Dow sets record high on belief rates won't rise soon

January 28, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks surged to record levels yesterday amid renewed confidence that interest rates will not rise any time soon.

Utility stocks climbed as interest rates fell for a second day. Telephone, automobile, retail and financial issues also advanced.

The Dow Jones industrial average and the Standard & Poor's 500 stock index hit record highs, helped by strong earnings reports from American Telephone & Telegraph Co., Du Pont Co., Coca-Cola Co. and Salomon Inc.

"The bottom line is it looks like rates will remain low," said Thom Brown, managing director at Rutherford, Brown & Catherwood Inc.

Low interest rates are good for the stock market because they can induce investors to buy stocks instead of lower-yielding fixed-income securities.

The Dow Jones industrial average jumped for a second day, rising 18.30 points, to 3,926.30, breaking the previous high of 3,914.48, set Jan. 21. The Dow's rise followed comments Wednesday by John LaWare, a Federal Reserve Board governor, who said inflation is not accelerating. His remarks made it appear less likely that the Fed will soon raise interest rates.

The Dow was driven higher by gains in Caterpillar Inc., up $2.25, to $101.50; General Electric Co., up $1.75, to $108.25; and General Motors Corp., up $1.25, to $59.875.

In the broader market, the Standard & Poor's 500 Index climbed 3.85, to 477.05, topping a Jan. 10 peak of 475.27. Nearly 11 common stocks rose for every seven that fell on the New York Stock Exchange. Trading was active, with about 346 million shares changing hands.

The Nasdaq Combined Composite Index gained 4.08, to 792.88, just below a Jan. 21 record of 794.29, led by Intel Corp., U.S. Healthcare Inc., Sun Microsystems Inc. and McCaw Cellular Communications.

Long-term interest rates, as reflected in the yield on the 30-year Treasury bond, slid to 6.26 percent, down from 6.30 percent Wednesday, even though the Commerce Department reported that orders to U.S. factories for durable goods rose 2.2 percent in December. Economists had forecast that orders would increase only 1.5 percent.

In addition, the Labor Department reported that 56,000 fewer Americans filed first-time claims for unemployment benefits last week.

"The economic news that came out this morning was certainly positive, yet bonds seemed to just take it in stride," said Edward Collins, executive vice president for institutional trading at Daiwa Securities America.

Bondholders dislike reports of rapid economic growth, which can signal more inflation, which, in turn, erodes the value of their fixed-income investments.

Analysts said that yesterday's reports were downplayed because traders were looking ahead to today's release of the fourth-quarter gross domestic product.

This month's cold weather in much of the country is likely to translate into slower economic growth in the first quarter, allowing for lower interest rates, investors said.

The Dow Jones utilities average, often used as an interest-rate barometer, closed up 4.15, to 225.61, its highest level since Jan. 4. Utilities got a lift from cold weather and expectations of stronger earnings.

The utility average has rebounded since Monday, when it reached its lowest level in more than a year.

Utilities "are widely viewed as a leading indicator of interest rates, and therefore the wider market," said Joseph McAlinden, market strategist at Dillon Read & Co. "What's happening in part in the mainstream equity indexes is being driven by the move we've seen in the utility indexes."

Among utilities, Houston Industries Inc. rose $1.125, to $45.375; Niagara Mohawk Power Corp. gained 87.5 cents, to $20.25; PECO Energy Co., formerly Philadelphia Electric, added 87.5 cents, to $29; and Consolidated Natural Gas Co. rose 75 cents, to $45.625.

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