IBM led the Dow Jones industrial average to a new record Tuesday, nudging up against the 3700 level as the general market looked over positive economic numbers and sent a few blue chips upward.
None flew so high as Big Blue, however, as the company regained, if only for a brief moment, its old luster, hitting the top of the most-active list with a rise of $3, to $50.75. An analyst with Donaldson, Lufkin & Jenrette, Thomas Rooney, switched to a buy recommendation on his prediction of improved earnings.
Stocks started the day in negative territory as two economic reports pushed interest rates higher. Sales of new single-family homes soared 20.8 percent in September, their highest increase since September 1986 and triple the gain predicted by economists. The leading economic indictors showed a rise of 0.5 percent in September, a tenth of a percent higher than expected.
Big cyclical companies, ones that do well in a strengthening economy, began to gather steam about midday. The Dow Jones industrial average closed up 5.03 points to 3697.64, and the Nasdaq index gained 1.89 to 785.66.
Stocks were restrained by a weak bond market, which translates into higher interest rates. That creates competition for stocks. The benchmark 30-year bond was down about 5/8 point, to yield 6.07 percent, up from a yield of 6.02 percent Monday. Bonds rose to a yield as high as 6.13 percent during the day, the highest mark since Sept. 1.
A short coffee
Starbucks, with a stock as rich as its coffee, may not be showing those incredible 20 to 25 percent same-store gains in the future, a company executive says. Starbucks has been a yuppie phenomenon, a popular and pricey coffee bar and a stock with the same characteristics.
Starbucks closed down 50 cents, at $26.75, still leaving its price-to-earnings ratio at a stratospheric 102.88. It has become one of Wall Street’s favorite stocks to short, a bet on a falling price, but hasn’t given up much ground.
Orin Smith, chief financial officer, told an analysts meeting in Baltimore that physical limitations will reduce the average 19 percent same-store growth the company has enjoyed since 1989, Bloomberg Business News reported. Smith said the company would be pleased with 13 to 15 percent growth over the next 12 months.
Seattle-based Starbucks has about 90 company-owned stores in the Chicago area. It plans to open about 125 stores a year for the next two years, mainly along the East Coast, doubling its current number of outlets.
Heartland Report
Chicago-based Inland Steel Industries fell 87 cents, to $32.75, after the company said it will offer 4 million shares of common stock to pay down expensive debt and for other purposes. Based on its recent share price, Inland would raise about $132 million with the offering.
While the steel business hasn’t been a major moneymaker for years, Inland’s stock has been rising in the last year as the company instituted a major restructuring. Inland said in a filing with the Securities and Exchange Commission that it will offer 3.2 million shares in the U.S. and the remainder overseas, with a provision for an additional 800,000 shares to cover any overallotment.
Chicago-based General Instrument gained $1.75, to $59.12, after announcing its wireless equipment would be used by Middle East Broadcasting Centre, the leading Arabic language broadcaster, in a new venture to bring a package of subscriber channels to the Arabian peninsula. Middle East Broadcasting has more than 18 million viewers in the Persian Gulf, Europe and Africa.
Fear of flying
UAL, parent of United Airlines, retreated $3.25 after hitting a 52-week high Monday. Chicago-based Morton International continued its climb, rising $2.62, to a new high of $99.50, on continuing strength from an announcement earlier that Volkswagen will buy its dual passenger and driver air bags for its 1996 models.
