Bond price rally lifts Dow 57 points

April 26, 1994|By New York Times News Service

NEW YORK -- In a surprising show of vigor, traders bid up stocks yesterday in response to a sharp drop in interest rates and better-than-expected earnings for companies whose stocks are in the Dow Jones industrial average.

The Dow rose 57.10 points, to 3,705.78, and the broader Standard & Poor's 500-stock index rose 5.08 points, to 452.71. The smaller-company Nasdaq composite index rose 8.24 points, to 730.80.

Yesterday's stock rally was closely tied to strength in the bond market. The yield on the benchmark 30-year Treasury bond dropped to 7.15 percent, down from 7.22 percent Friday.

Moreover, looking to this week's economic reports -- wage statistics due out today, durable-goods figures tomorrow and gross domestic product data Thursday -- some analysts were saying that if the numbers encouraged a continuation of a rally in bond prices, then stocks might also show further gains.

Still, analysts were quick to point out that trading volumes in both the stock and bond markets were below normal yesterday, and price swings thus tended to be exaggerated. Volume on the New York Stock Exchange was 263.6 million shares, or more than 13 percent below this year's daily average of 305 million shares.

Many stock and bond traders did stay on the sidelines yesterday, made even more cautious by the closing of financial markets tomorrow to observe a day of mourning for former President Richard M. Nixon.

That means the markets will be unable to react immediately to the report on durable-goods orders for March. The data will be closely watched for any signs that higher interest rates are curbing demand for durable goods, which are relatively expensive items like furniture and appliances that are often bought on credit.

Yesterday's gain was one of the largest for the Dow this year and the third sizable surge this month. There was an 82-point climb on April 5, in response to a bond rally and hopes that quarterly earnings reports would be strong, and there was a jump of 54 points last Thursday, following gains in the bond market and higher-than-expected profits from IBM.

As for the bond market, some analysts said that if the economic reports this week were encouraging, the yield on the benchmark 30-year bond could fall to 7 percent.

But why the bond market rose yesterday remained a mystery to some traders.

Christopher J. Madell, head of government bond trading at First Chicago Capital Markets Inc., said, "Part of the problem I have with this market is that people always gather around at the end of the day and say, 'Now why did we do what we just did?' "

Kathleen M. Camilli, chief bond economist at Maria Fiorini Ramirez, an economic consulting firm, said managers of bond funds had probably sold off too many of their assets in anticipation of a rush of mutual fund redemptions. Since that has not happened to a great extent, they now have a sizable amount of cash, which they can use to buy bonds.

Industry estimates are that the cash portion of fixed-income fund assets is now 12 percent, up from 5 percent in January, she said.

Advancing stocks outnumbered those declining by 1,552 to 663.

The market was given an early lift by relatively strong earnings for Du Pont Co., Goodyear Tire, Boeing and Texaco.

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