Dow up 4 as interest rate worries ease 30-year bond yield dips to 6.19 percent

WALL STREET

November 09, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks advanced yesterday, continuing Friday's rebound, as investors grew less concerned that inflation would reemerge and force the Federal Reserve to lift short-term rates, money managers said.

Stocks and bonds fell last week when evidence of faster economic growth fueled concern that inflation and interest rates might rise, making stocks less attractive compared to bonds.

However, economic growth is unlikely to get out of hand, said Edwin Walczak, chief investment officer at Vontobel U.S.A. Inc.

Given the scheduled rise in taxes next year, "I wouldn't be surprised to see this wind at our back cool a bit," Mr. Walczak said. "In 1994, you have a tax increase coming that will reduce real disposable income, and consumers are two-thirds of the economy."

Declines yesterday in the prices of gold and crude oil, which fell to a three-year low, also showed that inflation remained dormant, traders said.

The Dow Jones industrial average rose 4.47, to 3,647.9, its second straight advance, led by Caterpillar Inc., Procter & Gamble Co. and Eastman Kodak Co.

The Standard & Poor's 500 Index rose for a second day, gaining 0.64, to 460.21. Retail, automobile, household products, insurance and food stocks led the day's advance.

The Nasdaq Combined Composite Index rose 3.22, to 766.21, driven by gains in Oracle Systems Corp., U.S. Healthcare Inc., Medco Containment Services Inc., Applied Materials Inc. and Snapple Beverage Corp. The index gained 5.72 points Friday.

On the American Stock Exchange the market value index rose 1.27, to 476.60.

Volume on the New York Stock Exchange totaled 234.3 million shares, the lowest since Oct. 11 and down from 331 million Friday. Almost five stocks advanced on the Big Board for every four that fell.

This morning's report on producer prices and the announcement tomorrow of the Consumer Price Index, both for October, will set the stock market's tone this week, said Peter Cardillo, research director at Westfalia Investments.

"The key here is to convince investors in the market that inflation is not a problem," and this week's reports are likely to confirm that, Mr. Cardillo said. "The market is going through some turbulence because of weakness in the bond market," but "inflation fear is being overstated."

"I don't think the Fed is going to raise rates right away," said Anthony Conroy, managing director for equities at Mabon Securities. "Things aren't that bad," he said. Inflation is a problem "if you see the housing sector really fly, but that's not even happening with rates at 6 percent."

Economists expect producer prices rose 0.3 percent in October, up from 0.2 percent in September, according to a Bloomberg Business News survey. Consumer prices are forecast to have risen 0.4 percent in October after having been unchanged in September.

Stocks got a boost yesterday as interest rates steadied. "Some of the interest-rate scare that existed last week is beginning to subside a bit," said Alan Ackerman, executive vice president at Reich & Co.

Long-term interest rates, as reflected in the yield on the 30-year Treasury bond, fell 2 basis points, or hundredths of a percentage point, to 6.19 percent, after rising as high as 6.24 percent. The yield was 6.21 percent Friday. Other Treasury bonds gained amid speculation that this week's reports would show stable inflation. Long-term interest rates have risen after reaching a low of 5.77 percent Oct. 15.

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