Stocks rise with investor confidence

January 17, 1995|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday for a second day amid growing confidence the Federal Reserve will subdue inflation without tipping the country into recession.

Banks, brokerages and utilities, which benefit from stable interest rates, led the market's gains. Companies such as tire and chemical makers, whose earnings hinge on economic cycles, also rallied.

"People feel the end is in sight" as far as interest-rate increases go, said Philip Schettewi, chief portfolio strategist at Loomis Sayles & Co. in Washington. "We'll probably see a slowdown in economic growth, but not a recession, and earnings will come through in the next couple of years."

The Dow Jones industrial average climbed 23.88, to 3,932.34, extending Friday's 49.46-point rally, and closing at its highest level since Oct. 19. The Standard & Poor's 500 index soared 3.41, to 469.38, after surging 4.33 on Friday. The Nasdaq composite index jumped 6.00, to 768.16, adding to Friday's 5.65-point surge.

Yesterday's advance began with Friday's unexpected drop in December retail sales, one of the first signs of a slipping economy since the Fed began raising interest rates nearly a year ago. The report spurred bets the Fed won't raise interest rates this month, thereby helping to ensure profits will grow and stocks will stay competitive with bonds.

"The slowdown in retail sales suggests the six tightenings the Fed has done so far have accomplished what they want," said Peter Canoni, managing director in charge of equities at Aeltus Investment Management Inc. "Maybe there's a possibility of a soft landing, and that's good for financial assets."

Stocks that rose outnumbered those that fell by about 2-to-1, mirroring Friday's broad advance. The Dow Jones utilities average, whose gains are seen by some investors as a leading indicator of falling interest rates, closed up 2.04, at 186.0. The Dow Jones transportation average advanced 21.19, to 1,549.81.

The Russell 2000 index rose 1.77, to 251.72; the American Stock Exchange market value index gained 1.40, to 437.53, and the Wilshire 5,000 index soared 73.15, to 4,633.87.

Trading approached Friday's busy pace, even though the bond market, banks and government offices were closed for Martin Luther King Jr.'s birthday. About 315.6 million shares changed hands on the NYSE, compared with 337 million Friday.

Stocks were also bolstered by better-than-expected earnings from Mellon Bank Corp. and Progress Software Corp., which stirred anticipation of strong results later this month from Microsoft Corp., Digital Equipment Corp., IBM and Westinghouse Electric Corp.

Shares of banks, brokers and utilities rose the most amid the prospect of stable interest rates. Low rates keep corporate borrowing costs down and encourage stock and bond sales and trading. A wide spread between short- and long-term interest rates fattens profit margins for banks and brokers in particular.

"A rate increase was a fait accompli a few weeks ago, and now there's some doubt creeping in," Mr. Canoni said.

Mellon Bank rose 75 cents, to $35; Citicorp gained 87.5 cents, to $41.50; Chemical Banking Corp. added 50 cents, to $38.875; and Wells Fargo & Co. rose $2.75, to $154.75; and First Interstate Bancorp advanced $2.125, to $73.625.

Bank shares, which fell in recent weeks amid concern that Mexico's currency crisis would hurt profits, also benefited from optimism that the United States' proposed loan-guarantee package will restore confidence in the Mexican market.

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