A continuation of the rally in computer-technology stocks and a warm reception by investors for the Treasury’s three-year note auction Tuesday gave Wall Street the firepower it needed to push stock prices into record territory once again.
The Dow Jones industrial average rose 52.02 points, to 5459.61, on New York Stock Exchange volume of 466 million shares. Broader stock indexes also set record highs as advancing issues outpaced losers by more than 13 to 9 among NYSE-listed stocks.
The Nasdaq composite index, which is tilted toward large-capitalization technology companies, added 5.74 points, to 1089.08. Micron Technology was the NYSE volume leader, gaining $4.12, to $41.87. CS First Boston issued a “buy” recommendation on the stock. Motorola, which traded as low as $44.75 after reporting disappointing fourth-quarter earnings last month, gained $1.12, to $59.
Widely held AT&T closed up $2.37, at $67.62. Earlier, Kevin Haggerty of Fidelity Investments told Reuters a close above $67 could launch the stock to 10-year highs.
The telecommunications bill passed by Congress last week was said to favor regional and small telephone companies over Ma Bell, which helps explain why AT&T has lagged other communication stocks recently.
On the Nasdaq market, the volume leader was semiconductor giant Intel, up $1, to $59.50.
Although many investors have traditionally regarded the computer-technology sector as speculative, the big-name technology companies could be a safe harbor in an economic downturn this year, said Marshall Front of the Chicago-based investment management firm Trees Front Associates.
“If there is a recession, it will probably be short-lived and shallow,” Front said. “But stock selection is difficult.” The large-capitalization computer-technology stocks may have more sustainable earnings momentum than other, more cyclical sectors if the expected downturn transpires, Front said.
Among other stocks in the news, Xerox added $5.12, to $130.87, after the company said it would buy back $1 billion of its stock. Oxford Health Plans jumped $11.37, to $76.37, after the company posted a 71 percent gain in fourth-quarter earnings and gave an upbeat outlook for the first quarter.
The Dow Jones transportation average, propelled by airline stocks, climbed 36.59 points, to 1991.75. UAL, parent company of United Airlines, rose $1.50, to $163.25. AMR, parent of American Airlines, added $2.87, to $81.
Auction results: The first leg of the Treasury’s three-part quarterly refunding of government debt was well-received by institutional and individual investors. The Treasury sold $18.5 billion of three-year notes at a slightly less-than-expected yield of 5.04 percent, meaning demand for the securities was good.
“It was a pretty decent auction,” said Anthony Karydakis, capital-markets strategist at First Chicago Capital Markets. “It turned out to be a non-event, which was good news, given the recent fragility of the market.”
The results gave the bond market a calmer tone ahead of Wednesday’s auction of $14 billion of 10-year notes and Thursday’s auction of $12 billion of 30-year bonds. Early in the week, analysts expected a yield of about 5.65 percent in the 10-year auction and 6.12 percent on the 30-year bond.
The yield on the current benchmark 30-year Treasury bond, which will be supplanted in market quotes by the bond to be auctioned Thursday, closed with a yield of 6.13 percent, down from 6.15 percent Monday.
Gold for April delivery slipped $1.30 an ounce, to $414.60, on the New York Comex futures exchange. Chicago-based Everen Securities downgraded its investment ranking on several gold-mining stocks, including Battle Mountain Gold, FMC Gold, Santa Fe Gold and Homestake Mining.
How come?: Having at least 10 percent and as much as 40 percent of your long-term stock portfolio in non-U.S. stocks is a solid way to increase your investment returns without increasing your risk, according to studies of historical stock performance.
But many investors ask two not-so-dumb questions: Hasn’t increased globalization of business and financial markets reduced or eliminated the opportunity for international diversification? Doesn’t owning a portfolio of U.S. multinational companies, such as Coca-Cola and Caterpillar, accomplish the same purpose as owning a portfolio of international stocks, because these companies do business virtually everywhere in the world anyone would want to invest?
Roger Ibbotson, professor of finance at the Yale University School of Management and chairman of Chicago-based Ibbotson Associates, says the answer to both questions is “no,” based on statistical results. But no one seems to know why.
“The international stock market moves independently of the U.S. stock market,” which creates the opportunity for investment diversification, Ibbotson told a meeting of the Chicago Council on Foreign Relations Corporate Service Program. “Why aren’t these markets becoming globally integrated? I don’t know the answer to that. I just know they are not.”
There is also no solid explanation for the fact that the country where a company is based is a more important factor in explaining its investment returns than what industry it represents. The investment returns of U.S.-based Ford and Japan-based Toyota bear little correlation year by year. You sacrifice diversification by being an investor only in U.S. stocks, Ibbotson said.
