Slipping Bond Yields Give Stocks a Push : Market Overview

A new report showing that American manufacturing slumped in April stirred the Treasury market from its doldrums, pushing interest rates sharply lower.

* Stocks rose strongly in late trading as falling bond yields took the market’s attention away from bad news about the economy.

* The dollar eased against the German mark and Japanese yen as declines in manufacturing cast a pall on the economic recovery.

Credit

The National Assn. of Purchasing Management said its index of manufacturing activity in April fell sharply, indicating a slowdown in the nation’s plants and factories. The April index fell to 49.7% from 53.4% in March.

Initially, the news spurred only a slight drop in interest rates, because bond traders appeared worried about other economic key numbers slated for release this week, including employment data for April, due Friday.

But as the day wore on, more investors began to view the NAPM data as a sure sign of a slowing economy--which could translate into lower interest rates.

By the close, the yield on the Treasury’s bellwether 30-year bond had tumbled to 6.85% from 6.92% on Friday.

Yields on shorter-term bonds also dropped; the discount rate on three-month Treasury bills fell to 2.85% from 2.90% on Friday.

In the NAPM report, only 10 industries reported growth in new orders from March levels. The report followed news last week of unexpectedly weak first-quarter growth of 1.8% in the nation’s gross domestic product.

“It’s surprising it (the NAPM index) fell below the 50% mark. On the heels of the GDP, that shows a real slowing,” said A. C. Moore, a market analyst at Argus Investment Management.

Despite the sudden bullish turn in the bond market, however, traders noted that the market faces a hurdle on Wednesday, when the Treasury will detail its plans to sell new three-year, 10-year and 30-year bonds next week. Traders are hoping that the Treasury will sharply reduce the quantity of 30-year bonds to be sold.

The federal funds rate, the interest on overnight loans between banks, rose to 3.938% from 3.125% late Friday.

Stocks

Stocks headed lower early after the weaker than expected reading on the economy, but the rallying bond prices helped push prices higher late in the day.

The Dow Jones industrials ended the day up 18.91 points at 3,446.46. Advancing shares outnumbered decliners 1,100 to 788 on the New York Stock Exchange, where volume was a light 224.97 million, down from Friday’s 247.46 million.

Analysts said the rally in stocks was led by gains in drug stocks, auto makers and technology issues.

“It (the stock market rise) was really driven by the bond market and some strength in some of the fallen angels from earlier this year,” said Marshall Acuff, a portfolio strategist at Smith Barney.

He noted that some drug stocks rose amid the lingering belief that the Clinton Administration’s health care reforms will not be as stringent as originally feared. In addition, traders said any plan could take a while to implement.

Acuff said while the overall stock market rise was driven by bonds, interest rate-sensitive sectors including financial shares showed little reaction.

“It was really a lot of kick-back rallies and former favorites” rebounding, he said.

Among the market highlights:

* Drug stocks that gained included Merck, up 1 1/4 to 38 1/4; Bristol-Myers, ahead 1 7/8 to 62; Lilly, up 1 3/4 to 51 1/4; Johnson & Johnson, up 1 1/4 to 44 7/8; Syntex, up 1/2 to 19 5/8, and Pfizer, which gained 1 1/2 to 69 3/4.

* Biotech shares also were strong. Chiron jumped 3 3/4 to 58 on positive test results from its experimental recombinant vaccine for herpes and in anticipation of a modest first-quarter profit.

Other biotech winners included Biogen, up 2 1/8 to 35 1/4; Immunex, up 1 7/8 to 52 1/8; Amgen, up 3/4 to 40 3/4, and Genzyme, which leaped 2 1/4 to 39 1/4.

* Auto stocks continued their recent advance. GM surged 1 1/2 to 42 3/8, Ford gained 1 to 55 3/4, and Chrysler was up 7/8 to 42 1/8.

* Among other blue chips, AT&T; rose 7/8 to 56 3/4, McDonald’s jumped 1 5/8 to 49 3/4, and 3M Co. added 2 1/4 to 113 1/2.

* Technology issues strengthened, especially in the semiconductor and software areas. Intel rose 1 7/8 to 97, Adobe Systems rose 2 to 59 1/4, Motorola added 1 to 74, Oracle climbed 1 3/8 to 37, and Sybase jumped 3 3/8 to 60 3/8.

* Among smaller firms, Ventritex surged 4 1/4 to 27 3/4. It received federal regulatory approval for the sale of its Cadence implantable defibrillator system. It also received summary judgment in a trade secret dispute with Intermedics.

Overseas, Frankfurt’s DAX index inched up 1.97 points to 1,629.16. London’s market was closed for the May Day bank holiday, and the Tokyo market was also closed for a holiday and won’t reopen until Thursday.

In Mexico City, the Bolsa index dropped 31.08 points, or 1.9%, to 1,634.33 on continued negative fallout from what investors perceive to be weak first-quarter corporate earnings reports.

Other Markets

Despite an early spurt, the dollar ended broadly lower after the release of the purchasing managers’ report.

In New York, the dollar was quoted at 1.581 German marks, down from 1.585 on Friday. The greenback slipped against the Japanese yen, closing at 110.78 yen, down from Friday’s 111.10.

The British pound settled at $1.565, down from late Friday’s $1.573.

Meanwhile, in commodities trading, profit taking toppled silver futures prices from a 21-month high after the NAPM survey signaled weakness in the manufacturing economy. Gold and platinum prices also fell.

Near-term silver futures dropped 9.9 cents on New York’s Comex to $4.29 an ounce. Gold lost $2.10 an ounce to $354.40.

Traders said investment funds dumped silver after seven straight days of gains that had boosted the metal’s price by 54 cents, or about 14%.

Elsewhere, light, sweet crude oil for June delivery rose 4 cents on the New York Mercantile Exchange to $20.57 a barrel.

Market Roundup, D8