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Bonds Rally, Stocks Set Records

November 06, 1996|From Times Staff and Wire Reports

Blue-chip stocks returned to record levels Tuesday as bond yields fell to seven-month lows on an Election Day bet that Republicans and Democrats will keep each other--and government spending--in check.

The Standard & Poor's 500 index and the New York Stock Exchange composite index, both dominated by blue-chip stocks, closed at record highs. The S&P shot up 1.1% to 714.14.

The Dow Jones industrial average, meanwhile, rose 39.50 points to 6,081.18, just slightly below the record of 6,094.23 set Oct. 18.

Smaller stocks, however, continued to lag bigger issues.

At least for blue-chip buyers, the thinking Tuesday was that "we are at least going to have a Republican Congress," said Don Hays, market strategist at Wheat First Butcher Singer in Richmond, Va. Many investors feel a Clinton victory with a GOP Congress means the most fiscal discipline. "So you're not going to see a lot of government spending, and that relieves some of the pressure on the bond market," Hays said.

The stock market favors a split in government on the belief that Democrats unchecked would run deep spending-driven deficits while Republicans unchecked would run equally deep deficits by failing to find spending cuts to pay for their tax cuts.

Smaller budget deficits mean less borrowing by the government, which can help lower interest rates by reducing the demand for capital.

The bond market's enthusiasm Tuesday was such that it ignored relatively lukewarm demand at the Treasury's auction of new three-year notes. The U.S. sold $18.5 billion of three-year notes at 5.88%, above expectations.

Even so, bond yields were lower across the board, with the bellwether 30-year T-bond sliding from 6.65% on Monday to 6.58%, the lowest finish since March 26.

The Treasury will sell new 10-year notes today and new 30-year bonds Thursday.

Currency markets also appeared to cheer an election split. The dollar surged to 114.30 Japanese yen in New York, from 113.80 on Monday.

Despite the records in the blue-chip S&P 500 and NYSE composite, however, losers edged winners by 20 to 19 on the Nasdaq market of mostly smaller stocks. And the Russell 2,000 index of smaller issues eased 0.05 point to 339.86.

The hunger for blue chips at the expense of smaller stocks suggests many investors are seeking the lowest-risk way to play a continuing stock market advance--especially with background worries about a slowing U.S. economy.

Among Tuesday's highlights:

* The Dow was powered by AlliedSignal, up 1 1/2 to 68 5/8; General Electric, up 1 3/8 to 98 3/4; IBM, up 1 1/2 to 130 1/4; and Procter & Gamble, up 1 5/8 to 102.

* Financial stocks rallied powerfully as bond yields slid. Chase Manhattan rose 2 to 88 1/2, Wells Fargo surged 5 5/8 to 273 1/4, Citicorp gained 1 3/4 to 101 1/4 and Merrill Lynch rocketed 2 5/8 to 74 1/2.

* The tech sector soared, with Intel up 3 5/8 to 114, Compaq up 4 1/8 to 70 3/8 and Microsoft up 3 1/2 to a record 141 1/2. Also, Ascend Communications, which is expected to introduce a device to allow Internet providers to accept calls from higher-speed modems, surged 5 33/64 to 73 17/64.

And Seagate Technology jumped 4 1/8 to 71 7/8 after TrendFocus, a market research firm, reported record industry shipments of 27 million disk drives and data storage components in the third quarter.

* Major drug stocks rose. Worries that a Democratic-controlled Congress would revisit health-care reform had pressured the group. Pfizer jumped 2 to 86, Eli Lilly leaped 2 1/4 to 73 3/4 and Abbott Labs gained 3/4 to 51.

* On the downside, smaller stocks hit by selling included Boston Chicken, down 3/4 to 34 7/8; Celestial Seasonings, down 1/2 to 21 1/4; Thompson PBE, off 3/4 to 7; Jerry's Famous Deli, down 1 3/4 to 6 1/2; and OroAmerica, down 3/4 to 5 3/4.

In commodities trading at the Chicago Board of Trade, corn and wheat prices continued to slide, falling to life-of-contract lows as optimism about growing world grain stockpiles increased.

December delivery wheat closed 11 cents lower at $3.68 3/4 a bushel, down 42% from its $6.32 3/4 high on April 25. December corn closed 3 1/4 cents lower at $2.58 1/2 a bushel.

Market Roundup, D6

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