Technology stocks, lower bond yields propel market gain

November 09, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks, led by technology companies and the first decline in bond yields in more than a week, climbed yesterday amid expectations that Republican gains in mid-term elections will lead to a more pro-business Congress.

Telephone, computer hardware and software and electrical equipment stocks surged as yields on benchmark 30-year Treasury bonds fell to 8.12 percent yesterday from 8.16 percent Monday, when yields reached their highest point since August 1991.

For now, investors' optimism about the election outweighed concern about rising interest rates.

"People are getting caught up in the Republican euphoria," amid signs the Democrats may lose control of both houses of Congress for the first time in 40 years, said Guy Truicko, equity portfolio manager at Unity Management of Lake Success, N.Y.

The Dow Jones industrial average climbed as high as 3,846.55 before closing at 3,830.74, up 21.87, or 0.57 percent. Gains in Walt Disney Co., International Business Machines Corp. and AT&T Corp. paced the advance.

The Standard & Poor's 500 index rose 2.59, or 0.56 percent, to 465.65, and the Nasdaq composite index added 5.23, or 0.69 percent, to 767.54, helped by gains in Microsoft Corp., Tele-Communications Inc., Oracle Systems Corp., Intel Corp. and Applied Materials Inc. The Russell 2000 index of small companies added 0.28, or 0.11 percent, to 252.12.

The Wilshire 5000 index advanced 20.37, to 4,612.19, and the American Stock Exchange market value index added 0.64, to 451.05.

Declining stocks on the New York Stock Exchange topped the number that rose, 1,109 to 1,058. Trading increased to 289 million shares from 255 million Monday.

Stocks may continue to rally today if Republicans score important victories, but "any upside will be muted" by expectations that the Federal Reserve will lift overnight lending rates next week for a sixth time this year, Mr. Truicko said.

Computer stocks surged amid confidence that many of the companies' earnings will continue to grow, despite higher interest rates.

"Technology stocks are really starting to rebound," said David Butler, head of equity trading at Kemper Financial Services in Chicago. And with Prudential Securities holding a technology investment conference and the annual Comdex trade show starting Monday in Las Vegas, "the focus will be back on the tech stocks for the next couple of weeks," Mr. Butler said.

IBM rose $1.125, to $73; Apple Computer Inc. rallied $1.50, to $42.25; Hewlett-Packard Co. jumped $1.375, to $98; and Microsoft surged $1.75, to $63.625.

Semiconductor stocks and stocks of related companies also jumped. Applied Materials Inc. rose $3, to $51.25; Micron Technology Inc. spurted $1.375, to $40.625; and Texas Instruments gained $1.75, to $76.50.

Most technology companies "are reporting better-than-expected earnings, and it's not clear they've hit an earnings peak," said Eugene Peroni, director of technical research at Janney Montgomery Scott in Philadelphia. Moreover, many see the largest demand for their products in the middle and end of an economic expansion, unlike homebuilders and automobile and appliance makers, Mr. Peroni said.

To be sure, the prospect of higher interest rates dampened some investors' enthusiasm about yesterday's elections, analysts said. The Federal Reserve is widely expected to raise rates this month, probably after its policy-making committee meets next Tuesday.

"This is a time when people are likely to feel more comfortable holding a greater-than-average amount of cash" in their portfolios, said Alan Ackerman, market strategist at Reich & Co.

Merrill Lynch & Co. yesterday recommended clients lower the amount of stocks in their portfolios to 45 percent from 55 percent, and raise the amount of bonds to 40 percent from 35 percent and cash to 15 percent from 10 percent.

"The Federal Reserve will be increasing rates in an environment of slower earnings growth," Merrill's chief investment strategist Charles Clough told clients. And stock market investors seem "to anticipate slowing earnings" growth, he said.

Trico Products Corp soared $20.50, to $81.50. Stant Corp. said it will acquire the auto-parts maker for about $160 million, or $85 a share. Stant rose $1.25, to $14.

Insurance stocks were volatile. Unum Corp. plunged $6.375, to $40.25. The life insurer's third-quarter earnings dropped to 75 cents a share from 92 cents a year ago, below analysts' consensus estimate of $1.02 a share.

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