Stocks boosted by expectations of economic growth

June 02, 1995|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday as expectations for an economic resurgence later this year helped technology issues and hurt stocks that do best in a slowdown.

Optimism that economic growth will pick up speed in the second half of 1995 boosted stocks of companies such as United Technologies Corp. whose profits move up and down along with the economy.

That same outlook lessened the appeal of Coca-Cola Co. and Procter & Gamble Co.

"The economy is not going into a hole," said Graham Tanaka, president of Tanaka Capital Management, which manages about million in assets. While housing and auto sales are down, "you could make the case the economy will get stronger later in the year."

The Dow Jones industrial average rose 7.61, to a record 4,472.75 in a seesaw session that saw the 30-stock average fall as much as 27.67 points about an hour into trading. The average surged 86.46 points Wednesday in its largest one-day gain since Dec. 23, 1991.

Among the Dow industrials, Coca-Cola fell 62.5 cents, to $61, after being down as much as $1.125; Minnesota Mining & Manufacturing Co. slid $1.125, to $58.875; and Procter & Gamble dropped 87.5 cents, to $71. Meanwhile, cyclical stocks such as United Technologies added $1.625, to $77.50; International Business Machines Corp. gained $1.25, to $94.25; and Goodyear Tire & Rubber Co. climbed 75 cents, to $42.875.

"As the economy starts reviving, cyclicals are the place to be," said Leon Brand, global market strategist at NatWest Securities Inc.

Earlier yesterday, the National Association of Purchasing Management said American manufacturing activity fell more than expected in May, the first drop in almost two years. It was the latest sign that the economy is slowing and added to speculation that the Federal Reserve may lower interest rates later this year. That would lower the cost of borrowing and pave the way for renewed economic growth, analysts said.

"If interest rates were not coming down, [the slowdown] would stop the stock market in its tracks," said Bruce Bittles, market analyst at J. C. Bradford & Co.

The Standard & Poor's 500 index rose 0.09, to a record 533.49, after being down as much as 3.35 points earlier.

Shares of computer, semiconductor and software companies were the biggest gainers, as the prospect of renewed economic growth bolstered confidence that businesses will keep upgrading their technology.

The technology-laden Nasdaq composite index rose 4.24, to 868.82, after rallying 5.88 points Wednesday. Intel Corp. Chief Executive Andy Grove, speaking on a conference call, yesterday repeated his expectation that sales of personal computers will rise to 100 million annually by the end of the decade from 60 million currently, Mr. Tanaka said.

Intel rose $2.50, to $114.75; Motorola Inc. climbed $1.25, to $61.125; Texas Instruments Inc. surged $5.375, to $121; and Applied Materials Inc. spurted $2.375, to $79.375.

"Demand for PCs and communications equipment continues to be strong," said Rajiv Chaudhri, technology analyst at Goldman, Sachs & Co. Because semiconductor companies are working at full steam and the demand for computer chips remains high, profit margins won't narrow, he said.

About four stocks rose for every three that declined on the New York Stock Exchange, where more than 345.9 million shares traded hands.

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