Stocks follow bond gains Dow up 10.13

May 26, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rose as bonds gained on the strength of falling commodity prices and strong demand for an $11 billion auction of five-year Treasury notes.

"The bond market turned around and the stock market did the same," said Paul Hennessey, head of equities trading at Boston Co. As bond prices rise, their yields fall, so stocks become relatively more attractive.

The Dow Jones industrial average closed up 10.13, at 3,755.30, after falling as much as 23.94. Shares of Walt Disney Co., Aluminum Co. of America United Technologies Corp., Bethlehem Steel Corp. and International Paper Co. paced the advance.

Among broader market indexes, the S&P 500 rose 1.52, to 456.33, after falling as much as 2.61. Shares of retailers, health care, electric utilities and computer companies led the advance.

The Nasdaq composite index, down as much as 3.96, rose 0.60, to 732.07. Gains in Microsoft Corp., MCI Communications Corp., Lin Broadcasting Corp., Cisco Systems Inc. and Nextel Communications Inc. contributed to the advance.

U.S. stocks fell in early trading as bonds declined and European stock markets tumbled. Overseas stocks fell and interest rates rose after a Bundesbank official said Germany needs to be cautious about cutting rates further.

Higher rates in Europe "put pressure on the dollar, and that's the real problem," for U.S. securities, said William Lord, vice president of equity trading at UBS Securities Inc. A weak dollar makes U.S. securities less attractive to overseas investors.

Advancing stocks narrowly outpaced declining issues on the New York Stock Exchange, by an 11-to-10 margin. Trading was slow, with more than 254 million shares changing hands, below the three-month daily average of 297.88.

U.S. bonds rebounded after the Treasury Department completed its auction of five-year notes. The auction met with greater-than-expected demand, which kept yields on the new securities lower.

Meanwhile, the Commodity Research Bureau's index of 21 key futures prices fell 3.10 yesterday, to 231.59. On Tuesday, the CRB fell 3.67, to 234.69, after rising 4.67 on Monday to 238.36, its highest point since October 1990.

"The rally in commodities has been speculative, and I don't think these prices are going to hold up," said Richard Eakle, director of research at Eakle Associates in Fair Haven, N.J.

Commodities prices are an indicator of inflation, which diminishes the value of fixed-income securities. In addition, accelerating inflation typically leads to higher interest rates, which eventually slow the economy and crimp corporate profits.

Apart from Europe and the bond market, stock investors focused on Philip Morris Cos. Inc. yesterday, which is one of the 30 Dow industrials. The company's board met all day, considering whether to split its food and tobacco businesses into separate companies. The stock never traded, pending an announcement of the board's decision.

That announcement came just after trading ended at 4 p.m. The board decided against splitting the businesses.

That's probably not going to help Philip Morris today, said Gerald Simmons, manager of institutional trading at Interstate/Johnson Lane Inc. He called it "more disconcerting news" for a market "not in the mood to accept anything but sterling news."

And without a split, said Arthur Micheletti, investment strategist at Bailard Biehl & Kaiser in San Mateo, Calif., Philip Morris's stock is going to continue to suffer from the threat of liability lawsuits related to smoking and disease. "That will happen forever until the split-off of tobacco," he said.

Exploration Co. of Louisiana, Gtech Holdings Corp., Microsoft, Telecommunications Inc. and Novell Inc. were the five most actively traded stocks in U.S. composite trading.

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