Stocks rise on bond rally Dow up 7.83

WALL STREET

September 04, 1993|By Bloomberg Business News

NEW YORK -- Stocks closed modestly higher yesterday, as a report that showed the economy lost jobs in August drove long-term interest rates down to a record-low closing of 5.94 percent.

"I think the chances for the Fed to have another round of easing have gone up because of the employment numbers," said David McHugh, a money manager at Northern Investment Counselors. "People are probably a little more confident about putting money to work in stocks and bonds."

The impact of the historic decline in rates was subdued because many investors and traders were on vacation or left early for the three-day weekend. U.S. markets will be closed Monday for Labor Day.

The Dow Jones industrial average rose 7.83 points, to 3,633.93.

The Standard & Poor's 500 Index gained 0.03, to 461.33, ending below its record close of 463.56 on Aug. 31.

The Nasdaq Combined Composite Index and the American Stock Exchange Market Value Index both surpassed record highs set Thursday. The Nasdaq climbed 2.5, to a record 748.65, and the Amex index gained 0.29, to 461.57.

Advancing stocks on the New York Stock Exchange exceeded declining issues by a margin of 8-to-7. The session was one of the lightest of the year, with only about 197 million shares changing hands, the fewest since 191 million shares traded on Aug. 30.

The yield on the 30-year Treasury bond dropped as low as 5.93 percent, below the previous low of 6.03 percent set Tuesday. The bond market closed early, at 1 p.m. EDT.

Bond yields tumbled after a Labor Department report showed that the economy lost 39,000 jobs last month, defying expectations of a gain of 145,000 jobs.

Still, the unemployment rate dipped to 6.7 percent, from 6.8 percent in July.

Encouraged by low rates, "people continue to funnel money into the equity market," said Ronald Doran, head of institutional trading at C.L. King & Associates Inc.

Low rates spur economic activity, partly by making it cheaper for companies to finance expansion. Low rates also encourage investors to take savings out of bank accounts and invest in stocks and bonds.

"A lot of people were really impressed with the recent strength in the long Treasury bond," said Mr. McHugh of Northern Investment. "It went from 6.5 percent to below 6 percent pretty fast. But I don't know how much stock I would take in today's activity. It's sort of a do-nothing day."

The stock market shook off early weakness prompted by pessimism about the economy. "It's a toss-up as to whether interest rates are so low that people start pouring into the [stock] market, or whether the economy is so weak that it starts to concern people," said Barry Berman, head trader at Robert W. Baird & Co. in Milwaukee.

Mr. McHugh said stocks' price-earnings ratios were already relatively high.

"The market is trying to bide time and let earnings catch up to stock prices," he said.

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