Dow up 14.80 on producer price report

October 14, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday for the fourth session in five after a report showed wholesale prices unexpectedly fell in September, easing concern that rising inflation will push interest rates higher and damage corporate profits.

Among the stocks posting the largest gains were Monsanto Co., B. F. Goodrich Co. and First Interstate Bancorp -- a combination of stocks that are most sensitive to economic growth and those that react to swings in rates.

"Inflation doesn't appear to be the problem everybody thought it was imminently; therefore the economy can sustain itself through next year and beyond, which makes next year's earnings look much more realizable," said David Hunter, chief investment officer at Schaenen Wood & Associates.

The Dow Jones industrial average rose 14.80, or 0.38 percent, to 3,889.95 after soaring 52.48 in the first 15 minutes of trading, the second time this week a gain of more than 50 points triggered limits on computer-guided trading.

Aluminum Co. of America, Procter & Gamble Co. and Goodyear Tire & Rubber Co. led the advance.

As anxiety about a rapid pickup in prices subsided, stocks moved up amid optimism about corporate profits. Prices retreated late in the day amid pessimism about the strength of the latest rally.

In the broader market, the Standard & Poor's 500 index added 2.32, or 0.5 percent, to 467.79, after briefly gaining as much as 5.83.

The Dow Jones utilities average added 1.91, to 182.11, a five-week high.

The Nasdaq combined composite index edged up 0.89, or 0.12 percent, to 767.89, its fifth straight advance, after rising as much as 7.74.

Microsoft Corp., MCI Communications Corp., Cisco Systems Inc. and U.S. Healthcare Inc. all rose.

More than 13 stocks gained for every nine that fell on the New York Stock Exchange, where volume surged to 337 million shares from 270 million Wednesday.

By dampening inflationary expectations, the producer price report "is an excuse for the Federal Reserve not to do anything" to raise rates before November's election, said Kenneth Ducey, head of trading at BT Brokerage, a unit of Bankers Trust New York Corp.

Today the Labor Department reports September's consumer price index, with economists expecting a 0.2 percent gain, down from 0.3 percent in August. The Federal Reserve also releases the monthly capacity utilization report today.

Stocks surged after the Labor Department said producer prices fell 0.5 percent last month, the largest drop since August 1993 and far below last month's 0.6 percent increase and economists' forecast this month of a 0.1 percent rise.

Yields on the benchmark 30-year Treasury bond dropped as low as 7.76 percent in reaction to the report and ended at 7.85 percent, down from 7.90 percent Wednesday.

Favorable inflation news came against a backdrop of robust third-quarter corporate earnings. Of the 76 companies in the S&P 500 that have reported, 46 percent were above analysts' expectations, compared with 33 percent below.

"The earnings side of the equation is in superb shape," said Philip Orlando, portfolio manager at First Capital Advisers.

Earnings have underpinned the stock market's recent rise, and "most of them have been fairly favorable," said Patrick Davis, head of over-the-counter trading at Salomon Bros. Inc.

Among yesterday's largest gainers were Altera Corp., Hasbro Inc. and Champion International Corp., all of which reported better-than-expected profits.

Altera Corp. led gains among technology stocks, surging $5.525, to $33.625. The maker of programmable logic devices, semiconductors that can be reprogrammed, earned 40 cents a share in the third quarter, up from 30 cents last year.

Analysts expected earnings of 39 cents.

Caere Corp. climbed $2.50, to $13. The computer software company earned 15 cents a share in the third quarter compared with a loss of 15 cents a year ago. Analysts surveyed by Institutional Brokers Estimate System forecast Caere would earn cents a share.

Xilinx Inc. jumped $2.75, to $56.25. The semiconductor maker posted operating earnings of 55 cents a share in the fiscal second quarter, up from 40 cents a year ago and analysts' estimate of 50 cents.

Hasbro Inc. spurted $1.25, to $30.25. The maker of "Monopoly" and other board games and toys earned 85 cents a share in the third quarter, up from 84 cents a year ago and analysts' forecast of 77 cents.

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