Stocks Rally on New Optimism After Election

Wall Street liked what it saw in Tuesday’s election, as a strong showing by Democrats raised expectations that Republican impeachment efforts will run out of steam--sparing financial markets that potential trauma.

Stocks rose broadly, with winners topping losers by 2 to 1 on the Big Board in heavy trading.

The Dow Jones industrial average rose 76.99 points, or 0.9%, to 8,783.14, its highest close since Aug. 3. Smaller stocks posted bigger gains, with the Russell 2,000 small-stock index up 1.4%.

The market advanced even as Treasury bond yields jumped in the wake of a poor reception for newly auctioned 10-year T-notes.

“With the election results, the chances of a Clinton impeachment are zero and there is less uncertainty” in the market, said Geoffrey Brod, a money manager with Aeltus Investment Management, which oversees $45 billion.

Some analysts said that foreign investors, in particular, wanted to see the impeachment threat removed before they would buy U.S. securities again.

“The international investor is very much in the ‘don’t-rock-the-boat’ mentality,’ ” said Peter Canelo, investment strategist at Morgan Stanley Dean Witter in New York.

Strength in the dollar on Wednesday suggested foreigners were happy with the election. The dollar rose 1.27 yen to 116.60 yen in New York and also edged up against European currencies.

“The election should give Clinton more authority and make the dollar more attractive” to foreigners, said John DeBeer, director of fixed income at Loomis Sayles, which oversees $43.2 billion.

The Treasury bond market, however, had a tough day Wednesday, as the government sold new 10-year notes at a yield of 4.825%, above the estimate of 4.77% by traders surveyed by Bloomberg News before the sale.

The calm that has descended on world markets in recent weeks has sapped demand for Treasuries, which has translated into a surge in yields on those securities.

The yield on the benchmark 30-year T-bond rose to 5.33% Wednesday from 5.21% Tuesday. The government will sell new 30-year bonds today.

For now, global stock markets are overlooking the backup in Treasury yields. Indeed, that backup is occurring in part because money is coming out of “safe” bonds to chase riskier stocks.

Even the beleaguered Japanese stock market has surged in recent days on optimism that the country will solve its massive banking and economic crises. The Nikkei-225 index soared 4.1% to 14,527 Wednesday, as markets across Asia continued to rebound.

European and Latin American markets also jumped, with Mexico’s main index gaining 3.4% to 4,267 and Germany’s key index up 2.9%.

Among Wednesday’s highlights:

* Financial stocks rallied despite some analysts’ concern that further financial-services industry reform will be stymied, as Sen. Phil Gramm (R-Texas) is expected to succeed New York Republican Alfonse D’Amato as head of the Senate Banking Committee.

That is “a grey spot on the cloud” for Wall Street, said Canelo, noting that Gramm had killed this year’s attempt to allow more mergers among financial concerns.

But on Wednesday the sector was led by J.P. Morgan, up $7.63 to $101.75, on renewed speculation of a possible bid for the company.

Other winners included Merrill Lynch, up $1.50 to $63.13, and First Union, up $2.13 to $61.

* Semiconductor stocks led the tech sector higher on a report of higher September chip sales. Intel was the star, up $4.44 to $94.81. The stock’s peak was $102 in 1997.

Internet plays also gained, with America Online up $7.75 to $140.25 and Yahoo up $9.25 to a record $151.38.

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Market Roundup, C7