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FINANCIAL MARKETS

Tech Issues, Bond Rally Continue to Boost Stocks

September 26, 1996|From Times Staff and Wire Reports

Wall Street ended modestly higher Wednesday, supported by lower bond yields and high-technology shares a day after the Federal Reserve Board surprised many investors by keeping interest rates unchanged.

The Dow Jones industrial average added 3.33 points to 5,877.36 after slipping from an early 21-point gain and trading in a narrow, indecisive range throughout the session.

Broader indexes also finished higher, led by the Nasdaq market, which extended its recent rally after some encouraging earnings reports from the technology sector.

Hugh Johnson, chief investment officer at First Albany Corp., said earnings are becoming a key focus again, as the third quarter draws to a close.

" 'Defensive' industry groups are performing better than economically sensitive [shares], aside from technology," he said. "On the plus side, we have banks, food stocks and household products--those whose earnings tend to do well if the economy slows. On the negative side: autos and retailers."

Stocks drew support from the bond market, where long-term yields fell to their lowest level in a month amid continuing enthusiasm for the Fed's decision Tuesday to leave its official lending rates unchanged.

The yield on the 30-year Treasury bond--a key determinant of borrowing costs--fell to 6.92% Wednesday from Tuesday's 6.98%. The six-month T-bill yield dipped to 5.28% from 5.36% Tuesday.

Bond traders were cheered by the Fed's apparent conclusion that the economy is slowing enough to keep inflation in check without the central bank's intervention.

The stronger appetite for bonds helped the Treasury sell $18.25 billion of two-year notes at the lowest yields since May. The average yield was 6.08%.

But the potential drag of a slowing economy on corporate profits left some stock investors nervous, analysts said.

"Concerns about earnings are starting to creep in, especially after the AT&T blockbuster," said Don Hays, director of investment strategy at Wheat First Butcher Singer in Richmond, Va. He referred to AT&T's warning Tuesday morning of disappointing earnings in the second half. "We think the economy will start easing off, and as that evolves you'll have more and more concern about third- and fourth-quarter stats."

Despite the worries, however, the Dow and other blue-chip indicators are unlikely to drop sharply with money managers sprucing up their portfolios for their quarter-ending reports to investors.

"With the markets at new highs and [mutual fund] cash flowing in, you can bet that the bias will be to the stocks that have been doing very well," said Scott Bleier, chief investment strategist at Prime Charter. "People want to be in those stocks for the end of the quarter."

Tech stocks, in particular, are luring more buyers. The technology-laden Nasdaq composite index rose for the 13th time in 14 sessions, adding 9.39 points to 1,224.66, its best close since mid-June. The American Stock Exchange's market value index, which is also dominated by technology and speculative shares, rose 2.49 points to 565.89.

Among Wednesday's highlights:

* Fueling the renewed enthusiasm for tech shares was a strong profit report late Tuesday from 3Com. The computer networking concern's shares jumped 8 to 64 5/8, and rival Cisco Systems rose 2 11/16 to 63 3/16.

Among other tech issues, IBM rose 2 3/8 to 126 1/2. Cadence Design jumped 1 3/8 to 37 5/8, FileNet surged 1 3/4 to 24 3/4, Iomega soared 4 1/8 to 24 1/8 and Parametric climbed 2 1/8 to 51.

* On the downside, Wall Street again punished companies that warned that their earnings would disappoint. TCSI, a maker of communications software for telephone companies, lost 5 1/4 to 15 1/2 on market talk that the company will not meet third-quarter earnings expectations. Company executives were not available for comment.

Also, Apple South slumped 7 7/8 to 13, Checkpoint tumbled 9 to 27 3/8 and Apria Healthcare fell 3 3/8 to 17 3/8 after all three said their earnings would fall short of expectations.

* Loral Space surged 2 3/8 to 15 5/8 after agreeing to buy AT&T's Skynet Satellite Services unit for $712.5 million. The deal would create one of the world's largest satellite-based businesses. AT&T rose 1/8 to 51 5/8 after Tuesday's 5 5/8-point drubbing on its downbeat earnings forecast.

* Biotechs rallied from a summer slump after some positive industry news. Protein Design jumped 9 7/8 to 26 after the company and Roche Holding said their Zenepax drug was successful at preventing kidney transplant rejection in a late-stage trial.

* Several initial public offerings drew buying interest. Snyder Communications, which provides outsourced marketing services, surged 3 5/8 to 20 5/8. American Residential Services, a provider of heating, ventilation and air conditioning systems, rose 3 to 18.

In foreign trading, German shares hit record highs. (Investor Spotlight, D8.) The Toronto stock market also reached a record high, helped by the Fed's decision to stand pat on interest rates. But Mexico's Bolsa index slid 19.09 points to 3,274.50, drawing no strength from the Fed's decision.

Market Roundup, D6

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