Stocks mixed as economic gains offset higher rates

December 01, 1993|By Bloomberg Business News

NEW YORK -- Stocks closed mixed yesterday as a rebound in oil stocks and reports of growing economic strength offset the negative effects of higher interest rates.

Stocks rallied after the Conference Board said its consumer confidence index jumped well above economists' expectations, to 71.2, from a revised 60.5 in October. Separately, the Chicago Purchasing Managers index of manufacturing conditions rose to 65.3 in November, from 57 in October.

A rally in oil stocks pushed the Dow Jones industrial average up 6.15 points, to 3,683.95. Goodyear Tire & Rubber Co., Chevron Corp. and Exxon Corp. led the Dow higher.

Among broader market indexes, the Standard & Poor's 500 Index fell 0.11, to 461.79. The Nasdaq Combined Composite Index of smaller stocks rose 2.85, to 754.39.

Declining stocks exceeded advancing issues by a margin of BTC about 9-to-8 on the New York Stock Exchange. Volume was a heavy 290 million shares. On the Nasdaq, advancing stocks slightly outpaced declining issues.

Yesterday's strong economic reports confirmed that "the economy is likely to show a pretty heady rate of growth, somewhere north of 4 percent, fueled especially by purchases of consumer durables like appliances and cars" in the fourth quarter, said Timothy Connors, managing director at CoreStates Investment Advisers in Philadelphia.

"But in the big scheme of things, that will turn out to be a blip," he said, predicting that growth will slow to 2.5 percent to 3 percent next year. In addition, a Washington Post article quoted an unidentified Clinton administration official as saying that the unemployment rate could drop to 5.8 percent next year, from its current 6.8 percent. Bond prices tumbled amid concern that rapid growth threatened to boost inflation and interest rates.

Long-term interest rates, as reflected by the 30-year Treasury bond, rose as high as 6.32 percent yesterday before settling at 6.30 percent, up from 6.23 percent Monday.

Stocks moved higher yesterday after early losses in part because mutual funds have "so much money coming in over the transom, they have to put it to work," said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co. "People didn't" invest in mutual funds "to earn 2 percent," he said.

The Investment Company Institute said Monday that sales of stock mutual funds totaled $21 billion in October, up 12 percent from $18.7 billion in September.

Another encouraging sign for the stock market was the drop in the number and size of initial public offerings, said Richard Ciardullo, head trader at Eagle Asset Management in St. Petersburg, Fla. "You're starting to see [IPOs] pull back," he said. "The size of the offerings is falling, and it's getting a lot tougher to make money in that area."

Fewer IPOs and secondary offerings means less competition for institutional investors' cash, Mr. Ciardullo said.

Goodyear Tire & Rubber Co., the biggest gainer in the Dow, jumped $2.125, to $44.50. CS First Boston repeated a "buy" recommendation on the stock and said it expected the stock to rise to $52.

Among oil stocks that rebounded yesterday, Chevron Corp. was up $1.25, to $86.875; Royal Dutch Petroleum was ahead $1.50, to $101; Exxon Corp. gained 87.5 cents, to $62.75; Atlantic Richfield Co. was up 75 cents, to $103.75; and Mobil Corp. was up $1.375, to $76.375.

Chevron pays investors a 4 percent dividend yield and is expected to boost earnings 10 percent annually "for a number of years," Mr. Connors of CoreStates said. Mobil and Royal Dutch ** were upgraded to "outperform," from "neutral," at Smith Barney Shearson.

West Texas crude oil for January delivery gained 12 cents yesterday, to $15.43 a barrel, after having risen as high as $15.65 earlier.

Western Publishing Group Inc. climbed $5.50, to $18. The New York-based publisher said it had been approached by several companies about an unspecified "business combination." The company hired Bear Stearns and Morgan Stanley as advisers.

Dell Computer Corp. rose $3, to $27.125. The personal-computer company's third-quarter profit fell to 26 cents a share, from 72 cents, in the year-ago quarter, exceeding analysts' forecast of a 2-cents loss.

Primadonna Resorts Inc. was up $1.25, to $28, and MGM Grand Inc. rose $1.625, to $38.25, after Smith Barney Shearson raised the two stocks to "buys." International Game Technology gained $1.375, to $30.375, after it received an "outperform" rating from Smith Barney Shearson.

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