $91.25, and Pacific Telesis Group increased $1, to $54.375.

The stock market generated some buying power from a dip in interest rates, analysts said. Interest rates fell on a report that new-home sales fell 5 percent last month.

"Rates are low because the economy is weak," said James McGonigle, senior vice president at Jamison, Eaton & Wood Inc., which manages about $500 million in equities. "Right now, low rates are buoying the stock market, but if the economy stays weak, sooner or later, this market is going to crack."

The yield on the 30-year Treasury bond is just above 6.09 percent, the lowest level since the government started selling 30-year bonds regularly in 1977. When interest rates fall, the return on stocks becomes more attractive relative to fixed-income securities.

"The housing report sure isn't good news for the economy, but bond rates are down and they continue to give the stock market a boost," said Hugh Johnson, investment strategist at First Albany Corp.

Analysts said stock prices would probably decline later in the week as investors focus on the release of more economic reports and concern that long-term interest rates weren't likely to move much lower.

"I think we'll see the Dow industrials fall to 3,600 this week on doubts about the bond market's ability to go much higher and general concern about the economy," said William Raftery, market analyst at Smith Barney Shearson Inc.

The stock market will be hit this week by a flood of economic reports indicating the strength of consumer confidence, manufacturing activity, factory orders and employment.

"There are a lot of worries out there about the economy, and some of those concerns will be answered this week with the release of economic reports," said Don Hays, director of investment strategy at Wheat First Butcher & Singer.

Advancing common stocks outnumbered declining issues by about 3 to 2 on the New York Stock Exchange. Telephone, semiconductor and health care issues led the market's advance.

Tele-Communications Inc., National Medical Enterprises Inc., MCI Communications Corp., Lotus Development Corp., and Cisco Systems Inc. were the five most actively traded issues on the U.S. Composite.

Lotus Development surged $2.50, to $33.50, after the computer software company was added to the "recommended" list at Donaldson, Lufkin & Jenrette Inc.

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