Stock prices Wednesday remained stuck between a ceiling and a floor, refusing to bust out in either direction. The ceiling is 3300 on the Dow Jones industrial average, which the market breached for a while before slipping back to close at 3290.70, still up 5.08 points from Tuesday.
The floor is 400 on the broader S&P 500 index, which the market has tested several times in recent days. Wednesday`s close was 403.83, down 0.21 from Tuesday. Big Board volume totaled 193.8 million shares, boosted considerably by tobacco stocks.
Bond prices gained slightly on a worse-than-expected report of a 2.4 percent drop in durable goods orders for May. The market also was buoyed by strong demand at the Treasury`s auction of 2- and 5-year notes. The 30-year bond yield, moving opposite to price, dropped to 7.82 pecent from 7.84 percent Tuesday.
Thanks, Mr. Bush
President Bush`s public call for lower interest rates, published Wednesday, may have come just in time to postpone a cut in short-term interest rates by the Federal Reserve Board.
For most of June, chances for another round of Fed interest rate
”easing” were considered remote by many Fed watchers. Now, economists including David Ressler of Nomura Securities International in New York and John Silvia of Kemper Financial Services in Chicago are saying conditions are ripe for Fed easing. Ressler said it might have happened as early as Thursday, but Fed Chairman Alan Greenspan won`t want to appear to be on Bush`s leash.
To make the case for lower rates, Ressler, Silvia and others point to the money supply growth trend.
The accompanying graph shows that the growth rate of the weekly M-2 money number is below the Fed`s target range of 2.5 percent to 6.5 percent.
Ressler expects Thursday`s M-2 report to remain below target.
Other factors in the rate-cut forecast are troubles in the Japanese stock market, which occurred the last time the Fed eased in April; Wednesday`s anemic durable goods report, suggesting that industrial demand is poor; and flat consumer spending.
”The Fed has to be concerned that the economy, though it is not slipping off the track, is not going anywhere,” Ressler said.
Missing in the rate-cut case is another dive in stock prices, which could be the clincher.
Buy on the news
Wednesday`s Illinois Commerce Commission arcane ruling against Commonwealth Edison, which Duff & Phelps utility analyst Randle Smith called a ”worst case scenario” for the company and its $3-a-share dividend, turned out to be a buying opportunity for some traders.
Edison closed up 12 cents to $28 on heavy volume of nearly 2.4 million shares after dropping $2.75 on 830,000 shares Tuesday in anticipation of the ruling.
Edison suggested that Tuesday`s plunge resulted from declining public confidence in the ICC and it`s rate-setting process.
But Patricia Logue, a lawyer for Business and Professional People for the Public Interest, which is fighting Edison, said it reflects an ”erosion of shareholders` confidence that Edison can make the commission do Edison`s bidding.”
Disgruntled guests
Aerospace manufacturer Sundstrand invited 2 dozen stock analysts to its Rockford headquarters Tuesday and essentially reiterated last week`s remarks about a $34 million restructuring charge to second-quarter earnings. At least some of the analysts returned home and dumped the stock, sending Sundstrand down by as much as $4. The stock recovered a bit, closing down $2.50 at $33.50 on volume of nearly 1 million shares.
Analyst Jerry Cantwell of Wertheim Schroder & Co. in New York, who attended the meeting, said he was surprised by the ferocity of the selloff but acknowledged that he, like most of his peers, is trimming his earnings forecast in light of weakening orders in the second quarterand the company`s company concerns about its defense and commercial aerospace business.
