Bonds and stocks (except for technology issues) rallied sharply Tuesday after the government’s report on consumer prices in March indicated that inflation remained in check. Nonetheless, the continued slump in technology stocks left many investors wondering what sector would lead stocks to the next leg of the historic bull market.
The Dow Jones industrial average jumped 135.26 points, or 2.1 percent, to 6587.16 on heavy New York Stock Exchange volume of 507 million shares. It was the biggest single-day point gain for the Dow since the 186.84-point move on Oct. 21, 1987, as Wall Street bounced back from the stock market crash two days earlier. On a percentage basis, of course, the bigger point gain was much more impressive–10.1 percent.
Winning stocks outnumbered losers by 18-to-7 among NYSE-listed stocks and 11-to-10 among Nasdaq stocks. The technology-heavy Nasdaq composite index slipped 3.53 points, to 1212.88.
Peoria-based Caterpillar led the blue-chip advance Tuesday, gaining $3.37, to $83, after posting better-than-expected first-quarter results. Of the 30 Dow industrials stocks, all but two–AT&T and International Paper–advanced. The Dow transportation and utilities averages also rose.
“It was an adequate day,” said Gregory Nie, technical market analyst for Everen Securities in Chicago. Trading volume was better but not exceptional, long-term interest rates remain above 7 percent and technology stocks continued their drag on the market, he said.
“It would be more impressive if we had higher volume,” Nie said. He expects the Dow to trade in a narrow range in the 6600-6650 area for a while as traders decide whether the recent selloff is indeed over.
“Right now, leadership is vague,” he said. Retailing stocks looked strong before the recent market downturn, but Tuesday’s winners encompassed health-care stocks, soft-drink stocks and electrical-equipment stocks, food and drug stocks and regional banks–all responding to recent upbeat earnings reports.
Semiconductor giant Intel, perhaps the bellwether computer-technology stock, lost $2.75, to $131, despite a strong first-quarter earnings report late Monday. Intel cautioned that revenues and profits may not be much higher in the current quarter. Stocks such as Intel are watched not for year-of-year gains but for sequential, or quarter-by-quarter, gains. Companies that fail to delivery sequential gains get hit.
Cisco Systems, another popular computer-technology stock, lost $3.12, to $50.12, after Salomon Brothers lowered its forecast for 1997 earnings. Separately, investment firm Alex. Brown cut its investment rating on the stock to “buy” from “strong buy.”
Bonds rallied strongly after many traders got caught short, betting the consumer price data would be worse than economists expected. The yield on the benchmark 30-year Treasury bond dropped to 7.09 percent from 7.17 percent late Monday.
Last week, an official of the Labor Department, which compiles the figures, hinted that March inflation would be higher than generally believed. In fact, it was lower. But most economists and bond analysts still expect the Fed to boost short-term interest rates again when its policy committee next meets May 20.
WMX downgrade: Shareholders of Oak Brook-based WMX Technologies looking for the payoff from the strident shareholder activism surrounding the company in recent months are still looking.
WMX stock has continued to slump, despite highly public pressures by global investor George Soros that forced wrenching changes, including job cuts and the unexpected exodus of chief executive officer Phillip Rooney. The stock slipped 37 cents, to $30.25, Tuesday.
WMX has attempted to stem the slide in its stock price by repurchasing its shares and is now engaged in a so-called Dutch auction to buy back $1 billion worth of stock, or 6.2 percent of its shares. The auction period is scheduled to end April 28.
On Tuesday, Moody’s Investors Service cut its rating on WMX debt, citing the share buybacks as a threat to the security of WMX bondholders.
“The downgrades reflect the erosion in WMX’s financial and debt-protection measurements from debt-financed acquisitions and share repurchases,” Moody’s said. “Moreover, additional share repurchases may further weaken the capital structure at a time when the company is responding to increased competition in the solid-waste industry, which has resulted in continued pressure on earnings.”
Moody’s added that with Rooney gone, WMX lacks a management team and presents considerable uncertainty about its business and financial strategies. So, what has George Soros accomplished? Not much yet.
Local news: 360 Degree Communications, a Chicago-based cellular-phone company, plans to buy back up to 3 million, or 2.4 percent, of its shares outstanding. The stock price dropped 62 cents, to $17.
The company’s first-quarter earnings per share, released Tuesday, matched the consensus estimate of Wall Street forecasters, but the analysts have expressed sharply divergent views on the company. On Monday, a Bear Stearns analyst issued a “buy” recommendation and called 360 Communications his favorite cellular-phone stock. On Tuesday, NatWest Securities and Prudential Securities removed their “buy” ratings on the stock.
– W.W. Grainger, Skokie, an industrial distributor whose stock slumped after the company’s first-quarter earnings report last week, rebounded $1.25, to $74.50, after Barrington Research issued a “buy” rating and raised its estimate for 1997 earnings.
