Smaller Stocks Again Lead Rally : Market Overview

Blue chip stocks ended higher, bolstered by strong gains in drug and retail issues. But small stocks continued to set the pace, posting another powerful advance.

* The bond market was closed for Veterans Day. The dollar eased, while gold and silver recovered some of their recent losses.

Stocks

Trading set its busiest pace in more than three weeks, even though banks and some other key financial players were closed for Veterans Day observance.

The Dow Jones industrials rose 14.86 points to 3,240.33, recouping most of Tuesday’s 15.40-point loss.

The broad market was much stronger than the Dow suggested: Advancing issues outnumbered losers 9 to 5 on the New York Stock Exchange. Big Board volume came to 243.75 million shares, up from 223.18 million on Tuesday.

Continuing the pattern of much of the last month, smaller stocks were the market’s stars. The NASDAQ composite index of smaller issues surged 7.16 points, or 1.1%, to 634.92.

Also, the Standard & Poor’s index of mid-sized companies jumped 2.28 points, or 1.5%, to 152.62.

“There’s a lot of talk that when these small (stocks) act well like this, it’s usually the beginning of an up market,” said analyst Nicholas Karos at brokerage Piper Jaffray.

Analysts said small-company stocks are outperforming blue chips on expectations that President-elect Bill Clinton’s economic plan will favor smaller firms.

But traders also cautioned that the latest surge in small stocks is partly the result of “short sellers” rushing to cover their positions.

Short sellers sell borrowed stock, betting the price will drop. If instead the market begins to rally, the shorts’ losses quickly mount--forcing them to buy shares to cover their loans. That adds even more fuel to the rally.

Among blue chips, meanwhile, analysts said that the removal of the uncertainty caused by the presidential election was allowing stocks battered during the campaign to show signs of recovery.

For example, drug stocks led blue chips higher Wednesday. The stocks have been pummeled all year on worries about Clinton’s proposal to cap drug prices. But some investors believe that Clinton’s health care plan will be phased in only gradually, at minor harm to drug companies.

Among the market highlights:

* Rallying drug stocks included Merck, up 2 to 44 7/8; Bristol-Myers, up 2 1/8 to 68 1/2; Abbott Labs, up 1 1/8 to 29 3/8; Lilly, up 1 5/8 to 62 1/4; Pfizer, up 2 3/8 to 77, and Schering-Plough, up 2 3/8 to 64 5/8.

Biotech stocks also jumped. Amgen surged 2 1/8 to 72 7/8, Alza gained 1 1/8 to 40 1/8, Gensia rose 1 to 28 3/4, and Centocor added 5/8 to 15 3/8.

* Retailers rocketed on the heels of strong quarterly earnings reports from some major store chains. Nordstrom led the rally, up 3 1/2 to 35 1/4 on good earnings and an upbeat Christmas forecast.

Other retail gainers included Sears, up 1 1/2 to 43 3/4; May Department Stores, up 2 7/8 to 72 1/2; Dillard, up 1 7/8 to 45 5/8, and Woolworth, up 7/8 to 33 1/2.

But Wal-Mart slipped 5/8 to 62. Despite a healthy earnings report, Prudential Securities downgraded the stock to hold from buy , saying the price has run up too fast in recent weeks.

* Other stocks jumping on earnings news included slot-machine maker International Game Technology, up 1 3/4 to 48, and minicomputer-accessory maker Dataram, which shot up 2 7/8 to 11 1/4.

On the downside, Home Shopping Network plunged 1 3/8 to 4 1/2 after projecting lower earnings for the quarter ended Nov. 30. The firm cited the weak economy.

* Technology issues were mixed. Scientific-Atlanta gained 2 1/4 to 34 after declaring a three-for-two stock split and raising its dividend. Also advancing were IDB Communications, up 1 1/2 to 19 3/4; Micropolis, up 7/8 to 9; Cadence Design, up 1 to 20 7/8, and Computer Sciences, up 1 7/8 to 75 1/4.

But profit takers hit Adobe Systems, which fell 2 3/4 to 34; Borland, down 1 3/4 to 30 1/2, and Motorola, off 1 3/8 to 100.

* NASDAQ issues leading the small-stock surge included video-conferencing firm Picturetel, up 1 3/4 to 25 1/2; System Software, up 3 to 29 1/2; industrial-parts maker BWIP, up 1 1/4 to 27 1/2, and infusion-therapy firm Homedco, which surged 2 1/2 to 28 1/4.

Overseas, shares closed sharply lower in London amid heavy selling in the futures market and uncertainty over the government’s autumn spending statement. The Financial Times 100-share average sank 17.8 points to 2,696.8.

In Frankfurt, the DAX index closed at 1,512.21, down 6.85 points on the day.

In Tokyo, the Nikkei average finished down 118.96 points at 16,318.15.

Credit

The Treasury bond market was closed for the Veterans Day holiday. In light European dealings, however, the 30-year T-bond yield was unchanged at 7.66%.

The Treasury will sell new 30-year bonds today in the final leg of its fourth-quarter bond auction. Sales of new three-year and 10-year notes proceeded smoothly on Monday and Tuesday, offering hope that the 30-year bonds will also be well received.

Currency

Investors were skittish about buying dollars at current rates because they don’t know if the prices are topping out or will later be part of a middle range of prices.

Amy Smith, a currency analyst with the financial consulting firm IDEA, said that “people are uncomfortable buying at these levels. No one wants to buy at the top. They want to buy their dollars a little bit cheaper.”

In New York, the dollar fell to 123.98 Japanese yen from Tuesday’s close of 124.20. The greenback also fell to 1.585 German marks, down from 1.598 marks.

The British pound rose to $1.525 to buy one pound, more expensive than Tuesday’s $1.516.

Commodities

Gold futures rose amid short-covering on New York’s Commodity Exchange, ending a six-day downturn that had pressed prices to their lowest level in nearly seven years. Near-term gold futures closed up $2 at $331.70 an ounce.

Silver also rebounded from a horrendous plunge early in the week. Silver futures added 2.4 cents to $3.67 an ounce.

Meanwhile, corn and soybean futures rebounded on the Chicago Board of Trade after the markets shook off higher production forecasts that forced corn prices to a 4 1/2-year low early in the session.

On the Board of Trade, corn for December delivery rose 2.25 cents to settle at $2.09 a bushel; November soybeans jumped 9.25 cents to $5.59 a bushel; December wheat rose 1.25 cents to $3.66 a bushel, and December oats rose 1.25 cents to $1.38 a bushel.

On the New York Mercantile Exchange, crude oil futures were little changed, and heating oil futures ended mixed. Light, sweet crude oil for December delivery finished unchanged at $20.47 a barrel.

Market Roundup, D8