Dow Up 45 as Buyers Jump on Bandwagon : Market Overview

Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:

* Enthused by lower interest rates and some strong earnings reports, buyers leaped aboard the surging stock market for a second straight day. The Dow Jones industrial average, up nearly 52 points Tuesday, rose 45.12 points to 3,379.19 in the heaviest trading in more than six months.

A broader market index, the Standard & Poor’s 500, reached an all-time high.

* The steamrolling Treasury bond rally of recent days finally stalled on profit taking. The yield on the 30-year T-bond inched up from Tuesday’s six-month low.

* Gold and silver prices fell back as United Nations-Iraq tensions eased.

Stocks

Wednesday’s big rally, like Tuesday’s, was sparked by a steep fall in bond yields early in the day.

The Dow leaped in the morning, and was up more than 50 points by afternoon. From there, it sold off about 15 points, then bounced back.

The close of 3,379.19 was the highest since June 8, and 34 points from the record 3,413.21 set June 1.

The S&P; 500 index, meanwhile, topped its old high, rising 4.71 points to 422.23. The previous record was 420.77 on Jan. 15.

Heavy trading also illustrated a resurgence of investor interest: New York Stock Exchange volume totaled 275.78 million shares, up from 218.06 million Tuesday and the highest since 284.56 million shares traded on Jan. 17.

Winners topped losers by more than 5 to 2 on the Big Board.

Rama Krishna, chief investment strategist at First Boston, said interest rates are the main catalyst for this week’s rally. But he also noted that second-quarter corporate earnings reports “are coming in as expected or substantially higher for a lot of companies, especially cyclical companies.’

Earlier this month, signs of new economic weakness caused a selloff in stocks because of concern about profits.

Now investors see that plenty of companies are faring well even in a slow-growth economy, experts say. Meanwhile, as interest rates drop, the interest savings that many companies will realize should help bolster profits this year.

Hersh Cohen, president of Shearson Asset Management, noted that as bond yields drop, stocks automatically become more attractive investment alternatives.

Still, analysts cautioned that much of this week’s rally could be “short covering”: Traders who had previously sold borrowed stock--betting that prices would drop--now are scrambling to buy to close out their positions, as the market soars. Such rallies feed on themselves, but not indefinitely.

Among the market highlights:

* Investors returned to many beaten-down industrial issues, on optimism that profit growth may shine even in a slow economy.

DuPont, for example, jumped 2 3/4 to 52 3/8 after posting improved second-quarter operating earnings and projecting better results in the second half for its oil unit, Conoco.

Also, while Bethlehem Steel posted a quarterly loss, it said it sees a chance for better results in late 1992 and in 1993. The stock rose 1 to 14 3/8.

Among other big industrial gainers, PPG Industries rose 2 5/8 to 67 5/8, Alcoa gained 1 3/4 to 75 3/8, International Paper surged 1 3/8 to 65 7/8, Cummins Engine jumped 2 1/4 to 67 3/4 and Phelps Dodge leaped 2 to 52 3/4.

* Ford was an exception to the rally. It lost 1 1/2 to 44 1/4. Though Ford reported strong quarterly earnings, it also projected lower results in the current quarter because of new-model changeovers.

* Health care stocks continued to gain. HMO PacifiCare surged 3 1/2 to 35 1/4 on a healthy earnings report. Another winner was Abbey Healthcare, up 3/4 to 12 1/4 on a good profit report.

* Some recently ignored technology issues saw buyers. Computer Sciences jumped 3 5/8 to 63 1/8, System Software rocketed 3 to 26 and Exabyte gained 1 3/4 to 30 3/4.

Overseas, London, shares were boosted by Wall Street’s rise Tuesday. The Financial Times 100-share average rocketed 49.8 points, or 2.1%, to 2,423.2.

In Frankfurt, shares made their largest one-day gain in nine weeks. The DAX average rose 17.51 points, or 1.1%, to 1,628.15.

In Tokyo, however, stocks hit another six-year low. The Nikkei average lost 330.69 points to 15,095.95 after flirting with 15,000.

Mexico City’s Bolsa index added 10.10 points to 1,547.78 after soaring Tuesday. In Sao Paulo, however, Brazilian stocks plunged 9.3% on new scandal accusations against President Fernando Collor de Mello.

Currency

The dollar firmed, helped by the stock and bond market rallies.

It closed in New York at 127.80 Japanese yen, up from Tuesday’s 127.45. Against the German mark the dollar rose to 1.483 from 1.473.

Credit

After plunging early in the day on new expectations of a slow economy, Treasury bond yields rebounded in profit taking.

The price of the Treasury’s 30-year bond slipped 4/32 of a point, or $1.25 per $1,000. Its yield inched up to 7.44% from 7.43% on Tuesday.

Investors have been pouring into long-term T-bonds since mid-July, believing that slow economic growth will translate into still-lower interest rates. That demand has pushed yields on 30-year bonds down from 7.7% at mid-month.

But late Wednesday, a variety of factors--including lax demand at the Treasury’s auction of five-year notes--prompted profit taking in bonds, said Kevin Flanagan, analyst with Dean Witter Reynolds.

The Treasury sold $10.5 billion in five-year notes, yielding an average of 5.56%. That was in line with expectations, but some traders still were disappointed that buyer demand wasn’t greater.

The ratio of total bids to securities awarded was 2.40 to 1, down from 2.76 to 1 at June’s auction.

Flanagan said some investors felt that it would be better to sell bonds now, before a number of key economic indexes are released in the next few days, including second-quarter gross domestic product and July unemployment.

The federal funds rate, the interest on overnight loans between banks, fell to 2.875% from 3.188% Tuesday.

Commodities

Gold and silver futures gave back some of their recent gains on New York’s Comex.

Peter Cardillo, an analyst with Westfalia Investments, noted that precious metals traditionally weaken whenever the stock market strengthens, because gold is seen as stocks’ alternative.

The easing of tensions between the United Nations and Iraq also had a negative effect on metals.

August gold settled $2.40 lower at $356.50 an ounce, and September silver dropped 5.5 cents to $3.90.

Elsewhere, energy futures were mixed on the New York Merc, with September light, sweet crude oil declining 5 cents to $22 a barrel.

T-Bond Believers

Yields on long-terms Treasury bonds have reached their lowest levels since the end of 1991, as investors lock in rates on the expectation that they’ll fall even lower in the months ahead because of the slow economy.

December 31, 1991: 7.39%

July 24, 1992 (Wednesday’s close): 7.44%